A small sampling of the search results for tweets with the hashtag #ShakeShack on a Monday evening in early March include:
It’s a Monday and I have work but nothing matters because #shakeshack is back in my life
The BEST! #nyc #shakeshack @ Shake Shack Upper Westside
#SHAKESHACK for the first time right now #cantwait
Enthusiasm is the common theme—and there’s not a negative tweet in sight. In fact, there’s rarely a negative tweet, story, or rumor about Shake Shack, as the burger brand has garnered a cult following that is deeply passionate about the brand.
The chain’s enormous social media popularity is just one piece of evidence suggesting Shake Shack has captured the same lightning in a bottle that Chipotle found in the last decade, securing a place among giants like Apple and Google as an American cultural phenomenon. The other piece of evidence? That would be its $100 million initial public offering (IPO) in January that valued the brand at $1.6 billion at the end of its first day on the market, when its stock price more than doubled.
It’s worth noting that some experts are unconvinced Shake Shack will live up to all of the potential that investors are expecting from it. “The market is a very imperfect predictor of future cash flows,” says James Angel, an associate professor at the McDonough School of Business at Georgetown University. “We’ve seen plenty
of instances in the last 20 years where the market was dead wrong. I tend to view events like this with a certain amount of bemusement and skepticism, but of course I’ve also missed out on things like Google and Apple and others.”
Still, for a chain with, at press, just 63 locations—46 of which have opened since December 2013—enjoying one of the biggest restaurant IPOs in history is a tremendous vote of confidence in the brand. And while there is no scientific formula to explain Shake Shack’s incredible rise, experts say there are five things Shake Shack has done to create its successes thus far.
1. It’s grown slowly
Shake Shack’s backstory is legendary at this point: The chain started as a hot dog cart in 2001, launched by renowned restaurateur Danny Meyer’s Union Square Hospitality Group (USHG) to help support an art installation in New York City’s Madison Square Park. The hot dogs were so popular that lines at the food cart were nearly constant during the summer months. In 2004, Shake Shack opened a permanent kiosk (or shack, if you will) in the park—and the brand kept growing from there.
But, just as the company took its time going from hot dog cart to burger stand, its expansion afterward was also anything but immediate.
“We waited nearly five years to open our second Shack, and we are still in the very nascent stage of our story, with only 31 domestic company-operated and five domestic licensed Shacks in 10 states and Washington, D.C.,” the company wrote in the prospectus filed in conjunction with its IPO.
“By today’s standards, [Shake Shack’s] growth has been slower and I think more strategic and more consistent and more cautious,” says Darren Tristano, executive vice president of Technomic. “It was a great concept to begin with, but they were able to take their time to refine the concept and make sure that the service, the quality of food, the operations, and certainly the culture were right.”
Indeed, this is something Shake Shack said was key to its growth strategy back in 2010. “It’s like when you trace things from a pattern and cut them out on construction paper,” Randy Garutti, a USHG veteran and now CEO of Shake Shack, told QSR in 2010. “If you trace from the cut-outs you’ve made instead of from the original pattern, it starts looking sloppier and sloppier.”
Moving forward, Shake Shack plans to open at least 10 domestic company-operated locations each year. To put that in context, BurgerFi, a West Palm Beach, Florida–based burger chain, opened 31 new locations in 2014.
“That’s a good way to make sure you don’t cannibalize your own sales or oversaturate any market,” Tristano says of Shake Shack’s strategy.
“Our goal is not to do hundreds a year,” Garutti told QSR in 2012. “That would dilute what we do.”
2. It hasn’t been afraid to take risks
Today, sourcing high-quality, sustainably sourced ingredients is practically required in the fast-casual space. But when Shake Shack started using its signature artisanal Angus beef, which is all-natural, vegetarian-fed, humanely raised, and source-verified—as well as hormone- and antibiotic-free—it was anything but.
“Sourcing of their products and the quality of their products being more natural was at the time a little bit ahead of the curve, but today is starting to hit its stride with what younger consumers are looking for,” Tristano says. “The consumer demands have caught up and put them in a nice sweet spot for that.”
And while the pace of the company’s expansion strategy has fallen on the cautious end of the spectrum, its international growth has been aggressive.
“Many companies usually wait until later in the game to look at international opportunities,” Tristano says. “Shake Shack started to look at the Middle East as an opportunity for growth at a time when there was demand, … making the choice to move internationally early in the game.” The move has paid off handsomely; today, more than 40 percent of the chain’s locations are in international markets.
3. It’s prioritized its employees
“We believe that the culture of our team is the single most important factor in our success,” states Shake Shack’s prospectus. “We aim to recruit and develop a team with the innate ‘personality to please’ that cannot be taught. We look for people who are warm, friendly, motivated, caring, self-aware, and intellectually curious team members, or what we call ‘51 percenters.’”
As anyone who’s ever patronized Shake Shack knows, this commitment to its employees—and, in turn, its customer service—shows.
