From its humble beginnings as a hot dog cart in Madison Square Park to its current status as a global powerhouse with 500 locations worldwide, Shake Shack’s growth is a fascinating journey of culinary innovation and strategic expansion. As the aroma of their mouthwatering burgers and signature crinkle-cut fries continues to captivate taste buds globally, Shake Shack’s success story is more than just about serving delicious food; it’s a tale of adaptability, resilience, and a keen understanding of market dynamics.
In this blog post, we will delve into the secrets behind Shake Shack’s growth, examining the brand’s ability to stay ahead in a fiercely competitive industry and how it continues to learn and evolve, keeping its offerings fresh and its fanbase ever-expanding.
Shake Shack’s Growth: How it Keeps Learning and Expanding With 500 Locations Strong
In the ever-evolving landscape of fast-casual dining, Shake Shack has not only weathered storms but has emerged stronger, recently celebrating the opening of its 500th restaurant globally. The journey began 19 years ago when a Michelin-starred restaurateur introduced a humble hot dog cart intending to benefit New York City’s Madison Square Park. Since then, Shake Shack has transformed from a local hotspot to a global phenomenon, and the last few years have been particularly transformative.
The impact of the COVID-19 pandemic was a pivotal moment for Shake Shack. In the opening weeks, U.S. sales plummeted by as much as 90 percent, with an average downturn of 70 percent, aligning more closely with full-service peers than quick-service establishments. March 2020 marked a turning point when digital sales comprised 23 percent of the business. The absence of drive-thrus and direct delivery underscored Shake Shack’s reliance on its in-store experience.
However, the brand swiftly adapted, witnessing a seismic shift from no digital sales pre-virus to nearly 30 percent of its operation today. The resilience displayed during these challenging times is a testament to Shake Shack’s commitment to innovation and meeting the evolving needs of its customers. Shake Shack continued its expansion during the third quarter, opening 10 corporate and 15 licensed locations. The brand is on track to debut approximately 80 stores systemwide, reflecting an 18 percent unit growth. Notably, about 40 percent of the fast-casual giant’s sales now stem from licensed operations, boasting an impressive portfolio of 215 licensed locations.
CEO Randy Garutti outlined the brand’s future trajectory during Shake Shack’s Q3 call. The 500th restaurant milestone, spanning 33 states and 18 countries, has doubled in the last four years. Q3 revenue witnessed a robust 21 percent growth to $276 million and a 2.3 percent same-store sales growth. In-store sales rose 9 percent year-over-year, with kiosks accounting for more than half of the in-store business and experiencing a remarkable 140 percent growth versus Q3 2022.
Kiosks have been a game-changer for Shake Shack, providing the highest-margin channel for the company. BTIG analyst Peter Saleh noted that kiosks now contribute 50 percent of in-store sales, up from 30–35 percent just a few quarters ago. Despite this success, Shake Shack has observed declining sales from delivery, web, and app channels as in-restaurant sales return. This dynamic; however, hasn’t dampened the overall positive impact of kiosks on the brand’s margins.
A critical element of Shake Shack’s future success is its commitment to profitability. Margins rose to an impressive 20.4 percent, with a store-level operating profit of $54 million, marking the second consecutive quarter above 20 percent. Q3 adjusted EBITDA grew by nearly $16 million to $36 million, a staggering 80 percent increase compared to the prior-year period.
Looking ahead, Garutti outlined Shake Shack’s strategy to deepen its presence in existing markets with both proven and new formats while exploring fresh market entries. The brand’s foray into drive-thrus, with 21 currently in operation, has proven successful but needs more consistency, speed, and throughput. These areas will be the focus of designs and operational improvements through 2024.
In addition to drive-thrus, Shake Shack is exploring diverse formats, including four “roadside” locations brought to market by licensees in Q3. These locations, off highways and away from traditional food courts, offer a unique experience that aligns with Shake Shack’s commitment to providing an elevated dining experience.
Shake Shack is deploying capital strategically to sustain growth and address the challenges of an ever-changing industry. The brand is committed to reducing build costs by 10 percent in the coming year and pre-opening costs. This cost reduction will be achieved through innovative format choices and designs. Shake Shack acknowledges the importance of adapting to inflationary pressures and supply chain challenges, expressing optimism that these pressures will ease in the coming years.
The focus on streamlining operations extends to labor management, where Shake Shack has seen notable success. The brand has achieved some of the best turnover and retention numbers, generating over twice the employee-applicant flow compared to the previous year. With kiosks reshaping dining rooms, Shake Shack continues to leverage new strategies, including improved forecasting and scheduling, to enhance efficiency on the line. As Shake Shack navigates its growth journey, the brand remains committed to delivering on its promise of premium ingredients and hospitality. The two-front approach involves building the “Shack of the Future” by reducing costs and aligning with the best longer-term kitchen design.
Throughput and speed have become top priorities, ensuring a consistent and reliable experience for Shake Shack guests. In conclusion, Shake Shack’s growth story is one of resilience, adaptability, and continuous innovation. As the brand continues to refine its model, expand its footprint, and embrace new formats, the future looks promising for Shake Shack and its dedicated fan base worldwide.
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