Rob Lynch doesn’t want Shake Shack to be an option limited to “only the highest-income burger eaters.”
In his first earnings call with Wall Street analysts on Thursday, Shake Shack’s new CEO outlined his plan to take the fast-casual chain into its next stage of growth. Lynch, the former CEO of Papa Johns, said Shake Shack needs to get faster, and to appeal more broadly to consumers who might perceive the premium brand as a special occasion meal.
“I don’t want to be a special occasion,” Lynch said. “I want to be something that is a Friday night staple for the family, that is an after-work stop on the way home. And in order for those things to happen, we got to work on our speed of service, and we got to work on our value perception.”
And, Lynch argued, the 547-unit chain needs more drive thrus.
Saying he has already become “the biggest drive-thru pusher” at corporate headquarters in New York, Lynch noted that only about 30 to 35 locations currently have drive thrus. The concept is perceived as a primarily walk-in brand in urban cities like New York, San Francisco and Chicago, capturing traffic with guests walking by.
“Our service times are still kind of in that range where we have been in the early days, where we were kind of a New York brand, and people would wait a long time,” he said. “We have to get faster.”
Lynch, however, envisions a brand that can move into every market across the globe and “on the sides of highways with drive thrus."
But that will require making changes to operations to move away from a “fine-dining” setup with stations that work “almost like a symphony,” he said, coming together “in a beautiful crescendo at the expo line”—perhaps referencing the brand’s beginnings, founded by famed restaurateur Danny Meyer.
Lynch sees the need for a more streamlined assembly line model, without losing the emphasis on quality ingredients, because the customer who pulls into a drive thru in Kansas City is not going to have the same appetite for waiting for food, as they might in New York’s Madison Square Park, he said.
Shack Shack in June hired Stephanie Sentell, a former senior vice president with Inspire Brands, as chief operating officer, a move that was effective July 1. Lynch said Sentell will be laser focused on improving the chain’s operations.
For the June 26-ended second quarter, Shake Shack grew same-store sales 4%, but that was largely a result of pricing and guests choosing higher-priced options on the menu. Traffic for the quarter was down 0.8%, but turned positive in July.
Systemwide sales grew 13.5% to $483.7 million. Net income for the quarter increased to $10.4 million, compared with $7.2 million a year ago. And restaurant-level margins grew by 100 basis points to 22%, the highest since 2019, the company said. For the year, the company is projecting margins between 20.6% and 21%.
Lynch said promotions during the quarter, like the focus on Shake Shack’s antibiotic-free chicken in April and another featuring BBQ-themed burgers, helped build momentum. He credited the team with keeping restaurants thriving despite the proliferation of $5 value meals and discounting by competitors in the QSR space.
“In this environment, many believe Shake Shack’s premium position is a liability,” he said. “But, to the contrary, I believe it is truly one of our strengths.”
Shake Shack has so far struck the right balance between product innovation, pricing to mitigate inflation, technology implementation and strategic promotions, he said. And that model will continue.
But the chain has much room to improve brand awareness, and Lynch plans to invest more heavily in marketing, with a strategy that will dive more deeply into identifying who the target audience is, what might influence their behavior, and how best to reach them.
A loyalty program that’s about “more than discounts” is another lever to pull to drive traffic, he said. That’s something he saw the power of at Papa Johns, where he led the growth in loyalty customers from about 12 million to 30 million before he left earlier this year.
A key focus at Shake Shack will be driving frequency.
Lynch spent time making burgers in Shake Shack units, including a new opening in his hometown of Pittsburgh “where a lot of hard-working, blue collar people” were in line. Shake Shack has no problem getting people to come in and try the food, he said.
The challenge—and opportunity—is mitigating barriers that keep them from coming back more frequently. And those barriers are speed of service and the value perception, he said.
“We’re working on both of those things,” said Lynch. “We’re not going to degrade the quality of the experience. We’re not going to degrade the quality of our products. But I do think there are opportunities for us to evolve the menu strategy, evolve our LTO strategy, evolve the way we approach how we position things across our revenue model and our menu to drive a better value perception.”
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