Would Starbucks buy Chipotle? Maybe, at least according to one report.
The Financial Times on Thursday reported that the coffee shop giant worked with advisors on a takeover proposal for the fast-casual burrito chain. The publication described it as “early-stage plans” and warned that the deal “might never get off the ground” given its complexity.
And the deal would be complex. A Chipotle acquisition would be the biggest restaurant deal in history, by far.
Chipotle has a $39 billion valuation. Starbucks would likely have to pay a substantial premium to buy the chain. That easily eclipses the $11.4 billion purchase of Tim Hortons by Burger King in 2014. When adjusted for inflation, that deal’s valuation is more in the neighborhood of $16 billion.
The FT report sent Chipotle’s shares soaring more than 7%. Starbucks’ investors were less convinced. Its shares fell 5%.
“As a matter of policy, we don’t comment on rumors and speculation,” a Starbucks spokesperson said on Thursday. “Our team is laser-focused on executing our ‘Back to Starbucks’ strategy. We have strong momentum and confidence in our long-term growth potential. We look forward to sharing our Q4 results, including FY27 guidance, later this month.”
The common thread between the two chains is Brian Niccol, who left Chipotle two years ago to take the helm at Starbucks. Since then, the coffee shop chain’s stock has risen 21.5% through closing on Wednesday.
Chipotle has gone in the other direction, however, with its shares down 45% through Wednesday.
The fast-casual burrito chain’s same-store sales over that period has slowed. Same-store sales have been no higher than 2.2% in each of the past six periods, half of which were negative.
Its weak share price has led to frustration among investors and some expectation that the company could attract activist investor pressure, particularly if things didn’t turn around quickly.
Niccol helped turn the brand around after his arrival from Taco Bell in 2018, and his potential return as a buyer could be viewed as a positive for the chain.
The benefits are less clear for Starbucks, or even a combined company. “The strategic rationale for [Starbucks] acquiring [Chipotle] isn’t apparent to us given limited overlap between the businesses,” Logan Reich, analyst with RBC, said in a note.
The two brands have different supply chains. Swallowing Chipotle would also cost Starbucks a lot of money, likely in the form of debt. Sharon Zackfia, analyst with William Blair, speculated that a sale of Starbucks Japan could help the coffee shop chain pay for the burrito brand.
She also noted that such a deal could signal “that management has less confidence in Starbucks’ future growth prospects.”
It would also come just as Starbucks shows some real momentum following two years of sales weakness. Same-store sales at the chain have improved in each of the past four quarters in the U.S., including 7.9% last quarter.
The company overhauled management and restructured its business, closed locations, added workers to its coffee shops, started remodeling stores and upgraded the technology to reduce backups. All of that contributed to sales and traffic improvement under Niccol’s “Back to Starbucks” plan.
But the company also demonstrated that it has more work to do after it just closed another 250 coffee shops.
UPDATE: This story has been updated to add a comment from Starbucks.
