Come September, Shake Shack will open its first innovation kitchen connected to its new home office in Manhattan. “It will be here that you'll see us test new ideas, launch new menu items, innovate around kitchen design and simulate our digital initiatives in an environment just downstairs from our home office team,” Garutti said. In Q2, Shake Shack also launched its first veggie burger in select test locations. It has since expanded to 18 restaurants in New York, California, and Texas. A barbecue lineup, featuring smoky Cheddar cheese, arrived in May, and the Hot Chick-n is coming in fall.
Shake Shack announced Thursday it on pace to become the latest major brand to abandon plastic straws, with a goal to eliminate them from the entire domestic system by 2019. “We're constantly thinking about packaging and how we can reduce, reuse and make more of it recyclable. This remains a larger goal for us as we look ahead,” Garutti said.
Labor, the gig economy, kiosks, and more
Last quarter, Shake Shack spoke about its evolving digital strategy. Mainly, how it gleaned from a kiosk-only Astor Place opening that some customers weren’t quite ready to blanket the entire ordering process with digital. Yet Shake Shack’s labor concerns, especially as it targets some of the highest wage markets in the country, makes the process a critical one. To date, Shake Shack had equipped five additional restaurants with a combination of kiosks and cashiers. “We're learning how the kiosk experience changes the floor and for the house, the extent to which it impacts speed of service, kitchen throughput, how it best enhances the guest experience, ability to deliver labor leverage in the future and how ordering behavior may be impacted,” Garutti said.
Here’s an example of why this is so pressing for Shake Shack. The brand has an opening slated for Nashville, Tennessee, where minimum wage is $7.25. But given the labor climate, where unemployment is at it lowest level since early 2000 (3.8 percent), Garutti said Shake Shack understood it couldn’t simply get in line and hope people showed up, let alone remained invested for the long-term. So, in this case, Shake Shack is starting its employees at $13 per hour from day one. “But that's a high rate, right? It impacts our labor line over time,” Garutti said. “We have a number of our markets in the most expensive wage rates in America with New York City, California, D.C., Chicago, the Northeast. I mean, all of our major markets are increasing, going to continue to increase. So what are we doing about it?”
Labor and related expenses as a percentage of Shake Shack sales increased roughly 80 basis, points year-over-year, to 26.3 percent in Q2, driven by increases in minimum wage legislation and the introduction of restaurants.