Shake Shack has a real estate problem

The fast-casual burger chain is searching for ways to make its once-enviable real estate portfolio work during the pandemic.

“The greatness of our real estate is exactly the challenge we have today.”

That’s what Shake Shack CEO Randy Garutti told analysts late Thursday, in explaining the fast-casual burger chain’s same-store sales decline of 49% during the second quarter.

Pre-pandemic, New York City-based Shake Shack had well-performing restaurants in some of the country’s highest foot-trafficked locales: Grand Central Terminal, New York City’s theater district, Penn Station, Chicago’s Michigan Avenue.

Now, however, due to the coronavirus and regular civil unrest in some urban centers, some of those spots see about as much foot traffic as an Iowa cornfield.

Shake Shack’s mission going forward is a multi-pronged attack to transform its existing units to work in a coronavirus world, while experimenting with new models previously untried by the brand.

Chief among them: The drive-thru.

Shake Shack has never had a drive-thru unit, but it plans to open one next year, the company announced Thursday. The drive-thru, in an as-yet-unnamed suburban location, will offer both traditional order-and-pickup capabilities, as well as a preorder pickup option, part of an initiative the chain has dubbed “Shack Track.”

“Look, in the moment of safety, people want to stay in their cars,” Garutti said. “That’s not going to last forever. But, obviously, this country has proven that the drive-thru in its old form works. We want to do it in this new form. We want to do it better than ever.”

But drive-thrus aren’t the only way Shake Shack is trying to make its real estate portfolio lemons into lemonade right now.

The chain, which has 193 U.S. locations, is testing curbside pickup at 10 restaurants around the country, with the plan to extend that test to 50 locations by the end of Q3. Shake Shack said it is already seeing as many as 40% of customers opting for curbside pickup in places where it is offered.

As part of its “Shack Track” initiative, the company is also adding drive-up and walk-up windows to allow customers to pick up digital orders. By the end of the year, Shake Shack plans to add at least eight walk-up windows to existing stores, with plans to open its first drive-up window later this year in Vernon Hills, Ill.

By 2021, about a quarter of new stores will have either a walk-up or a drive-up window, executives said.

“The second quarter for us, for our country and for so many companies has been a hard one,” Garutti said. “It’s been a hard one for our team. We’re all hopeful that was a trough moment, and that we will continue to see the gradual recovery coming out of it.”





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