Shake Shack CEO says new store designs, digital upgrades are fueling expansion plans

Randy Garutti

Cameron Costa | CNBC

A rendering of Shake Shack’s drive-up window

Source: Aria Group

Shake Shack was one of many first restaurant chains to unveil restaurant designs impressed by habits its prospects adopted throughout this yr’s well being disaster.

In May, it debuted the “Shack Track,” which has drive-up and walk-up home windows that are reserved for choosing up digital orders. The design makes curbside pick-up a everlasting characteristic.

“Ultimately the big picture is, because of [the pandemic], I actually think it catapults us into an opportunity to expand the addressable market for Shake Shack,” CEO Randy Garutti stated in an interview.

Shake Shack gross sales have suffered as the coronavirus pandemic pressured customers to remain at house and cook dinner extra of their meals. But it has additionally created a possibility for the burger chain so as to add extra suburban eating places and speed up its digital plans to reply to how customers order and eat their burgers.

“Now with all of these formats that we’ve been able to accelerate during this time, we think we have an even stronger opportunity to go into suburbs around the country,” Garutti stated.

Investors already like Shake Shack for its progress potential. Shares of the corporate have risen 36% in 2020, regardless of its income falling greater than 17% within the first three quarters of this yr. At $3.38 billion, its market worth dwarfs that of pizza chain Papa John’s, which has 18 instances extra areas worldwide.

Shake Shack, which licenses fewer eating places, is far smaller. At the top of 2019, the corporate had a world restaurant footprint of simply 275 areas, and it operates lower than 200 eating places within the United States itself.

Long-term, the corporate has predicted a home footprint of 450 company-owned areas. But some analysts suppose that forecast is just too conservative. Wedbush analyst Nick Setyan, for instance, wrote in a Nov. 20 word to shoppers that the chance could possibly be as excessive as 700 U.S. eating places by the top of the last decade.

This yr, Shake Shack is planning on opening 18 to 20 new home eating places, half of its pre-crisis forecast. Next yr, it is planning so as to add between 35 to 40 areas to its roster of U.S. company-owned eating places, a lot of which can characteristic its new designs or a drive-thru lane.

The majority of these new eating places might be in markets the place the chain already has a foothold, like Florida and Texas.

Randy Garutti

Cameron Costa | CNBC

Shake Shack will nonetheless be wanting so as to add a mixture of city and suburban eating places, even though demand for its Shack Burgers and milkshakes stays considerably decrease in cities, he stated. In its hometown of New York City, same-store gross sales plunged 49% in its third quarter. Still, Garutti stated that the corporate believes that cities scuffling with the consequences of the pandemic — like New York and London — will ultimately see prospects return.

The new restaurant designs might be rolling out first within the U.S. however will ultimately make their manner abroad, with some tweaks based mostly on native client habits, Garutti stated.

The firm can also be planning on following the instance of numerous different burger chains by including drive-thru lanes to its enterprise mannequin. Shake Shack plans to open eight eating places with the characteristic over the subsequent two years, with its first drive-thru location opening early subsequent yr.

In the close to time period, Shake Shack is concentrated on boosting its digital presence, together with including extra capabilities to its cellular app. Garutti stated prospects will quickly be capable of order supply by means of its personal app — slightly than these of Doordash or Grubhub — within the subsequent month or so.

Another a part of Shake Shack’s digital push was its choice to be part of Goldbelly’s nationwide e-commerce web site in March. Garutti stated that its Goldbelly prospects are a combination of people that already know the burger chain and newcomers, like those that stay too distant from a Shake Shack restaurant. Among Goldbelly’s traders is restaurateur Danny Meyer, who based Shake Shack in 2004.

For now, Goldbelly sells packs of Shake Shack’s greatest recognized burgers, however the firm will consider its use down the road. Garutti stated it is attainable it may use the platform to check new merchandise.

The pandemic has dealth a heavy blow to Shake Shack’s airport restaurant enterprise, which is essential to introducing fliers from everywhere in the world to its meals and milkshakes. Half of its airport areas have not even opened but, and its restaurant inside Los Angeles International Airport completely shuttered due to the dramatic discount in its enterprise.

“As flights return and air traffic returns, there will be more opportunities for us to keep growing and to get reopen. But I think we’re a ways away from that,” Garutti stated. “I believe airports will come back in a big way, it’s just a matter of when.”

Growing worldwide presence

By the top of final yr, Shake Shack had practically 100 eating places abroad, comprising practically a 3rd of its complete footprint.

It opened its first restaurant exterior of the U.S. earlier than it even had 10 areas inside its house market, following a really totally different expansion technique than most eating places. For instance, Chipotle Mexican Grill has greater than 2,500 eating places within the U.S. however solely 29 worldwide areas.

A powerful worldwide presence has helped unfold model consciousness for Shack Shack’s burgers and milkshakes. According to Garutti, a location in Beijing that opened a couple of month in the past is without doubt one of the busiest Shake Shack eating places.

International areas additionally give Shake Shack the prospect to discover developments, though the corporate usually prefers to check new meals objects or operations within the U.S.

In London, Shake Shack has been experimenting with ghost kitchens, which permit eating places to arrange meals just for supply, slightly than eating in. Restaurant corporations starting from Red Lobster to Wendy’s have been testing the idea to see if it boosts their supply gross sales and improves revenue margins. But Garutti stated that the corporate has no plans to open any within the U.S. right now.

“At the moment, we’re not focused on just bringing you food. We want to do it in the Shack Shack way,” he stated.

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