Shake Shack wasn’t messing around with its new CEO.
The fast-casual burger chain is paying $7.3 million in various signing bonuses and sign-on stock awards to pluck Rob Lynch away from Papa Johns to become only the second chief executive in its history, according to SEC filings.
That’s in addition to the $5 million in various equity awards that Lynch will earn this year, largely based on performance, plus a $1 million base salary. He will also get an $8,000 monthly stipend for travel, housing and commuting expenses.
But that’s what it takes for a brand to lure a chief executive away from an existing CEO job. In some respects, Lynch is taking a step down with the move to Shake Shack.
Papa Johns is the 26th largest restaurant chain in the U.S. and the fourth largest pizza concept. Perhaps more important: It has plenty of growth potential, both domestically and worldwide.
Shake Shack, on the other hand, is the 59th largest restaurant chain in the U.S. It has been one of the fastest growing restaurant chains in the country for years. And it is clearly a high-profile job.
Maybe more to the point, its chairman is Danny Meyer, one of the industry’s most revered figures. And Shake Shack enjoys one of the best quality reputations in the industry.
Lynch has made the most of his five years with Papa Johns. He stepped into one of the most difficult situations in the industry when the former Arby’s president was named CEO in 2019. The brand had come off an ugly sales slump brought on by comments made by its founder, John Schnatter.
While Schnatter was on his way out, the situation was unlike anything we’d seen, given Schnatter’s role as the brand’s singular figurehead. He was its longtime CEO, its chairman, its top shareholder, and he appeared in the chain’s ads and his face was on its pizza boxes. The brand closed 200 locations during that slump, meaning a number of its franchisees were on edge even before the problems began.
Papa Johns’ reputation was so difficult that the brand struggled to find drivers, prompting the company to start using third-party delivery simply to provide enough coverage. That move would prove prescient as third parties now account for 10% of its business.
Lynch leaned into the brand’s quality reputation. He let the company tweak the pizza dough for new uses and quickly launched Papadias, sandwiches that would prove to be a major sales boost. It then came out with a steady succession of higher-end products, which helped Papa Johns largely outperform its competitors during and coming out of the pandemic.
And one of his last tasks was to reach a marketing agreement with franchisees, trading local marketing for more national marketing, that the company believes will lift sales further.
He now brings those talents to Shake Shack. The brand initially struggled coming out of the pandemic, as weakness in central cities and a shift to drive-thru and takeout have proved challenging.
It operates in a burger category that is one of the industry’s most competitive, with a slew of regional and national competitors, from the venerable In-N-Out to the massive McDonald’s.
Fast-casual burger chains in particular face concern about value, as price increases over the past three years have put their prices on par with casual-dining chains like Chili’s.
The privately held Five Guys is fending off near constant questions about its prices on social media. Habit Burger, which is now owned by Yum Brands, slumped badly at the end of 2023, with same-store sales falling 5% in the third and fourth quarters. Its same-store sales have been down or flat in each of the past seven periods.
Shake Shack, for the most part, has avoided those issues and is back to generating sales growth. Same-store sales have increased each of the past 12 quarters, including 2.8% in the fourth quarter last year.
It will now be up to Lynch to take that brand to the next level. Shake Shack is betting millions that he is up to the task.