Shake Shack is hoping premium menu add-ons, like black truffles, can help it boost check averages even as margins get squeezed by high labor and food costs.
“It’s a new strategy,” CEO Randy Garutti said this week at the Barclays Eat, Sleep, Play investor conference, according to a transcript from financial services site Sentieo. “At this moment, it’s a really good one.”
Upselling adds to the fast casual’s premium cachet without driving away more value-minded consumers, Garutti said. It’s one way Shake Shack is trying to keep average unit volumes high while margins get squeezed by higher labor and food costs.
Shake Shack is currently running a Black Truffle burger and Parmesan Black Truffle Fries which started as an app-only offering before being rolled out in-store. The burger is gilded with black truffle oil, crispy shallots and Gruyere cheese.
“We’re charging $8.99 for that, for the Black Truffle Burger in our core urban markets, and we’re really learning a lot about our ability to kind of pass on a really premium, elevated product to our guests,” Garutti told analysts last month when reporting the chain’s Q3 earnings.
Shake Shack’s third-quarter margins were 15.8%, down from 19.2% just a quarter before, thanks to skyrocketing beef prices and rising labor costs. The chain said it expects margins to be between 14% and 16% for the fourth quarter.
The chain has raised prices more than 3% in recent months.
Leaning on the high-end items allows Shake Shack to shield its core menu items from aggressive price inflation, he noted at the Barclays conference.
Plus, adding premium foods such as black truffles, cherry peppers, fried shallots and avocado cements Shake Shack’s position as an elevated limited-service concept, CFO Katherine Fogertey said.
“It’s all of these different upsell items, which the guest walks away, hopefully, with feeling like they had a great experience,” Fogertey said, according to the Sentieo transcript. “They got exactly what they wanted, just a little bit of a premium touch for us to help offset some of the higher cost pressures here, but it’s not just a blunt force price across the entire system … We want to be more mindful about price and not just roll out a very aggressive price across all markets, especially ones where we’re still looking to establish and grow our brand awareness of who we are.”
Shake Shack is scheduled to open its first drive-thru next week in Maple Grove, Minn., encroaching on the territory of fast-food chains as it seeks to provide the convenience consumers came to depend on during the pandemic.
The drive-thru will feature a digital menu board, dual-lane ordering and a separate pickup window, as well as a dedicated kitchen for drive-thru orders.
But, with its premium ingredients and pricing, there’s little chance Shake Shack will blur the lines with quick-service burger chains, Garutti said.
“We don’t want to try to ever compete with fast food or that type of pricing,” he said. “We’re never going to win on that. That’s not who we are … But I think the idea continues that our guests generally are willing to pay more for a better experience and willing to pay more for the things in their life that give them value.”
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