Operations

Shake Shack frustrated by clogs in its new-restaurant pipeline

The burger chain planned to open up to 50 new units this year but has pared that down to 40 to 45 stores because of a variety of delays and slowdowns. Many will have to open in the fourth quarter.
Shake Shack
Photo: Shutterstock

Shake Shack started the year saying it planned to open up to 50 new restaurants, a record for the burger brand.

But delays of all sorts are jamming up the chain’s new unit pipeline, a channel it depends on for sales growth.

“It’s not that we don’t have the pipeline. It’s actually incredibly frustrating because we do have the pipeline,” Shake Shack CFO Katherine Fogerty said this week at Baird’s Global Consumer, Technology & Services Conference.

The chain is now saying it plans to open 40 to 45 new restaurants this year, with many openings backweighted to the fourth quarter and some new units pushed to 2023.

Shake Shack opened seven new locations in the first quarter. It currently has more than 380 global restaurants, with 225 company-operated U.S. stores.

The fast casual has said it intends to open six new restaurants in the second quarter and nine to 11 in the third quarter. Under that cadence, it would need to open an impressive 16 new locations in the fourth quarter to make even the low end of its revised development goal.

Its licensed partners are expected to open 23 to 27 new units in 2022.

The chain has long said it has the runway to open more than 450 U.S. stores.

Among the reasons for the slowdown, Fogerty said:

  • Construction delays
  • Permitting delays
  • Lack of workers at the chain’s internet service provider to install Wi-Fi
  • Trouble getting parts and restaurant equipment

Chains around the country have experienced similar logjams, but few have been forced to revise their build-out timelines.

“We are very excited about our pipeline,” she said. “There are just some issues holding us back.”

Shake Shack has yet to provide unit growth guidance beyond 2022.

But its growth slowed during the pandemic, more so than many other brands, because of its large portfolio of urban stores, which were heavily impacted by COVID.

Since then, the chain has started opening more suburban locations and it now has its first five drive-thrus in operation. It has said it intends to end the year with 10 drive-thrus.

The chain said last month that it expects build-out costs to rise 10% to 15% because of inflation and the higher cost of drive-thrus.

Fogerty noted that a full return to office is still far away in most major cities and international tourism has yet to bounce back.

“We do have some Shacks in urban markets that have more than recovered,” she said.

The chain has raised its menu prices by about 7% in the last six months and it now imposes as 15% premium on third-party delivery orders.

“We have additional room to take price, if needed,” she said.

But new restaurant development remains the centerpiece of the New York City-based company’s growth plans.

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