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This week’s 5 head-spinning revelations: How Danny Meyer makes Shake Shack hum

Let’s choke down the bitter pill right away: A privately owned chain with $5.4 million in profits is about to sell 45 percent of itself to the public for at least $80 million, and that chain sadly isn’t yours. Unless your name is Danny Meyer.

Meyer and his business partners filed documents this week for the initial public offering of Shake Shack Inc., the collection of “modern roadside burger stands,” in their words, that will define an industry segment they call fine casual.

The weekly harvesting of tidbits for this space is normally a sampling of life as a bobble-head doll because the developments come from different places and directions. Necks were given respite this time, because every page of Meyer and company’s documents seemed to incorporate a jaw-dropper. 

Particularly arresting were the indications of what’s different about Shack Shake, and how the team intends to keep it that way. Here’s a sampler.

1. Volumes typical of a fine-dining hotspot

Shake Shacks in the concept’s hometown of New York City average $7.4 million in annual sales per restaurant, and units elsewhere typically pump $3.8 million into the till, for a mean across all 63 restaurants of $5 million. The management team says that average will drop because more units will be developed outside the Big Apple, but there’s plenty of cushion.

2. Hiring for heart and head

“We believe the culture of our team is the single most important factor in our success,” Shake Shack says amid the lawyer-eze of its securities documents. It cites six traits that anoint a candidate as an ideal hire: warmth, friendliness, motivation, concern, self-awareness and intellectual curiosity. The best among the prospects are what the company calls “51-percenters,” or people who will rely more (i.e. 51 percent) on emotion rather than on flawless but robotic execution of tasks.

3. Independents' sensibilities, chain-minded controls

The CEO of Shake Shack is Randy Garutti, a veteran of fine dining. Meyer, Shake Shack’s founder, is the renowned operator of fine-dining places like Gramercy Tavern and Union Square Cafe  (the precursor of Shake Shack was a hot-dog stand he opened across the street from his Eleven Madison Park restaurant to help a local park). Shake Shack indicated in the documents that it constantly reviews its ingredients to raise the quality and to bolster the sustainability of suppliers. Clearly this is a concept with fine dining in its DNA, even if the menu consists of burgers, hot dogs, crinkle-cut fries and frozen custard.

Yet a Shake Shack costs as little as $1.5 million to build, with an average construction cost of $1.9 million. Food costs for the first 39 weeks of 2014 amounted to 30.7 percent of sales, reflecting price levels closer to fast casual than to fine dining. Labor costs were held at 26.1 percent of sales despite the emphasis on service. Shake Shack estimates that operating margins going forward will fall between 18 percent and 22 percent.

4. A noticeable lack of unbridled greed

The first full-fledged Shake Shack was so busy that Meyer installed a cam (the Shake Cam) so would-be patrons could remotely monitor the length of the line and manage their anticipation. Yet he and the team waited five years until they opened the second unit so they could be confident of having the right systems in place.

Similarly, the team projects the U.S. market has room for 450 Shacks, not 10 times that number, which wouldn’t be an unusual stated goal for many upstart chains. The securities filing also was noticeably free of vows to become the next McDonald’s or Starbucks. 

5. Flashes of innovation despite the concept’s retro vibe

The Shake Cam is one example. The stock-offering documents provided another, a way of mustering anticipation for a new store without laying out big dollars. When a unit is being built, Shake Shack often will inject some pre-opening whimsy into the construction site. The plywood barriers cordoning off the chain’s first location in Chicago, for instance, was turned into a giant puzzle before the grand opening. Bypassers were encouraged to stop and slide the plywood tiles around to form depictions of Shake Shack signatures like burgers and hot dogs.

The team also strives to bring creativity to the real estate, brainstorming what design and format will fit the space and complement the location. A new location has to be consistent both with the neighborhood and the rest of the chain.

If you doubt that Shake Shack is a different animal, take a look at its filings and then take a peek at what other chains submitted before offering stock for the first time. The very language suggests this is a brand that is coming at the market different. What other venture would dare call its comps “same Shack sales”?

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