Shake Shack’s CEO trumpeted the chain’s growth plans during a recent call with analysts. But Randy Garutti tempered that excitement a bit, warning of the increasing costs of lumber and steel and other building materials.
“That costs real money,” Garutti said.
Indeed.
Lumber prices are currently just over $1,607 per 1,000 board feet—more than twice what they were at the beginning of the year. Steel and iron prices are also at record levels and climbing, according to Federal Reserve Economic data.
Rachael Grochowski, founder and principal of RHG Architecture and Design in Montclair, N.J., said she has never seen the price of construction materials so high in her 22 years in the industry.
“Occasionally, you would get a shortage of something, like steel,” Grochowski said. “I’ve never seen it to this degree.”
She said she first noticed increases in the prices of wood, followed by glass, fabric and more. And many items are nearly impossible to find, even at higher prices, she said.
“The supply chain is almost catastrophic, quite frankly,” she said. “There’s almost nothing that’s not affected by it.”
It typically takes 12 weeks for orders of windows and doors to come in, for example. Those same items are now taking twice as long, nearly six months, to receive, she said.
Golden Corral franchisee Eric Holm, who operates 33 of the buffet restaurants, said recently that he had been slow to get furniture for the remodels of his stores.
“When you order 8,000 chairs, you have to wait a bit,” Holm said.
Thomas Jepsen, a North Carolina-based home builder, said a massive beetle infestation in Canada, where much of this country’s lumber comes from, is impacting supply.
“It’s destroying heaps and heaps of forests,” Jepsen said, adding that some lumber production has slowed because of COVID outbreaks at plants.
Plus, with more people at home during the pandemic, that means greater interest in home improvement projects, he said.
“These are unprecedented times,” Jepsen said. “I can’t say I feel optimistic in the near term about building materials.”
Shake Shack will be watching building costs closely as it proceeds with plans to open 18 new restaurants by mid-year, Garutti said.
“We’ll probably expect some cost inflation in some of those raw materials and the overall build costs,” he said. “It’s hard to say whether that will stick … We definitely do think there’s going to be some cost pressure on the total cost to build, for some period of time. It’s really beginning now. We do expect that overall cost to build a Shack will increase for some period of time. We’ll see. Nobody knows that this will be a long- or short-term deal.”