Rob Lynch, when he joined Shake Shack last May, stepped right to the doorstep of a transformational year. In January, Lynch laid out the wide, long-term view—quadruple the corporate footprint to 1,500 restaurants over the next several years, starting with a 2025 calendar that promises 45–50 company-run Shake Shacks—the largest class in 21 years of history (alongside 35–40 licensed stores as well).
The fast casual opened four company units, including two drive-thrus, and seven licensed locations in Q1 to reach 589 stores (33 corporate and 256 licensed, 211 of which are international). That compares to 525 this time a year-ago.
Lynch unraveled a host of topics Thursday on Shake Shack’s latest earnings, from menu innovation to drive-thru to six months of ops revamping that helped it serve up unit-level margin expansion of 120 basis points despite a volatile market (weather, wildfires, and industrywide consumer softness). But the one point he said excites him most about Shake Shack’s model today is the new unit growth.
Even with opening the most Shake Shacks on record, the company will decrease costs by at least 10 percent ($2.2 million versus $2.4 million last year) while shortening timelines by nearly two months—a target Lynch brought up in previous calls. And it’s still happening, he said, with tariff and construction concerns factored in. “We’re coming in below what we forecasted for the year at this point,” he said.
In the last two weeks, the brand reported two record openings—the highest sales debuts for New York City-born Shake Shack ever—with drive-thrus in the Southwest. “If that doesn’t tell you that we are changing what this brand can do, I don’t know what will,” Lynch said. “And our ability to open new formats in geographies that haven’t been kind to our core geographies in the past outside of New York, and open with that amount of volume, that amount of sales in this consumer environment, is really a testament to what’s coming.”
Speaking of drive-thrus, Shake Shack has tagged this channel during Lynch’s tenure. Given the reality the brand doesn’t operate like much of its quick-service peer set (namely in how long food takes to come out) this category had its perception gaps to cross. Shake Shack had to get faster, for one. Yet there was also a value issue. This led Shake Shack in the past month to test new digital menuboards that feature “clear and simple” combo options for customers, which reduce the time it takes to order, Lynch said.
Like the drive-thru itself, launched by Shake Shack in early December 2021 in Maple Grove, Minnesota, the notion of even offering pre-built options would have felt like an identity crisis years ago. If there are two triggers customers associate with “fast food” and not “fast casual,” it’s combo offerings and the drive-thru.
On some level, though, understanding that nuance was the key to unlocking what wasn’t working. Shake Shack’s drive-thru business and cafes operate along different occasion lines.
The brand’s $9.99 Chicken Combo, Lynch said, was a long time coming for the chain on drive-thru. Shake Shack had tested myriad models since 2021 to try and improve what’s, as noted, a unique dynamic. Drive-thru customers have been conditioned to expect food that’s sitting there and delivered as soon as they roll up to the window.
That’s not Shake Shack’s premise. It makes food fresh to order and had to evolve its ordering processes as well as make-models and hospitality protocols. So in the last 30 days, eight drive-thrus featured combos and the digital menuboards in tandem. It’s resulted in “significant improved in both ordering time, speed of service, accuracy, and guest satisfaction,” Lynch said.
Shake Shack has improved speed and service and order accuracy, year-over-year, for five consecutive quarters.
The brand will now go “all-in” and deploy that combination approach (combo meals plus digital menuboards) across all 40 of its drive-thrus in the next month. Lynch added Shake Shack is considering combos in other channels, too, from kiosks to potentially in-store.
But it will start with the drive-thru, where Shake Shack can track the implications and opportunities before trying to translate over.
Shake Shack reported same-store sales growth of 0.2 percent, year-over-year, in Q1. Restaurant-level profit margin was 20.7 percent of sales (the 120-basis point improvement and $64.2 million in restaurant-level profit) and the brand called for at least 50 basis points of store-level margin expansion annually translating to low- to high-teens adjusted EBITDA growth going forward, better than the low- to mid-teens projected previously. That marked the highest Q1 restaurant-level profit margin since 2019. And it happened with beef costs up mid-single-digits and 3–4 percent wage inflation.
Shake Shack also noted it expects 19–23 openings in Q2 and for systemwide unit growth to quicken to 14–16 percent in 2025 instead of the 14–15 percent shared on previous calls. Up from 12 percent in 2024.
One of the reasons for this steady performance despite macro headwinds returns to this topic of Shake Shack’s evolving DNA. There are multiple value propositions within its makeup. Lynch said Shake Shack “fundamentally” believes, all encompassing, it’s the best value in the business.
The company doesn’t consider itself fast food, even though it competes against the field. So it must deliver a value prop for frequent quick-service users.
In turn, Lynch has juggled holding price points on core and comparable items while staying true to the premium innovation that separates Shake Shack. For example, the Shack Burger (cheeseburger) and fries are items a customer walking in might compare to other QSR brands. Shake Shack wants to keep those prices competitive “because we know that there are two different ways that consumers look at value,” Lynch said. “And it’s absolute price points and it’s value for the money.”
In other terms, some guests shop based on how little an item costs. Shake Shack doesn’t want to fall out of that consideration set. Meanwhile, it’s going to develop high-price, unique items to win on differentiation and the “worth” of experience.
A “Dubai Chocolate Pistachio Shake” the brand ran as an LTO, starting April 7, showed the blueprint. First introduced in the Middle East, it featured toasted kataifi shredded phyllo and a crackable dark chocolate shell. Shake Shack offered it across 30 locations in New York City, L.A., and Miami. Lynch said there were lines around the corner of people trying to get it before stores opened. It sold out by noon in some cases despite being priced at $8.49—the most expensive shake the brand’s ever tried.
It also achieved some of the best new guest acquisition metrics for any product or any LTO at Shake Shack, he said, and drove incremental traffic and mix.
