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Shake Shack sees strong potential in its licensed business

The fast casual’s CEO called domestic and international licensed stores an area of quiet growth for the chain, though it's one that still has some pandemic-related hurdles to leap.
Shake Shack
Photo: Shutterstock

Business at Shake Shack’s licensed units and global restaurants is starting to pick up. But the non-company stores still have a way to go to bounce back to pre-pandemic levels.

So said Shake Shack CEO Randy Garutti at the recent Baird Global Consumer, Technology & Services Conference.

International and licensed restaurants make up about 40% of the New York City-based fast casual’s business, Garutti said.

“This is a part of our business where we don’t talk about it enough,” he said.

As of the end of March, Shake Shack had 22 domestic licensed restaurants and 107 international licensed locations, according to its 10-Q filing with the Securities and Exchange Commission. At that time, 16 of the licensed units were temporarily closed. A Shake Shack spokeswoman declined to provide updated store closure numbers.

Licensed revenue in Q1 was down nearly 10%, to $4.6 million, versus the same period in 2020.

Compared to Q1 2019, Shake Shack’s same-store sales were down 14.8%. The company reported an operating loss of $10 million for the quarter.

Shake Shack outlets in airports, stadiums and transit hubs were, of course, severely hit by pandemic-related closures and shifts in consumer behavior.

One of the chain’s best-performing units, in a terminal at Los Angeles International Airport, is permanently closed because the airport shut that wing down.

“Two years ago, we had a major push in the domestic airports,” Garutti said. “Half of them have been closed. Some of our strongest units have been closed.”

But some baseball stadium Shake Shacks are beginning to reopen, he said.

“They are having more capacity and selling a few more Shack burgers,” Garutti said.

And the 338-unit chain’s global locations are starting to pick up some momentum.

A couple of weeks ago, Shake Shack opened its first store in Shenzhen, China.

“If you were to transport yourself there today, you would be amazed at what you are seeing in Shenzhen,” he said. “And that’s a critical, important piece of our business.”

Shake Shack sees considerable post-pandemic growth potential in China, as well as Korea, Macau, Mexico and more, he said.

The chain has said it plans to see 15 to 20 licensed units open this year. During the first quarter, it opened one net new licensed restaurant.

“The licensed business is going to have a lot of growth, both in its recovery period as well as the units that we think we can build,” Garutti said. “Things are now starting to recover, starting to come back, and starting to see … I’m not going to use the word normalcy, but bounces towards what we once knew.”

 

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