Shake Shack is planning to more than quadruple its domestic unit count, and the fast-casual chain is making traction in boosting restaurant profitability.
In preliminary fourth quarter results, Shake Shack CEO Rob Lynch in a presentation at the annual ICR investor conference in Orlando on Monday said same-store sales for the fourth quarter were up 4.3%, and restaurant-level margins improved by nearly 300 basis points to 22.7%, the highest fourth-quarter level since 2017. For the quarter, revenues grew 15% to $329 million. The systemwide average unit volume was $4.1 million.
Traffic for the fourth quarter was not disclosed, though CFO Katie Fogertey said those details will come during the regularly scheduled earnings report. In the third quarter, Lynch said traffic was moving into positive territory for the fourth quarter.
The planned growth push signals a transformation for Shake Shack, from a brand founded by fine-dining maestro Danny Meyer that has long been known for its “Main on Main” locations, to one that will populate suburban America with drive-thrus and a drive to compete on speed of service with the QSR world.
When the burger chain first went public in 2015—at the time, the chain had only 31 domestic units—the goal was to reach 450 units domestically, which was seen then as “aspirational,” Lynch said.
“Here we are, 10 years later, and we’re on the verge of hitting that,” said Lynch. Shake Shack now has 329 company-owned locations, and another 250 licensed. The chain added 76 restaurants in fiscal 2024, including 43 company-operated units.
This year, Shake Shack expects to open 80 to 85 new restaurants systemwide, with about 45 of those company operated, indicating revenue growth of about 14% to 15% year over year.
With that growth, Shake Shack will be going to places it hasn’t really been before, Lynch said, including suburban America with drive-thrus. The chain has about 39 drive-thru locations currently.
Smaller format units are also in development that could open up other new types of real estate opportunities.
And hitting that 1,500 target will take some changes, Lynch said. “It’s going to take some new ways of thinking about how we can be, what we aspire to be.”
Lynch, who previously helmed Papa Johns before moving to to Shake Shack last year, brings a certain “at scale” skill set to the burger brand, said Fogertey in an interview.
So do Stephanie Sentell, the chain’s COO who joined up after years with Inspire Brands. And Shake Shack recently brought in Justin Mennen as the new chief information and technology officer. He was previously with Rite Aid.
“These people have the skill set we need to super power growth,” said Fogertey.
Lynch’s playbook has included a focus on operations.
To grow drive-thrus, for example, Shake Shack will have to improve speed. Fogertey said wait times are now about 3 minutes, with a choke point where guests put in their orders. That can be fixed by reworking the digital menu boards, said Fogertey.
One hurdle for the four-fold growth planned, however, will be finding enough people to run all those restaurants, Lynch said.
“We can find the real estate. We can build the Shacks. We can build the supply chain capacity,” he said. “What we really need are people that can effectively run our Shake Shacks.”
With 330 units, that means 330 general managers. The plan is to add another 45 company restaurants this year, which means they will need 45 more GMs, an increase of about 20%.
So the chain is working on building infrastructure to develop that talent.
Lynch said Shake Shack is also evolving the operating model to be more efficient, bringing in new equipment that could help improve speed of service. “Until a year ago, Shake Shack didn’t even measure speed of service, and today we’re maniacally focused on it,” he said.
During the fourth quarter, the chain implemented a new labor management, and a new scorecard for restaurant performance.
When Sentell, the new COO, arrived last year, she asked who the best operators were, he said. The team didn’t have an answer, because it wasn’t clear what metrics were being considered.
“So her first job was building a scorecard where everybody’s going to be measured on the same criteria, and we rack and stack every Shack, 330 Shacks, from top to bottom,” he said.
That’s not to berate those at the bottom, Lynch noted, but for them to understand what’s different about what they’re doing from those at the top, and will help direct where coaching is needed.
Lynch said the chain is also working on its core menu, adding combo meals, for example, to enhance the value proposition, which he said would also improve speed of service.
While Shake Shack has pricing power, Lynch argued, the company plans to minimize price increases with the goal of improving the brand’s value perception.
The chain is also investing in its tech stack to improve digital engagement, so when a guest comes in, regardless of channel used, “we know who they are, what they’ve purchased, and how we can deliver what they need to get them to come back more often and spend more while they’re there,” he said.
For the next three years, the company is projecting both revenue growth and unit growth in the low teens with restaurant-level profits margins of at least 22%. For fiscal 2025, same-store sales are projected to be up about 3%.
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