Chipotle shares rally after burrito chain taps Taco Bell CEO to be its new chief

Key Points
  • Chipotle Mexican Grill said Tuesday that it is tapping Taco Bell CEO Brian Niccol as its new CEO.
  • Niccol was responsible for repositioning Taco Bell as a lifestyle brand and launching the chain's breakfast offerings.
  • Current CEO and founder Steve Ells will remain with the company as executive chairman
  • Ells plans to oversee innovation now that a new CEO has been selected.
Taco Bell CEO Brian Niccol to become next Chipotle CEO, reports Dow Jones

Shares of Chipotle Mexican Grill skyrocketed as much as 12 percent after the bell on Tuesday after the burrito company said it was tapping Taco Bell CEO Brian Niccol as its new chief executive.

"Brian is a proven world-class executive, who will bring fresh energy and leadership to drive excellence across every aspect of our business," current CEO and founder Steve Ells said in a statement. "His expertise in digital technologies, restaurant operations and branding make him a perfect fit for Chipotle as we seek to enhance our customer experience, drive sales growth and make our brand more relevant."

Niccol joined Taco Bell in 2011 and served as president of the brand from 2013 to 2014 before taking the helm as CEO in Jan. 2015. Niccol was responsible for repositioning Taco Bell as a lifestyle brand and launching the chain's breakfast offerings.

"Today's Gen Z and millennial generations consider restaurants a lifestyle choice," Darren Tristano, a restaurant industry trend expert, told CNBC via email. "These younger consumers are looking for a connection to brands. While Chipotle's quality position has been challenged through food safety issues, Taco Bell continues to provide value and innovation."

No doubt, the company hopes to win back some of the millennial customers Chipotle lost to Taco Bell.

In addition, Niccol will bring his experience with digital innovation, having introduced mobile ordering and payment across Taco Bell's 7,000 locations in the U.S.

"In addition, Yum's investment in GrubHub and early work with companies like DoorDash shows that he understands where incremental growth is coming from today, with delivery being the cornerstone for big opportunities over the several years and something that could benefit Chipotle," David Henkes, principal at Technomic, told CNBC via email.

Prior to working at Taco Bell, Niccol held leadership positions at Pizza Hut, another Yum Brand company.

Shares of Yum Brands remained unchanged after the bell.

In a statement, Niccol said he wanted Chipotle to provide a "consistently great" customer experience.

"I will also focus on dialing up Chipotle's cultural relevance through innovation in menu and digital communications," he said. "This will attract customers, return the brand to growth, deliver value for shareholders and create opportunities for employees."

The two brands currently conjure up starkly different images. Chipotle has cultivated an image of a brand that is obsessed with using high-quality ingredients and has been slow to innovate. Taco Bell, however, is known for its quirky, limited-time only menu items that include the Naked Chicken Chalupa, which features a taco shell made out of fried chicken.

"Taco Bell's sales were up 5 percent last year, growing nearly $500 million, and Niccol's been instrumental in looking at new avenues for growth – like breakfast – and has overseen the chain's menu innovation activities, which have really helped drive traffic and sales growth," Henkes said.

Niccol could help Chipotle into delve into breakfast, late night, delivery and menu innovation.

Neil Saunders, managing partner at GlobalData, expects Niccol to bring both operational discipline and fresh thinking to Chipotle at a time when it needs it most.

"Investors will be relieved to have stability at the top and, all being well, this should usher in a less dramatic period for the company," he said.

But, that's no easy task. Chipotle has struggled of late to win customers back after reports of a norovirus outbreak at its Sterling, Virginia, restaurant circulated in July, once again dinging the chain's reputation. The company has faced numerous foodborne illness outbreaks since 2015.

Last week, Chipotle was hit with a slew of downgrades from stock analysts, who felt the company's latest earnings were more evidence that the chain wasn't making headway in bringing back diners.

Menu price hikes helped bolster Chipotle's sales in the fourth quarter, despite slowing foot traffic. The company said last Tuesday it expects traffic will continue to decline through the middle of the year.

"The new CEO inherits a mass of problems," Saunders said. "Mr. Niccol has a mountain to climb and his appointment will not automatically solve all of the company's issues. However, it is a good first step on the journey to recovery."

Ells will remain with the company as executive chairman and plans to oversee innovation now that a new CEO has been selected. However, some analysts have worried that Ells will not be able to distance himself from the post and will cause conflict with any incoming CEO.

Ells founded the restaurant chain in 1993, and has since played multiple roles, serving as co-CEO at one point. In 2009, he shared the role with Monty Moran. Last year, he became the sole CEO of Chipotle once again.