Shake Shack CEO Randy Garutti made one thing clear—the brand’s strategy is to win market by market with a focus on top-tier real estate, and the COVID pandemic hasn’t changed that.
The proof is epitomized by the recent 300th store opening in Madison, Wisconsin in Q4, and it will continue to hold true as Shake Shack rolls out its multiple models of operation, including drive-thru, pickup windows, and curbside.
Thirty-three stores have opened through October. Shake Shack welcomed four company-owned stores in Q3, and it expects to finish 2020 with 18 to 20 corporate debuts. The 2020 class has continued to outperform the average weekly sales of fellow company stores as corporate same-store sales declined 17 percent in Q3, but dropped 5 percent in October.
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“We’re not doing the same kind of huge openings that we’re doing in terms of press,” said Garutti during the company’s Q3 earnings call. “We actually barely market them at all by strategy. We really try to open pretty quietly right now. … We’re excited about how we’ve been performing. The class, as I noted, this year, is continuing to perform above the company average, which is exciting. And I think we hope there will be a different kind of growth without the kind of usual craziness that we allow.”
The recently launched curbside pickup format is now at 70 units in the U.S. At those units, one-third of app orders were completed through curbside. Garutti also noted the majority of future units will have some version of “Shack Track”—a new ordering process promising a frictionless pickup experience—either through an enhanced interior pickup model, exterior walkup window, or drive-up option.
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By the end of the year, seven to nine locations will have been retrofitted for “Shack Track.” The chain is also targeting five to eight drive-thru units in the next two years. The first one will open in late 2021.
Garutti said Shake Shack plans to recapture its full development schedule next year with 35 to 40 anticipated openings. The strategy is to penetrate new markets such as Portland and Indianapolis, and fortify current markets in California, the Midwest, and the East Coast. The longer-term goal is to ramp up unit growth even further in 2022 and beyond.
“We barely scratch the surface of our unit opportunity,” Garutti said. “And I think all the models we’re looking toward, the goal is to increase that opportunity and keep going. And we’re getting back at it for next year.”
The CEO said Shake Shack’s confidence in future growth is driven by consistent sales recovery.
Systemwide comp sales decreased 31.7 percent in Q3 and slid 21 percent in October. That’s coming off a 49 percent drop in Q2. Operating profit also improved to 14.8 percent in the quarter after coming in at 2.2 percent in Q2. At the end of October, nearly all U.S. company-run stores were open, with roughly 80 percent having open dining rooms, albeit at a limited capacity.
Digital mixed 60 percent in Q3 and 58 percent in October. The channel is proving to be sticky as Shake Shack has maintained more than 90 percent of the digital sales it saw in May. Web and app channels have tripled in sales compared to the year-ago period and have seen more than 1.4 million new customers since March.
Traffic dropped 42 percent in the quarter, offset by a price/mix of 10.3 percent, driven by a huge boost in average check. Shake Shack earned $130.4 million in total revenue, or a 17 percent slide. the brand ended the quarter with 298 stores—175 U.S. company-owned and 22 U.S. licensed, and 101 internationally licensed.
Below is the trend in sales at corporate stores through the beginning of the fourth quarter:
(Dollar amounts in thousands)
Q3
Four-week period ending July 22
- Average weekly sales: $56
- Total year-over-year sales growth: –23 percent
- Same-store sales: –39 percent
Four-week period ending August 19
- Average weekly sales: $59
- Total year-over-year sales growth: –20 percent
- Same-store sales: –34 percent
Five-week period ending September 23
- Average weekly sales: $61
- Total year-over-year sales growth: –10 percent
- Same-store sales: –23 percent
Q4
Five-week period ending October 21
- Average weekly sales: $62
- Total year-over-year sales growth: –5 percent
- Same-store sales: –21 percent
In August, Shake Shack debuted in Beijing, which notched opening sales among the highest of any international licensed store in company history. The chain is also continuing to pursue domestic licensed stores in airports and stadiums, despite their poor performance amid the crisis. Shake Shack expects to open 12 to 14 net licensed stores in 2020, with five to six coming in Q4. Fifteen to 20 more licensed stores are anticipated in 2021.
Licensing revenue stood at $4.1 million in Q3 or a 23.8 percent decrease from 2019. At the end of October, three international and 13 domestic licensed units were temporarily closed.
Here’s how licensing sales trended through Q4:
(Dollar amounts in thousands)
Q3
Four-week period ending July 22
- Weekly licensed sales: $4.6
- Total year-over-year licensed sales growth: –32 percent
- Number of open licensed stores: 98
Four-week period ending August 19
- Weekly licensed sales: $5.4
- Total year-over-year licensed sales growth: –23 percent
- Number of open licensed stores: 104
Five-week period ending September 23
- Weekly licensed sales: $5.7
- Total year-over-year licensed sales growth: –9 percent
- Number of open licensed stores: 105
Five-week period ending October 21
- Weekly licensed sales: $5.9
- Total year-over-year licensed sales growth: –10 percent
- Number of open licensed stores: 107
Shake Shack’s return remains split between a quickly recovering suburban footprint and dragging urban system. The chain’s comp base is 50-50 between the two locales, but urban stores now contribute 50 percent to revenue compared to 60 percent pre-pandemic.
Suburban stores slipped 16 percent in Q3 and 4 percent in October after a 38 percent drop in the second quarter. Meanwhile urban units decreased 43 percent in the quarter and 33 percent in October versus a 57 percent slide in the second quarter.
Here’s Shake Shack’s performance, divided by region:
Same-store sales for Q3
- NYC: –49 percent
- Manhattan: –60 percent
- Northeast: –18 percent
- Southeast: –25 percent
- Midwest: –36 percent
- West: –30 percent
Same-store sales in October
- NYC: –40 percent
- Manhattan: –51 percent
- Northeast: –8 percent
- Southeast: –13 percent
- Midwest: –23 percent
- West: –19 percent
In terms of menu innovation, Hot Chick’n returned in September, boosting chicken sales by 40 percent compared to August and July. The chain also launched its annual Pumpkin Shake and plans two introduce two new flavors for the holidays, Chocolate Spice and Candy Cane Marshmallow.
The chain plans to return to a regular cadence of LTOs in 2021, including the expansion of testing for its Veggie Stack and more innovation around beverage and custard items.
“We’re certainly not out of the woods when it comes to the impact from the pandemic, but each day brings us new momentum and confidence we’re on our way,” Garutti said. “With the innovation and work taking place across the entire company, we remain squarely focused on the safety of our operations, the ongoing enhancement and expansion of access across formats and channels, and the significant white space for growth globally that remains ahead of us.”
