Executive Insights | April 2012 | By Blair Chancey

You Can’t Stop Shake Shack

The wildly popular burger concept isn’t letting its success change what it’s all about.

Randy Garutti works with the team at Shake Shack in Brooklyn.
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Hundreds of children file past the floor-to-ceiling windows at the newly opened Shake Shack at the corner of Fulton Street and Boerum Place. It’s late January and all are bundled up as best they can to keep out the wintery gusts and freezing temperatures. It’s a clear, cloudless day, which makes it colder, but the school children seem to be happy adventuring away from their lessons and out to a protest of some sort.

See, it’s not the sheer number of kids that’s most surprising, it’s that they’re all holding peace signs, ones with messages like “Love People, No War” and “World Peace, Please.” This is Brooklyn, New York, after all, where some of the biggest names in art and letters, including Spike Lee and Arthur Miller, got their start.

But they’re only kids and, as they file past the warm burger joint that serves frozen custard shakes and cheese fries, it’s obvious where their activism ends and their appetites begin.

Inside, about a dozen Shake Shack employees are at “pre-meal,” a team meeting that gets everyone hyped and on the same page before the store opens at 11 a.m. They’re discussing “Ana,” who works at the Bank of America nearby, and explaining to Shake Shack’s CEO that she comes every day and orders the same thing.

Despite the fact that the store has only been open a month, there are already regulars at lunchtime. Randy Garutti, chief executive officer of Union Square Hospitality, is visibly pleased, calling the crew “rock stars” and kicking off the morning’s meeting with a casual pep talk that seems more like a winning coach prepping his team for the big game and less like an executive from an ivory tower coming to shake hands with the rank and file.

Garutti takes a relaxed approach with the staff, introducing us (a reporter, photographer, and fur-vested publicist waiting in the wings) and promising to show them the article once it’s in print. “This is a big deal,” he tells them. He obviously doesn’t care about our presence, however, when his talk becomes more serious.

“What can we improve on, guys?” he asks the group. Shy at first, they eventually admit to him that the dishwasher was broken the entire first week the store was open.

This is disappointing news for any operator, and Garutti is genuine when he says, “Oh man, I’m sorry about that.” But it’s not any operator who has the mayor of the biggest city in the country at his opening and a line 75 deep of devoted fans waiting to devour their first bite of the company’s signature ShackBurger.

“It’s not your average burger joint that gets to have the mayor cut the ribbon—the mayor of New York City,” Garutti says once we’re seated at a high-top table made of recycled bowling-alley wood for the interview requested nearly four months before.

Garutti joined Union Square Hospitality Group, the Danny Meyer–owned company that created Shake Shack in 2004 in Madison Square Park, New York, 12 years ago. Since then, the company has expanded to 14 stores, two of which are in the Middle East. In the meantime, Meyer has become a poster child for the restaurant industry, opening 8 new fine-dining concepts throughout New York, penning a book on hospitality called Setting the Table, and taking the better-burger category by storm with a brand that started as a simple hot dog stand next to an outdoor art installation.

“The artist’s idea was to put taxis on stilts,” Garutti says. “We created an accompanying hot dog stand to raise money for the park it was in, and it took off. Then, three years later, we created Shake Shack and even then we couldn’t have dreamed that it would become this.”

“International sensation” is overused in the restaurant industry, but this is perhaps the segment’s truest example in recent years. New York City–based Shake Shack has expanded to cities including Dubai, Miami, and Washington, D.C., where a customer’s live tweet from the line on opening day even caught the attention of the city’s biggest news sources.

In fact, the line is part of the company’s appeal. In New York, a town known for its intern culture in the summers, “Shack Sherpas” swelter in line for their bosses, placing orders and learning the soft skills that will surely help them in their future Wall Street careers.

“One day I’m walking through the park and there’s a mariachi band playing in line,” Garutti says. “These are things that we never organize.”

Instead, the company focuses on what’s happening inside the store, where customers are encouraged to know their orders before they get to the counter.

