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    Shake Shack Gets in the Delivery Game

  • A deal with Grubhub signals a change of direction.

    Shake Shack
    Shake Shack wants to guard the data, and the customer experience, in regards to delivery.

    It was just December when Shake Shack voiced a hesitant take on delivery, saying its products were “not intended to be eaten half an hour after they were cooked.”

    Yet a company growing this quickly, and one as invested in digital evolution as Shake Shack is, couldn’t keep one leg out of the water for long. The burger chain announced Monday—ahead of its second-quarter review—that it’s struck an integrated deal with Grubhub. The aggregator, and its New York City Seamless brand, will become Shake Shack’s national delivery partner. The service is piloting at a “small number” of corporate units, with nationwide rollout expected gradually over the next two to three quarters.

    Shake Shack chief executive Randy Garutti said the brand reached an agreement that benefits both sides of the table, although he admitted there would be some volatility in delivery sales throughout 2019 as it transitions from multiple vendors to the exclusive partnership.

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    INSIDE SHAKE SHACK’S EMPLOYEE RETENTION STRATEGY

    Shake Shack trialed delivery via various platforms over the past two years. As for what drew the 237-unit chain (157 domestic, 140 of which are company run) to Grubhub, it comes down to some of the concerns operators across the lexicon face in regards to the disruptive force that is delivery. And, even then, Shake Shack expects to sacrifice some profitability.

    Firstly, this arrangement will be a direct-to-POS integration for menu syncing and order submission, the brand said.

    Garutti added the deal was designed around seven factors: long-term revenue opportunity; technology integrations and functionality; guest services capability; geographic footprint; guest data insights; marketing capabilities; and overall economics.

    Also, how can Shake Shack satisfy the added order volume and not bottleneck already buzzing stores? One answer is a design the companies worked on with Grubhub’s “Just in Time” technology, which aims to direct drivers to the moment an order is ready. Garutti said Shake Shack wants to “really try to pair up that real delivery courier with real how busy are we at Shake Shack in the moment.” Shake Shack can with this deal, to some extent, oversee the flow of delivery business as it happens.

    “That tech integration is going to be crucial for us, right?” he said. “We have really busy restaurants. We need to be able to have the ability to throttle that in real time and make sure that works across their drivers and our team.”

    Another top-of-mind challenge concerns customer data. Garutti said Shake Shack and Grubhub worked out an arrangement where it retains information and access throughout the third-party vendor’s marketplace in regards to its customers. In other terms, it keeps access to guest data and vital sales information.

    Shake Shack can deploy a tool, it said, to analyze performance and ordering trends. Additionally, there will be joint marketing initiative opportunities.

    The data grab or giveaway associated with third-party delivery—one of hot-button aspects of this ever-evolving debate—was “one of the most important considerations in this decision,” Garutti said.

    "Look, we just want to find a balance of all the things that will drive long-term sales growth for this company and delivery is one of them. Sometimes, those come at a cost." — Randy Garutti, Shake Shack CEO.

    “For us to be able to have that data and be able to connect with our guests regardless if they choose to order on a third-party platform,” he added. “That’s one of the things we’re really excited about.” He said it would lead to “some really great marketing,” over time.

    Garutti said Shake Shack knew the decision to pick a national partner was a critical call. It asked, “who’s got the best long-term revenue opportunity?”

    But equally important, the brand wanted to know which setup delivered a quality guest experience. “Delivery is a hard business,” Garutti said. “Shake Shack’s food is hard to deliver and we need to do it really, really well.”

    “The guest data and insights is a huge thing moving forward,” he said. “So, that's going to be new opportunity for us. And then really, the overall economics of the deal will lead to better economics for us over the long term, which everyone is battling right now in this part of the business.”

    Garutti was asked during the call whether or not delivery is a more expensive channel than courting dine-in guests.

    “Yes, the answer is yes,” Garutti said. Shake Shack has a commission in business off-site, naturally, plus there’s a significant paper cost to delivered goods.

    “But in general,” he said, “look, we just want to find a balance of all the things that will drive long-term sales growth for this company and delivery is one of them. Sometimes, those come at a cost. Part of why we chose Grubhub in this new partnership will be to lessen that cost over the long term, and we thought we’re in a good place on that to help out as we look to the future.”

    Considering throughput, Garutti said, “the proliferation of these additional ordering channels,” influences the company’s design strategy with new restaurants, as well as how it continues to tweak existing venues.

    In the last few years, Shake Shack worked toward “split kitchens,” which allow it to deliver peak demand and handle digital mix. Garutti said the chain is now looking at pickup areas, shelving, and trying to make the courier’s job seamless. Also, helping ease app pickup orders.

    “We're designing some restaurants that will really truly separate those areas,” he said. “So, next year, you'll see some Shack designs that will really have a completely separate section for the digital pickup from the in-house pickup because we really want to honor our guests who continue to come to Shake Shack. Obviously, the overwhelming majority of our guests remain people, who are looking for that great Shack community gathering experience, and we want them to have a great experience.”

    Shake Shack will test different store iterations moving forward. All toward making sure it devises a digitally native restaurant that can be successful while also providing a stellar guest experience across multiple channels.

    Shake Shack
    This summer was the 15th birthday of Shake Shack in Madison Square Park, the hotdog cart that began it all.

    The evolution of growth

    Shake Shack turned in a strong Q2 that popped its stock nearly 18 percent by mid-day Tuesday afternoon. The company reported same-store sales growth of 3.6 percent, building off last year’s 1.1 percent increase. Shake Shack’s comp comprised of a 2.3 percent increase in price and mix and a traffic boost of 1.3 percent.

    The company’s total revenues lifted 31.3 percent, year-over-year, to $152.7 million as sales hiked 31 percent to $147.9 million. The lift was mostly due to Shake Shack’s rapidly expanding footprint. It opened 19 systemwide stores in Q2, including 11 domestic corporate restaurants and eight licensed units. This time last year, there were just 179 total locations, 110 in the U.S.

    Shake Shack expects to open 38–40 corporate stores in fiscal 2019 and 18–20 new net license restaurants. The chain has spread to 16 countries, 29 states, and 128 cities. It’s worth pointing out that only 22 of those are in New York City,

    Interestingly, Garutti said the brand is testing and expanding formats during its road to 450 Shake Shacks. In May, it opened its first 24-hour roadside venue in the Monmouth Travel Plaza in New Jersey’s Garden State Parkway.

    “Whoever wrote the rule that stopping off the highway on your next road trip couldn't be a great experience? We're working to change the perceptions of captive audience dining, bringing fresh quality to everyday places that generate so much daily traffic,” he said.

    That includes non-traditional growth in airports. Shake Shack has 12 such spots today. Following 2019 openings in Dallas-Fort Worth and Phoenix Sky Harbor, the chain debuted a second airport location in Kuwait International Airport. Later this year, Garutti said, it plans to open in McCarran in Las Vegas, Louis Armstrong in New Orleans, and Minneapolis-St. Paul in Minnesota. “We're excited to continue to expand the ways in which we bring Shake Shack to hungry travelers in the U.S. and abroad,” he said.