Beef costs are unprecedented. Shake Shack is a burger brand. Yet the fast-casual chain grew its restaurant-level margins by 120 basis points last year to 22.6%.
How did Shake Shack do it?
CEO Rob Lynch on Thursday said it stemmed from the New York-based chain’s ongoing operational work, which is still only in its fourth or fifth innings. There’s still more work to do, he said, but the payoff is expected to be even greater in 2026.
Shake Shack said its fourth quarter same-store sales rose 2.1%, including a 0.5% increase in traffic and an 1.6% in menu mix. In-restaurant menu prices rose about 2% during the quarter, with blended pricing across all channels up 4%, which is less than the 6% pricing last year.
For the year, same-store sales were up 2.3%, despite industry-wide commodity pressures, like the high cost of beef. The chain said inflation would have been up in the mid-single digits, but Lynch’s ongoing operational improvements helped mitigate those costs significantly.
Last year, Shake Shack accelerated a review of its supply chain to focus on diversification and logistics. The company brought in new suppliers to foster competition, reduce business risk and augment quality, Lynch said.
At the same time, the chain made improvements in the freight and distribution network, reducing the time and distance required to transport goods, a move that will be key as the chain pushes to reach a goal of 1,500 units.
Shake Shack opened 45 company-owned restaurants last year, and expects to add 55 to 60 company units in 2026. The chain ended the year with 659 units, including licensed locations.
Lynch said the supply work has not only improved costs, it has ensured Shake Shack will have enough beef at a time of unprecedented inflation. The chain uses 20% brisket in its burger grind, he said, so Shake Shack always has to think ahead on brisket.
“I can’t reinforce enough how amazing the work this team has done is, particularly in the restaurant operations and supply chain,” said Lynch. “If we had normalized beef costs last year, we would have expanded restaurant margins astronomically, and that would have flowed through to the bottom line.”
Shake Shack has also implemented a performance scorecard system across company units to better measure people, performance and profits. As a result, the chain has been able to improve the number of units meeting labor standards from 50% in mid-2024 to more than 90% last year. Labor costs improved by 150 basis points during the quarter to 25.4% of sales.
The goal wasn’t necessarily to reduce costs, Lynch said, but that was an outcome. Managers were able to be more strategic and less reactionary to their ever-evolving scheduling needs, and they were better able to deal with unexpected challenges, he said.
This has also resulted in reducing wait times to about six minutes, compared with seven minutes in 2023. And Lynch said labor retention has improved, offering another cost benefit.
In addition, last year Shake Shack reduced the average net build cost for new restaurants to less than $2 million, a reduction of about 20% from the prior year.
The buildout costs, however, depend on the type of restaurant. Shake Shack plans to open more drive-thru units, for example, and those are more expensive to build. So Lynch said the chain plans to break costs down by type of Shack in future.
The burger chain has had great success with its in-app promotion featuring $1 drinks, $3 fries and $5 classic shakes, which has increased app downloads by 50% since launch last year.
Lynch said that app engagement will serve as a foundation for the launch of a new loyalty program later this year.
“We are seeing huge amounts of traffic growth as a result of that program with minimal sales or margin impact,” said Lynch. “And it gives us a huge amount of confidence that when we are able to deliver targeted strategic value, it has an outsized impact on our ability to drive profitable growth.”
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