Dive Brief:
- Shake Shack expects to develop 45 to 50 company-operated restaurants in the U.S. in 2022, its largest store expansion to date, CEO Randy Garutti said on Thursday during the company's Q3 2021 earnings call.
- About 25% of these stores will have Shack Track drive up or walk up windows while as many as 10 will have drive-thrus, he said.
- So far this year, the company opened 25 corporate-owned locations and expects another 10 to 13 by the end of the year, Garutti said. The company's corporate store count was 205 at the end of Q3, and the additional stores could bring its domestic-owned store count to over 260 units.
Dive Insight:
Construction is already underway for Shake Shack's first drive-thrus, which will be in drive-thru heavy suburban areas of Kansas City, Minneapolis, Orlando and Detroit, Garutti said. Suburban locations will also be a prime focus for new development next year with over half of the new openings, CFO Katie Fogerty said during the call. These Shacks will be mainly freestanding or shopping center locations, which can offer additional convenience, such as a drive-thru and drive up, she said.
The accelerated development plan comes just a year after the chain was dealing with quarterly double-digit same-store sales declines. During Q3 2020, the company's same-store sales declined 17.1%, with particularly steep falls in urban areas like New York City, where same-store sales declined by 43%.
Year-over-year same-store sales were up 24.8% during the most recent quarter. Compared to 2019, same-store sales were down 1% during October, but were up 7% in suburban stores, according to the company's earnings release. All of its regions outside of New York City have already surpassed 2019 same-store sales levels. Texas and certain areas in the Northeast have reached single-digit to low double-digit same-store sales above 2019 levels, Fogerty said.
As part of its global growth strategy Shake Shack has been exploring new formats since 2020, when it began remodeling stores to increase convenience and digital sales. It retained 80% of digital sales, compared to its January 2021 peak, as of Sept. 29, even while in-store sales rebounded. The company also expanded its first-time app and web users by 14%, growing its acquired digital customers to 3.2 million since mid-March 2020, Fogerty said.
The chain plans to expand its digital channels with technology like drive-thru menu boards, pickup screens and enhancements to its in-store kiosks. Over 75% of the company's sales come from kiosks and digital channels, Fogerty said. Kiosks also have higher checks than cash registers and free up employees to be more efficient and simplify their work, she said.
Challenges remain in reaching its 2022 goals, however, as supply chain disruptions are expected to push much of the store development into the second half of 2022, Garutti said. The supply chain troubles could delay landlords from delivering space, slow acquisition of kitchen and digital equipment, and even make permitting more difficult, according to Garutti.
The company has also been boosting pay and benefits during the last few quarters to attract more hourly workers. Its starting wages are about 13% higher than what it offered during Q4 2020, reaching an average of $15 hour, Fogerty said. Shake Shack also rolled out its Shift Up program earlier this year to provide opportunities for its hourly employees to move into various management positions. Nearly 60 of its shift managers are going through a leadership program to work their ways to salary level managers, Garutti said.
"We also are strategically … not going to too many new markets next year," Garutti said. "That helps you when you need to grow teams from within and not have to move people."
