Operations

What’s the ‘secret’ behind Shake Shack’s growth strategy?

The brand has “infinite scale,” according to its CEO, but there’s one thing holding back its growth.
Photograph: Shutterstock

Shake Shack has trumpeted its rapid expansion plans. It’s slated to open more units than ever this year, with some 36 to 40 new restaurants on the docket.

A not-insignificant portion of those new store openings will be at airports, an emerging “secret part” of Shake Shack’s business, Randy Garutti, the company’s CEO, said at a JPMorgan investment conference Thursday.

“That’s a strategy we’re going to start to hit on with a great degree,” Garutti said.

Earlier this week, Shake Shack opened a small-footprint unit at Cleveland Hopkins International Airport. The company recently rolled out restaurants at New York’s LaGuardia Airport and has plans for more in Phoenix and Dallas-Fort Worth.

“It’s this whole kind of secret part of our business that people don’t really often think about and see, but it’s very cash-efficient, very obviously asset-light and allows us some huge opportunity over the long term,” he said.

The small stores also address one of the biggest limiting factors for the growth of Shake Shack and virtually every other brand: labor pressures.

“It has never been harder to find great people to lead restaurants,” Garutti said. “That’s the reason we’re not doing 100 restaurants (this year). There’s 100 sites out there right now. … We want to make sure we have the right amount of leaders.”

To that end, the chain is trying some innovative options to recruit and retain leaders. This year is the first that Shake Shack has offered equity rewards for general managers.

“That’s an investment we’re making,” he said.

Shake Shack is also testing a four-day work week at some units, he said.

“Nobody has really been able to figure that out in the restaurant business,” Garutti said at the conference. “If we could figure that out on scale, it could be a big opportunity. We’re not promising anything yet, but it’s something we’re trying.”

Instead of adding one-off stores in new markets, Shake Shack will focus on building locations in existing cities, from food court units to larger stores, he said.

“We believe the Shack brand has an infinite scale, well beyond how we may think about it today,” Garutti said. “So, the opportunity for future growth, we think, is tremendous.”

The New York City-based fast-casual burger chain has struggled with sluggish traffic, seeing a 2.7% traffic slide in 2018. Shake Shack’s operating profit margin fell 22.5% for the quarter ended Dec. 26, 2018, which chain executives attributed to mounting labor costs and the expense of opening new units.

 

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