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Why did Shake Shack decide to sign with Grubhub?

As part of the deal, the burger chain will have access to customer data from the third-party provider.
Photograph: Shutterstock

Shake Shack’s stock price soared more than 13% midday Tuesday on news of strong Q2 earnings and the fast-casual chain’s partnership with Grubhub for nationwide delivery.

Systemwide delivery will roll out over the next two to three quarters, CEO Randall Garutti said during a call with analysts.

Shake Shack reported same-store sales growth of 3.6% for the quarter ended June 26, with total revenue up 31.3% to $152.7 million. Systemwide sales rose 33.2% to $225.9 million. Traffic grew 1.3% during the period.

The burger chain had tested delivery with several third-party providers but ultimately decided to focus its efforts on Grubhub, for a variety of reasons, Garutti said.

Under its agreement with Grubhub, Shake Shack will have access to guest data and other sales information, as well as the ability to control the flow of delivery orders in real time.

“We have really busy restaurants,” he said. “We need to have the ability to throttle that.”

Having access to consumer data, however, was “one of the most important considerations of this decision,” he added. Many other operators have expressed concern about giving up information on their customers when signing deals with third-party delivery providers.

Shake Shack executives expect some volatility in digital orders as it shifts from multiple third-party providers to Grubhub.

“We’ve spent two years building up relationships on other marketplaces,” Garutti said. “Those relationships continue in the near term exactly as they have been. As we roll this out, they will eventually be un-integrated. … We’re going to have a big marketing job to move those guests over to our partnership with Grubhub. It’s going to take some time.”

The chain has built “split kitchens” to accommodate the growth in digital orders, but it is still tinkering with its pickup areas. Shake Shack is designing some restaurants with separate digital pickup areas.

“If you go to a Shack in busy times, the pickup area is very busy,” Garutti said. “There are couriers. There’s app pickup. There’s families. There’s everybody. … We want to honor those guests who continue to come to Shake Shack. We want them to have a great experience.”

In February, Shake Shack launched Chicken Bites, hand-breaded chicken breast pieces cooked sous vide and made fresh to order. It’s a high-cost menu item that’s tricky to execute and may not have a long-term place on the menu, he told analysts.

“It’s very hard always to understand incrementality,” Garutti said. “True incrementality takes time. … We continue to improve the way we operate it. It’s operationally challenging. We really just want to listen and learn. We’ve been really encouraged by what we’ve seen.”

 

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