“There are a lot of guests out there who really value our premium innovation and our premium items,” Lynch said. “So that’s how we’re going to continue to drive our traffic despite this challenging competitive traffic environment that we’re competing in. So it’s not all about discounts and promotions even though we feel like we’re getting a lot better at that. We’re doing a lot of targeted incentives. We talked last year about building out our guest recognition capability where we can track our guests’ behavior and a much easier way across all of our channels and deliver targeted incentives that launched in Q1, and we’re optimizing it, so that we can benefit from that in the back half and moving forward.”
Combos, he circled back, are not necessarily designed solely to drive value. They’re as much about the ease of ordering and operational accuracy in the drive-thru as what they cost. However, there is a value halo that can grow.
Shake Shack didn’t break out mix numbers from the March-launched test, but did say guest satisfaction improved alongside speed and accuracy. Not all of it can be attributed to the combo part, too. Shake Shack made the call to put the double combo as the first one on the board. Just with that change alone, it saw a shift in mix from singles (burgers) to doubles, which was revenue and margin profit accreditive, Lynch said. It led to more holistic planning around how to drive mix and margin without, again, having to take price on core items vital to value seekers.
“I think a lot of people think, ‘oh, combos, you’re giving up margin and you’re giving discounts, so it’s going to negatively impact your mix,” he said. “That doesn’t have to be the case.”
How Shake Shack placed things mattered. As did how it incentivized customers to increase their attachment rate.
“The way we’re featuring our shakes in a prominent way on the right panel right next to the combos can drive higher attachment of our shakes on top of beverage, fries, and sandwich orders,” Lynch explained.
Shake Shack exited Q1 with low-single-digit menu price (less than 2 percent, year-over-year). Lynch said the brand’s operational agility helped it become more productive and mitigate the need to take more price in what’s clearly a competitive, value-oriented landscape. “This makes me especially excited about what this business can look like when macro tailwinds are once again at our backs,” he said.
Traffic in the quarter was down 4.6 percent due to unfavorable weather and larger industry pressures, CFO Katie Fogertey noted. She added Southern markets—those less affected by weather—outperformed with Houston, Miami, and Orlando achieving at least high-single-digit same-store sales. New York City, Washington, D.C., and L.A. were more challenged. Same-store sales declined about 1 percent into April as well as headwinds persisted and the brand rolled off 3.5 percent price in March, leading to material improvements as the month progressed.
In the last two weeks of April, thanks to new menu news and improving weather, as well as a strong spring break and Easter week, comps ran into he positive low-single-digits.
Going forward, Lynch has set into motion some of the culinary strategy he was well-known for during stints at Taco Bell, Arby’s, and Papa Johns. Shake Shack developed a calendar planned 12 months in advance, he said, which ensures it will have compelling offerings year-long without any let up. “Culinary innovation is the heartbeat of Shake Shack and developing ideas that QSR and even fast casual competitors are unable and unwilling to offer is one of the things that drives our competitive advantage,” he said.
In Q2, the brand brought back its barbecue lineup with four sandwiches, up from two last year, including a Carolina BBQ Burger with Fried Pickles. The latter ingredient is one the brand has offered as a side before, but not on a burger.
Shake Shack featured its long-running Truffle LTO in Q1, driving mix. Yet there wasn’t a lot of fresh messaging down the stretch. Lynch said that’s going to change. The LTO calendar being devised now is “full of innovation, not just on our burgers or sandwiches, but on our sides, on our beverages, and on our shakes, which is maybe a little bit of a new way to think about things here,” he said. “I mean, we’re coming with real innovation on beverages, which is not normal for the brand.”
Shake Shack has opened the aperture for what it can do from a culinary standpoint and started to incorporate a larger go-to-market value proposition that includes its core approach, LTOs, combos, and how it thinks about promotions and pricing.
Something Lynch doesn’t want to get lost in the conversation, howeever: that 2 percent menu price. It’s been multiple years, he said, since Shake Shack ran that low on year-over-year figures. “And we are really focused on being able to deliver operational and supply chain productivity, so we don’t have to take a lot of pricing moving forward,” he said. “And we can still deliver great comp numbers. So we’re committing to higher margins while also focused on not leveraging pricing as much as we have in the past. And over time, that’s going to improve our value proposition even more and help us be able to continue to outperform.”
The key to innovation will be to focus on launches that make employees’ lives easier, not harder, Lynch continued. That’s a lesson he learned at Taco Bell, where the brand “could make 450,000 things out of 14 ingredients.” And one he brought to Arby’s when the chain developed an LTO lineup that had minimal impact on operations and supply chain. That’s what Shake Shack will focus on.
In the last six months, he said, the company transformed restaurant operations. You can see it in the margin improvement. “The last thing we want to do is penalize them for their efficiency and productivity by dumping a bunch of stuff into the Shacks that, that create an operational nightmare for them,” Lynch said.
Shake Shack can achieve this through equipment investments, managing its supply chain, and implementing new processes and procedures. The reason it didn’t roll the Dubai Chocolate Shake, for instance, was because it had to grill the kataifi. It asked operators to cook phyllo dough on flat tops each morning. It was something that couldn’t happen during the day.
So stores prepped 25 shakes and did so in 30 units. More recently, the company went out and found an ingredient that doesn’t require the same prep. So now it can look at opening the innovation up across the system.
“A true strategic innovation, culinary innovation calendar doesn’t happen in a couple months. And why is that? Because we are not shooting from the hip here,” Lynch said. “We have built a stage gate process where we are developing new ideas across all of our platforms and then we are testing them, qualifying them, operationalizing them, so that when they hit the calendar and they show up at our Shacks, they’re ready to go and drive comp sales growth. So we are building those new ideas right now.”
