Shake Shack’s French Onion burgers didn’t perform as expected. So the brand pivoted promotions to in-app value deals. | Photo courtesy of Shake Shack.
Now is the time for Shake Shack to steal market share.
So said the fast-casual chain’s CEO Rob Lynch after reporting segment-defying third-quarter results on Thursday.
Shake Shack saw same-store sales up 4.9% in the third quarter, including positive traffic of 1.3%. Total revenue grew nearly 16% year-over-year to $367.4 million.
While other fast-casual brands bemoaned the challenging economy and its dampening effect on traffic in the third quarter, Shake Shack touted the success of operational improvements, menu innovation and margin growth, despite rising beef costs.
That’s not to say it was all roses.
Lynch said trends dampened in October—though sales remained positive—as headwinds intensified and the brand lapped its most iconic limited-time offer in history, the Black Truffle Burger.
The chain also has seen traffic declines in New York City and Washington, D.C., markets that represent about a quarter of Shake Shack’s sales and have struggled with declines in tourism and the government shutdown.
Meanwhile, Shake Shack’s most recently promoted French Onion Burger did not generate the traffic or check that was expected, Lynch said. So the brand pivoted to promote value offers available only through the app, like $1 drinks, $3 fries and $5 classic shakes.
As a result, over the last week, Lynch said in-app traffic was up 85%, and overall traffic grew 4%. Going forward, Lynch said Shake Shack is going to be leveraging the app more to communicate value. The chain is also working on a loyalty program, coming next year.
“There’s obviously a push to value in this industry,” said Lynch. “It’s pretty broadly understood that there’s definitely some pressure on the lower-income consumers. And I think there’s also been some commentary about the unemployment rates of younger populations as well, which obviously impacts our industry. But we have taken those challenges and incorporated them into our strategy.”
Leveraging the app for deals allows Shake Shack to promote its premium products while showing “empathy to guests during some challenging times,” Lynch said.
But he is refusing to “blame macros,” he said. “When there’s a challenging environment, that’s the time when great companies get better.”
The macro challenges are “out there. We’ll acknowledge them. It’d be naïve not to do so,” he added. “But we’re building plans to address them.”
Shake Shack’s investments in operational improvements, for example, have dropped service speeds to 5 minutes and 50 seconds, compared with about 7 minutes in 2023, he said.
The chain earlier this year adopted a new labor model that is activity-based, rather than sales-based, and nearly all restaurants met or beat labor targets in the third quarter. In addition, team member retention has improved. So has throughput across all dayparts.
And the stepped-up cadence of menu innovation is paying off.
Shake Shack’s hugely popular Dubai Chocolate Shake was “highly incremental,” Lynch said, “and drove a positive impact on all key brand measures, with the largest brand perception gains on ingredient, quality and innovation.”
Now Lynch is determined to own shake innovation.
The chain has a new lineup of “crackable shakes” coming, a trend (like Dubai Chocolate) showing up on social media platforms, promising to be interactive, visual and (no doubt) tasty.
Shake Shack is also testing new equipment to improve its crinkle-cut fries, what Lynch calls the “crown jewel of the sides platform,” making them crisper, hotter, more consistently seasoned, and to hold them better.
Other menu additions coming include a French Dip Angus Steak Sandwich, and a Baby Back Rib Sandwich, the latter likely a pork option that will help the chain mitigate rising beef costs. And Lynch hinted that truffles would also make a comeback, as will Korean flavors.
Rising beef prices are a growing concern across the industry, and Lynch is expecting to see inflation in the mid-teens for the second half of this year. But he said the chain is working to mitigate those costs by diversifying suppliers—though menu prices did increase about 2% during the third quarter to address those costs.
Shake Shack has also been preparing to launch a new advertising and paid media campaign. The brand hired a new creative agency and Lynch said ads will start running later this quarter and through next year.
And the 630-unit chain is accelerating growth as it continues to push toward a goal of 1,500 restaurants. Next year, Shake Shack expects to open at least 55 to 60 company units and 40-45 licensed units. That’s up from the 45 to 50 company and 35 to 40 licensed restaurants expected this year.
For the year, Shake Shack is projecting same-store sales will increase in the low-single digits.
“The quarterly results show that we are focused on the right strategic priorities moving forward, despite the macro challenges,” Lynch said. “We have a long way to go to realize our full potential, but the progress is certainly heartening and will allow us the opportunity to continue to gain share against a challenging industry backdrop.”
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