The menu is simple: burgers, fries, and shakes.

“It’s our version of the old road-side burger stand,” Garutti says.

“If nothing else, what we’ve created here is a community of people, an experience of coming together. We have a great burger. We have a great value. We have great hospitality. But people come here just to be a part of the experience.”

The Shake Shack experience includes a generous serving of “charitable assumption.” From cashiers to the CEO, it’s essential for the company’s employees to buy into its golden rule that assumes the best of employees and guests alike.

“That’s believing that we’re on your side,” Garutti says. “In every interaction, if my team is talking to a guest or my managers are talking to a late employee, how am I treating you? It will feel a lot different than a lot of the other fast-casual or fast food transactions that happen. They’re transactions; we’re creating relationships.”

In addition to lowering turnover, the company’s “enlightened hospitality” has attracted top talent from other “It” brands in the industry. Among the brands managers have left for Shake Shack are fro-yo darling Pinkberry and culinary leader Chipotle. In a role the latter two companies are surely unaccustomed to playing, Garutti references them as if they’re part of the quick-serve establishment, a nod to how distinct Shake Shack perceives itself within the restaurant landscape.

“The right kind of manager for us gets to a point and wants to be a little more entrepreneurial and not as slotted into a system,” he says diplomatically. “We’re still figuring stuff out, and that’s fun for managers. Every Shake Shack is different, so it’s not just ‘add water.’”

Apart from the managers, crewmembers are enticed by the brand’s financial incentives. For example, the company practices profit sharing up to 1 percent with employees. There are also $50 bonuses for earning food safety certifications, arriving to work on time for a month, and recruiting friends. “It’s just fun, and it makes you want to be busy,” Garutti says. “If I’m an hourly employee, I want the restaurant to be busy and drive sales, because it means something to my paycheck.”

Despite the company’s efforts, however, Shack Shake still suffers the fate shared by many of today’s restaurant companies. Young people and many educators see the restaurant industry as a career of last resort, epitomizing dead-end job prospects with the image of a burger flipper.

“We believe this could be a real career choice,” Garutti says passionately. “If you look around the store, there are a lot of employees that started off making $9 an hour and now are managers supporting their families.”

Like many in the restaurant industry, Shake Shack supports the practice of hiring through recommendations and promoting from within. What Garutti’s company does differently is that it offers opportunities outside the burger brand as well. So a good job at Shake Shack does not necessarily mean a promotion within the same brand. Instead, line cooks from the burger concept can be promoted to chefs at Gramercy Tavern, one of the most highly acclaimed restaurants in New York City. “We have the ability to show them a larger context, beyond just this Shake Shack,” he says.

Those opportunities do more than extend across the Hudson. With Shake Shack’s meteoric success, opportunities also lie in exotic places like Kuwait City. The company expanded there in 2011 and has experienced instant popularity in the region, vowing to grow even more this year through its licensed partner, the Alshaya Group.

The Alshaya Group is one of the world’s premier retailers, operating such brands as Starbucks, Williams-Sonoma, and Cheesecake Factory throughout the Middle East. While it’s not surprising the two retail powerhouses have teamed up, the expansion deal started when Shake Shack had just “two and a half stores,” Garutti says.

“Mohammed Alshaya is an incredible visionary who found us when we just opened the second Shake Shack in 2008,” he says. “He came to us and said, ‘This is going to work in the Middle East.’ We, at the time, were curious but couldn’t have imagined it.”

What can only be described as “Alshaya’s proclamation” came to fruition with a tweet storm that surprised even Shake Shack originals. The company’s license agreement with Alshaya brought it not only onto a new continent, but also into an entirely new setting—the mall.

“The mall is the piazza,” says Garutti, who spent five weeks overseas preparing the store and training crew before the stores there and in Dubai opened. “We learned that the mall is the gathering place. In the Middle East, a place where the culture is evolving every day, people want to go out and be where they can congregate, and we’ve created that kind of place.”

