Urban office workers are coming back, but now Shake Shack is having trouble in the suburbs.
Shake Shacks in urban locations benefited from back-to-office trends after Labor Day, boosting third-quarter sales trends. But the fast-casual burger chain is continuing to face staffing challenges in the suburbs that held back operating hours and throughput potential, the company said Thursday.
Same-store sales grew 6.3% for the Sept. 28-ended quarter, which was driven both by a 2.9% increase in traffic and 3.4% from price increases and menu mix. Including a 3.5% price hike in March, menu prices were up 6% during the quarter. The chain raised prices again in mid-October between 2% to 10% across channels.
At urban locations, like New York City, Boston and Washington, D.C., however, same-store sales were up 11%, and traffic was up 7%, and that’s good news for the brand, which earlier this year expressed concern about the slow return of office workers and their lunch-time burger habits.
The increase in urban sales in September helped drive average weekly sales of $73,000 for the quarter, which outperformed seasonal trends.
“It’s clear that in our hometown in New York and other urban centers, things are improving with more and more people moving optimistic on urban trends long term, as new patterns emerge,” said Shake Shack CEO Randy Garutti, in the earnings call. “I recently visited Shacks on the West Coast, and you can feel the energy, even in downtown San Francisco and the South Bay continuing to emerge.”
But at suburban units, comp sales were up a more modest 2.2%, in part because of staffing challenges.
With 35 company units under construction and another 40 expected to open next year in both urban and suburban locations with a mix of formats, Garutti said, “Now how the heck do we staff these Shacks? This is the hardest thing going on right now.”
Lack of staffing has hampered operating hours and throughput during peak periods, he said.
“We’re not staffed everywhere, all the time, where we want to be,” he said. “Now there are some Shacks out there that I’m incredibly proud [of] day in, day out, that are just crushing it on every aspect of these goals. And there are some that are not, and we need to do better on that.”
So Shake Shack is “putting massive efforts toward staffing and bulking up our teams to be able to handle this,” he said.
Shack Shack is growing its recruiting team and spending more on advertising for recruitment, for example. Average starting wages have increased by more than 20% since 2019, and Garutti said the company would continue to make investments in team members in 2023.
Tipping is now available at nearly all company-operated units, and that has increased wages to more than $20 per hour, he said, which comes on top of generous benefits and career advancement opportunities.
“Our teams are doing really well, making a few dollars more per hour, depending on the Shack and really jumping up their total earnings opportunity to be competitive, and above competitive in a lot of ways,” said Garutti. “So hopefully that will help turn the tide.”
The chain has also been adding self-order kiosks, which are in about half of Shake Shack’s 232 domestic company-owned units, and have helped streamline labor. The chain expects to roll out kiosks to all of those units by the end of 2023.
Guests seem to prefer the kiosks, Garutti said, and they have proven to be the highest margin channel for the brand.
Some units will have five or six kiosks, with only one or two cash registers, which allows the human team members to focus on more value-added tasks, like helping expedite orders or greeting guests.
When asked if Shake Shack would look at adding more automation, however, Garutti said: “I don’t think that’s the best use of our time.”
Revenues were up 17.5% to $227.8 million, though the company narrowed its net loss of $2.3 million, or loss of 5 cents per share, from $2.4 million, or loss of 6 cents per share a year ago.
Garutti said one of the biggest headwinds for the chain has been the continued delays in construction and permitting.
Shake Shack, which has about 400 units systemwide, expects to open 35 to 40 new domestic company-owned units this year, though tracking closer to the lower end of that range because of delays. And about nine to 10 units will have drive-thrus, which Garutti said are a “key step in the evolution of our company.”
Next year, about 40 company units are scheduled to open, including at least 10 to 15 more drive-thru units, along with 25 to 30 licensed locations.
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