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Shake Shack keeps waiting for its urban restaurants to recover

Even as other chains fully move on from the pandemic, the burger-and-shake concept continues to face some hurdles.
Shake Shack
Photograph: Shutterstock

Shake Shack recently reopened two formerly high-traffic locations that have been shuttered since the start of the pandemic.

The restaurants in Washington, D.C.’s Union Station and New York City’s Grand Central Terminal depend on urban commuters and visitors, Shake Shack CEO Randy Garutti told analysts late Thursday. And, while those locations are open for business, their performance is nowhere near 2019 levels.

“We expect that they’re going to take some time to recover,” Garutti said. “They’ll probably weigh on results in the interim, but it was important to get them reopened and operating as we head into the fall and winter.”

Those two restaurants illustrate the ongoing urban-suburban divide for the fast-casual burger chain, which posted earnings for the quarter ended June 30 Thursday.

Shake Shack’s same-store sales for Q2 remain about 12% behind those for the same period in 2019, though they’re up 52.7% over 2020’s numbers. For July, Shake Shack’s same-store sales improved to a decline of 9% over 2019 levels.

But same-store sales at the chain’s Southeast restaurants, particularly those in Texas, are now above pre-pandemic levels. And new Shake Shacks in the suburbs of Portland, Ore., and Indianapolis are also doing well.

Suburban locations will dominate the chain’s new-restaurant portfolio for the coming year, he said.

Shake Shack ended the quarter with 200 domestic, company-operated locations; 23 licensed restaurants in the U.S.; and 116 international licensed units, for a total of 339 stores. That’s up from 292 total locations a year ago. The chain opened 29 net new domestic, company operated restaurants in the 12 months following June 2020.

“Recovery in our urban Shacks still presents our greatest opportunity to recapture sales,” Garutti said.

The pace of the chain’s recovery in urban areas depends on workers returning to offices and tourists coming back to Broadway, Chicago’s Michigan Avenue and other spots that were popular before the pandemic, he added.

Shake Shack intends to combat higher costs for labor, construction materials, commodities and other items with a higher-than-normal menu price hike in the fourth quarter, executives said.

The chain will impose a 3% to 3.5% price increase at the end of the year. And those prices could go even higher in 2022, Shake Shack CFO Katherine Fogertey, speaking on her first call with analysts in her new role, said.

“This is higher than the approximately 2% menu price we have historically taken at the end of most calendar years, and we’ll be evaluating the need for further price increases that might go into effect in 2022,” Fogertey said.

Those new price increases are on top of the 10% premium Shake Shack started charging on third-party delivery orders during Q2 and the 5% increase on third-party orders imposed in February.

 

 

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