We’ve all seen it before: The owner of a home in dire need of structural repair decides to “flip” the house for a quick profit by contracting a restoration service. Instead of making sorely needed foundational repairs, the cleanup crew instead focuses on superficial fixes like painting, tiling, flooring, etc., in hopes that a shiny new veneer will hide the problems that still exist beneath the home’s exterior.
In many cases, such efforts succeed in attracting interested buyers, allowing the original owners to see a nice return on their investment, making it a worthwhile venture—even if it’s somewhat shady. But in the near term, at least, the seller gets the money he wants, the new owners get the desired house and the cleanup crew also makes out in a mutually beneficial relationship…at least until the structural damage becomes apparent down the line.
Crude though the analogy may be, I think it’s an apt description of what we sometimes encounter as turnaround investors. More often than perhaps we like to admit, a formal turnaround initiative involving an ailing company is focused on superficial repair, or “cleanup,” rather than on structural changes that need to be made in order to ensure the company’s long-term viability. And I suspect this phenomenon is a result of today’s increased focus on shareholder returns over customer service.
The fast-food industry offers several examples of this practice in action. Notably, three such restaurants have undergone turnarounds in recent years: Taco Bell (Yum! Brands, YUM), Chipotle Mexican Grill (CMG) and Starbucks (SBUX). All three restaurants suffered varying degrees of weakness, necessitating a turnaround effort. The turnaround for each of them was led by Brian Niccol.
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Mr. Niccol is renowned for his ability to revive the fortunes of tarnished food establishments, with an enviable track record to back it up. The turnarounds of Taco Bell and Chipotle under Niccol’s guidance were widely hailed as successes, and while Starbucks’ turnaround is still ongoing under his leadership, the early results appear favorable.
But in all three cases—and to varying degrees—Niccol utilized a price-hike strategy to restore profitability. This is not to denigrate his expertise as a turnaround specialist, nor is it meant to oversimplify his strategies, for they certainly were more complex than merely raising menu prices in order to improve margins.
My point is that price hikes are a common thread in all too many strategic initiatives. And while they often do succeed in restoring profitability in the near term, in a long-term environment of rising inflation and resultant consumer price sensitivity, one can argue that this strategy eventually proves counterproductive.
During his six-year tenure as Chipotle’s CEO, Niccol’s strategy involved improving food preparation and service times, expanding the store’s digital ordering capabilities and expanding its physical footprint. At the same time, Niccol oversaw multiple menu item price hikes between the years 2021 and 2024, in part due to the rising inflationary tide of those years, but also as a means of increasing profit margins.
And while Chipotle under Niccol’s management denied that its food portion sizes were shrinking, there is substantial evidence that many customers perceived a reduction in portion sizes, particularly during the years 2023 and 2024. This perception—true or not—threatened to undermine some of the customer goodwill Niccol spent years trying to regain for Chipotle.
That said, by the time he left the company in 2024, Chipotle’s turnaround was widely hailed as a success. Yet in the two years since his departure as CEO, Chipotle’s fortunes appear to have taken a turn for the worse as inflation bites deeper into the pocketbooks of the middle-income segment of its customer base. The stock price is down nearly 40% on a 12-month basis as continued menu price increases isolate ever more of its diners, even as profit margins remain under pressure.
More recently, under his leadership of Starbucks’ turnaround, Niccol’s strategy has revolved around restoring the company’s traditional “third place” (or home away from home) vibe, with an additional focus on improving service times, simplifying operations, improving hospitality and strengthening the company’s Starbucks Rewards customer loyalty program.
However, menu prices have been steadily—some would say dramatically—increasing under his tenure, in part due to inflation but also undoubtedly to Niccol’s desire to improve the firm’s margins. Doing so has come at the expense of squeezing out the middle-income portion of Starbucks’ traditional clientele.
To counter this loss, Niccol has placed growing emphasis on what he styles as the company’s “little touch of luxury” or “affordable premium” image. This answers to Starbucks’ increasing reliance on its more affluent, i.e., upper-middle-class, customer base. For now, that strategy appears to be working for Starbucks as the firm is seeing higher foot traffic numbers this year and improving profits versus the weaker trends it experienced in 2024-2025.
However, I would argue that at some point in the not-too-distant future, as inflation becomes ever more onerous, the focus on “cleanup” (chiefly in the form of enhancing the customer experience) instead of on structural repair (mainly by keeping prices low for customers) will come back to bite Starbucks, much as it’s already hurting Chipotle.
Taco Bell, meanwhile, is the unquestioned winner among the three turnaround cases mentioned here. While Niccol increased menu prices during his CEO tenure at that restaurant, Taco Bell has since placed a major focus on value, lowering prices whenever possible and offering multiple value items—including a new Luxe Value Menu with 10 items priced at $3 or less—at a time when its middle-income customer base sorely needs a price break. Consequently, the firm maintains a leadership position in the U.S. fast-food category, with several quarters of 7-to-8% same-store sales growth in recent quarters, allowing it to gain market share versus other fast-food chains.
The lesson here is obvious: Focusing on the customer’s financial position in a secular inflation environment is a requisite strategy for maintaining a business’s structural strength, especially in a price-sensitive industry like food services. By contrast, focusing on superficial improvements at the expense of structural repair, while it may boost profits in the near term, is a recipe for eventual failure.
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