Operations

Shake Shack couldn't be happier with its kiosks

In the ongoing effort to boost profitability, the in-store technology has proven to be the highest-margin channel, and kiosk sales doubled in the first quarter.
Shake Shack exterior
Kiosks will be in all Shake Shacks before the end of the year. /Photo courtesy of Shutterstock.

Shake Shack’s kiosk sales more than doubled in the first quarter as the chain speeds the systemwide rollout of the ordering technology in stores.

Shake Shack last year said it planned to have kiosks throughout the  460-unit chain by the end of the year, but now that rollout is happening quicker than expected, said CEO Randy Garutti in an earnings call on Thursday.

The technology has become a key part of ongoing efforts to improve profitability as the chain works to drive traffic through in-house channels.

Systemwide same-store sales increased 10.3% during the quarter, including a 4.8% increase in traffic. In restaurants, however, same-store sales grew by more than 20%. Shake Shack prices its menu higher for third-party delivery so guests are rewarded by coming in the door, or using the brand’s app or website.

Kiosks have become the highest-margin channel for the brand, said CFO Katie Fogertey.

When guests order via kiosk, the check tends to be higher because orders more likely include premium LTOs and add ons. Guests also tend to attach a beverage, and then they tend to eat in restaurants, which saves on packaging, she said.

There is also the potential for reducing labor costs with some stores relying more on kiosks when staffing is thin, Fogertey added. But fundamentally the kiosks are designed to offer a better customer experience, and the chain has yet to see the full potential from the technology.

“When a guest goes to our kiosk and they see the visual merchandising of our menu, we see that they have higher checks than a traditional cashier order,” said Fogertey. “We still have a portion of our guests that come in and they want to have that face-to-face human interaction communication connection with the cashier. But we have a ton of guests who come in and they want to just go right to the kiosks.”

Efforts to boost restaurant profitability are paying off.

The company had an operating profit of 18.3% in the first quarter—the highest since Covid—and Garutti projected margins could top 20% this year, despite the risks of rising beef costs and a still uncertain macro environment that could result in “consumer softness."

After a Covid-related pause in guidance for the full year, Fogertey said Shake Shack expects same-store sales to be up in the mid-single digits for fiscal 2023, though that will still include high-single-digit price.

In April, the brand rolled off a 3.5% price hike, and an additional 5% increase in third-party delivery prices. A 2% menu price increase is planned at the end of the second quarter, but Fogertey said no more price increases beyond that have been announced.

Shake Shack is also working on new more-efficient prototype designs for both core restaurants and drive-thru locations. Already, the company has reduced drive-thru costs by about 10%, Garutti said. This year, the chain plans to open 15 drive-thrus, though Garutti noted that competition for drive-thru pads is tough with so many brands attempting to grow that format.

Staffing challenges are easing for Shake Shack, Garutti said, which he said was largely a result of raising pay, adding benefits and creating more opportunities for leadership development. Those efforts have helped get restaurants more fully staffed and reduce turnover, he said.

The company narrowed its net loss to $1.6 million, or a loss of 4 cents per share, compared with the loss of $11.2 million, or 26 cents per share, a year ago. Systemwide sales grew 28% to nearly $395 million, including licensing revenue which posted the strongest quarter ever, Garutti said.

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