For a newly iconic New York brand, the move abroad and inevitable international growth might seem risky or even overly confident, but Shake Shack strikes a calculated balance between neighborhood burger joint and world domination. What guides most decision-making is a simple mantra Garutti repeats several times during the interview: “The bigger we get, the smaller we act.”

“It’s really easy as you get big to make big decisions,” he says. “Some big decisions are great, and you need them. Some big decisions dilute what you’re about, and we will never dilute who we are just to grow. We’d rather slow down.”

For company leaders, the hardest part is ignoring distractions such as menu developments that would lead them away from the original vision Danny Meyer had for the company and sketched on a napkin years ago. During difficult decisions, Garutti says he references that piece of cocktail wisdom, which is framed in his office. “We say ‘no’ more than we say ‘yes,’” he says.

One organization the brand can’t stop saying “yes” to, however, is anti-hunger nonprofit Share Our Strength. The organization works to feed the nearly 17 million U.S. children that go hungry each year, with the goal of ending childhood hunger across the country by the year 2015. Not only do 5 percent of sales from a special concrete, Shake Shack’s "Washington Monu-mint," go straight to the organization, but Meyer also sits on the nonprofit’s board of directors.

“We believe that childhood hunger is so connected to our business,” Garutti says, “and we want to be a part of helping support that, especially in urban communities where we’re located.”

Part of that support will come in May when the company launches a “huge” effort that allows customers to donate directly to Share Our Strength and receive a coupon for a special shake.

In addition to supporting charitable efforts such as Share Our Strength, Shake Shack will also say “yes” to several new locations this year. There will be a Shake Shack opening in Grand Central Terminal (a hotly debated expansion among jaded commuters concerned about lines) and in Center City in nearby Philadelphia. Unfortunately, Boston bloggers who maintain that the company is continuously snubbing Bean Town over other expansion locales will have to continue to wait. According to Garutti: “There’s nothing official to announce.”

Most importantly, the company watches for the perfect locations in “diverse, vibrant communities” to guide its expansion.

Garutti says he also watches other brands within the quick-service segment, including Chipotle and Panera, but does not consider his company part of the “better burger arms race.”

“It’s being led by two great brands, Smashburger and Five Guys,” he says. “We love their concepts, we think they do fabulous things, but we’re different than that. We’re on the outside of that, because our goal isn’t to franchise domestically. Our goal is not to do hundreds a year. That would dilute what we do.”

While Garutti admits that all three brands offer foods with similar calorie counts and should be eaten sparingly, he maintains the quality of Shake Shack burgers is an important factor that sets it apart from would-be competitors.

“Instead of eating a burger that came from trimmings of trimmings from seven countries, we know exactly where our burger came from, the exact cattle,” he says.

The authenticity of the brand, specifically its experience and its menu items, has been the root of Shake Shack’s success to date, and maintaining that will be the company’s biggest challenge going forward. The quick-serve industry is littered with brands whose expansion efforts have eventually commoditized the brand and led to stagnation, but Garutti says he’s keeping a close watch for such threats.

“If we continue to do all the things we’ve discussed, there’s going to be room for us to grow,” he says with a twinkle in his eye. “They can do what they’re doing, and we can do what we’re doing.”


Quick Hits

Shake Shack CEO Randy Garutti tells it like it is.

Why does the company have such a strong Asian following?

The Far East loves brands and burgers, and they love design.

How do you create unique shakes for each store?

We just do it on our own taste buds.

How did you get the First Lady at Shake Shack?

She just showed up.

What menu item hasn’t worked?

We actually did breakfast when we only had one location.

How many burgers do you sell a day?

A lot.

How did you finance your first expansion in the middle of the financial crisis?

With some debt and with some friends and family investors.

Are you contributing to the obesity epidemic?

Our caloric information is very similar to the other burgers out there.

What makes the fries taste so good?

We use crinkle-cut Yukon potatoes.