“In every interaction, if my team is talking to a guest or my managers are talking to a late employee, [it’s about,] how am I treating you?” Garutti told QSR in 2012. “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.”
The company’s prospectus reveals what industry experts have long suspected: It pays to hire the cream of the crop. As a percentage of sales, labor and related expenses increased to 26.1 percent for the 39 weeks ended September 24, 2014, compared with 24.9 percent for the same period a year before.
“This increase was due to a decision by the company to increase the starting rate of pay for Shack team members at the start of fiscal 2014, as well as the impact of lower-volume Shacks opening and the impact of fixed management labor at these Shacks,” the prospectus says. The document also reveals that New York City employees start at $10 per hour, despite the fact that the minimum wage in the state is $8 per hour. “We seek to be the employer of choice by offering above-industry-average compensation in most markets, comprehensive benefits, and a variety of incentive programs, including a monthly revenue-sharing program with our employees.”
This strategy goes beyond ensuring Shake Shack provides great service to all of its customers; it also helps the brand gain the respect and admiration of its fans.
“The more you’re acting like a conscious capitalist focused on meeting the needs of your employee and consumer, the more success you’re going to have,” says Jeff Fromm, president of FutureCast and coauthor of the upcoming book Marketing To Millennials & Millennials with Kids. The takeaway here, Fromm says, is that if quick-service brands want to gain favor with Millennials, they must gain favor with their employees first.
4. Its restaurants are part of their communities
Everything from the storefronts Shake Shack chooses to the in-store events and promotions it runs reflects the brand’s desire to become a true part of the neighborhood.
“In major metropolitan areas, we seek locations where communities gather, often with characteristics such as high foot traffic, substantial commercial density, reputable co-tenants, and other traffic drivers such as proximity to parks, museums, schools, hospitals and tourist attractions,” reads the company’s prospectus. That’s why the chain has locations near or in iconic locations such as the American Museum of Natural History in New York City; Harvard Square in Cambridge, Massachusetts; and Nationals Park in Washington, D.C.
Some of the stores host local running clubs (with a free drink at the end of the run), and it’s not uncommon to see “thank you” drawings on the wall from students at a local elementary school. Shake Shack also hosts its annual Great American Shake Sale, in which customers nationwide can donate $2 or more to Share Our Strength’s No Kid Hungry campaign and get a voucher for a free shake in return.
“If nothing else, what we’ve created here is a community of people, an experience of coming together,” Garutti told QSR in 2012. “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.”
5. Above all else, it’s authentic
“Our vision is to ‘Stand For Something Good’ in all aspects of Shake Shack’s business, including the exceptional team we hire and train, the premium ingredients making up our menu, our community engagement, and the design of our Shacks,” the company writes in its prospectus. It’s so serious about its vision that the company has trademarked the phrase “Stand for Something Good.”
Fromm says having a mission like this—and taking measures to live up to it—is what helps brands strike a chord with Millennials.
“You have to live your beliefs, and the brands in tomorrowland are story-living brands, not story-telling brands,” he says. “If you want to be a story-living brand, then your senior people—including your CEO—are going to live those beliefs.” The more authentic the brand and its leadership are, Fromm says, the more devoted younger customers will be to the brand.
Shake Shack is a company that’s proud of its ingredients and menu offerings—so proud, in fact, that its menu has barely changed from its early days. It’s also so proud that it posts nutrition info unabashedly in restaurants.
“We make decisions that focus on the core of who we are, staying true to the principles of Enlightened Hospitality,” reads the company’s prospectus. “It is these decisions that drive us to seek out what we believe to be the finest team members, the tastiest ingredients, the best suppliers, the best community partners, and the right investors.”
Dissecting Shake Shack’s IPO Strategy
Even experts who are skeptical whether Shake Shack will be able to drive the sales necessary to keep its stock prices high agree that the company decided to go public at the right time.
“One of the things that we know about capital markets is there are times when the IPO window is open and the market is very receptive to companies like Shake Shack, and there are other times when the window is closed and even very, very good companies have trouble raising capital,” says McDonough School of Business’s Angel.
Tristano, who doesn’t think Shake Shack’s IPO was overvalued, also believes timing is crucial when going public—and that Shake Shack struck while the iron was hot.
“The best opportunity for an IPO is when you’re peaking, and they seem to be peaking right now,” he says. “It doesn’t mean that they’ve peaked, but it just means that they’re doing everything right and they’ve proven themselves—and investors will take that into strong consideration.”
Shake Shack also took advantage of the opportunity to price its shares in a way that would maximize the marketing potential, Angel says. The company sold 5 million shares at $21, and the price quickly rose to above $40. “One could sneer and say, ‘This is a company that just left $100 million on the table,’” Angel says. “You wonder: Did the bankers blow it, or did they intentionally attempt to engineer a feeding frenzy to the stock? If this had just been another generic IPO, we wouldn’t be writing this article, and we would not be having this discussion. But the fact that it doubled on the first day got a tremendous amount of attention nationwide.”