Operations

Shake Shack plans to up value messaging to drive traffic

Despite "wobbliness," consumers are doing okay. But they want to get their money's worth, said CEO Randy Garutti.
Shake Shack Trolls
A Shake Shack in West Hollywood, Calif., is dressed up for the "Trolls Band Together" promotion. |Photo courtesy of Lex Gallegos.

Ready to see your favorite football teams at the Shake Shack Bowl?

Well, Shake Shack isn’t ready for that either.

But the more than 500-unit brand is working toward that kind of big marketing presence. At the Barclays Eat Sleep Play conference in New York on Tuesday, Shake Shack CEO Randy Garutti said the fast-casual chain is upping its marketing spend to drive traffic, as it continues work to cut costs. Shake Shack is looking to trim 10% from the cost of new openings and another 10% from new builds in 2024, for example.

Third-quarter traffic started slow, with bad weather on the East and West coasts, but traffic was flat in October, which for many was as good as up and indicated an upward trajectory for Shake Shack. For the quarter, same-store sales were up 2.3%, largely boosted by pricing, despite a 4.2% decline in traffic overall.

The chain is looking to do more product partnerships, like the current promotion with the movie “Trolls Band Together,” which inspired a line of colorful holiday shakes.

And Garutti said the chain plans to go heavy on a value message—not with discounts but promotions that give guests the perception of added value while still increasing check averages.

Some “wobbliness” is expected in 2024, but consumers have jobs and they appear to be strong, Garutti said.

“And I think they want value,” said Garutti. “I can’t actually remember a time personally in my restaurant career where I’ve seen as many promo discount-heavy environments as we’ve seen today. Every commercial you see is a BOGO for this or a deal for that. That’s always the case, especially around this weekend, but I think it’s been more pronounced.”

Shake Shack is looking to do more of that too, he said. But that doesn’t mean the chain will be competing for the lowest price. Rather, Shake Shack ispositioned as offering a premium brand and experience, he said, “but at the same time we’ve got to continue to hit value for our guests.”

Looking to 2024, Shake Shack CFO Katie Fogertey said the company still expects an uncertain inflationary environment, especially with wage pressures growing.

Legislation in California that will bring the fast-food minimum wage to $20 per hour next year—loosely referred to as the Fast Act—is expected to increase Shake Shack’s labor costs by a low-single digit percent. As a result, the chain plans to increase pricing across the state to address that cost, and competitors will likely do the same, she said.

Shake Shack also expects to see similar legislation in other regions that will push up the minimum wage, and prices will have to go up there too, though the company is also looking at varying pricing by channels.

But the upside of paying higher wages has been lower turnover, which helps offset those costs. “If you ask about what some of the best things you can do on profitability, it’s keep your team,” said Garutti.

Shake Shack, meanwhile, has been building restaurant profitability, with operating margins up 400 basis points year over year, he noted. All U.S. locations now have kiosks, which account for more than half of sales. Kiosk orders tend to lift the average check in the high single digits.

Licensed international locations also continue to show promise, Garutti said. Shake Shack had 180 international locations, and the first Shake Shack in Canada is scheduled to open in Toronto next year, opening up another vast market.

In fact, Garutti had planned to be in Israel this week opening a first location there, but the opening was delayed by the war with Hamas. Garutti said the chain’s Israeli partners hope to open in 2024. “It’s just a question of when,” he said.

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