Fast-Casual Burger Chain Plans 10 Total Drive-Thru Locations Amid Steepening Competition
Burger chain Shake Shack plans to accelerate the number of company-operated locations it opens in 2022, to as many as 50 from 36 last year, as it also rolls out more drive-thrus in another surge of the pandemic.
The New York-based fast-casual restaurant company, founded by Danny Meyer, on Tuesday discussed its plans for this year during the 24th annual ICR Conference aimed at investors. The company also reported preliminary results for the fiscal fourth-quarter that ended Dec. 29, saying same-store sales rose about 21% compared with the same period in 2020 and 2.2% versus 2019.
But the sector that Shake Shack is competing in is very competitive now, presenting more challenges than ever. And restaurants, including Shake Shack, are once again being affected by the proliferation of COVID-19 cases and its omicron variant. It's difficult to navigate a course through on all those obstacles.
"Shake Shack's expansion opportunity diminishes each year in the U.S. as they expand in higher-volume locations like Times Square and the Vegas Strip and set their sites on more suburban settings," CEO of consulting firm FoodserviceResults Darren Tristano said in an email to CoStar News. "The fast-casual burger landscape has become saturated with chain brands and independents with competition in burger occasions growing in the full-service restaurant side. Sales growth will come from stealing share from other fast-casual burger restaurants and continued price increases from food and labor costs."
Shake Shack said it opened a gross 36 company-operated restaurants and closed one in 2021, for a net of 35. It is targeting 45 to 50 openings in 2022. There were 23 net licensed Shake Shacks opened, net of three closures, in fiscal year 2021.
As of the end of the fourth quarter, there are 218 company-operated domestic Shake Shacks and 151 global licensed eateries compared to 183 and 128, respectively, versus the prior year.
The company opened its first-ever drive-thru restaurant in the fourth quarter in Maple Grove, Minnesota, and then one in Lee's Summit, Missouri. It aims to have at least 10 total drive-thrus open by the end of this year, in cities such as Orlando, Florida, and Denver, Colorado, the company said in its presentation.
What Shake Shack described as an "exterior-focused drive-thru" is slated to open soon in suburban North Jersey in Hasbrouck Heights. That drive-thru test site will have limited or no seating inside, just an outdoor dining patio, Shake Shack CEO Randy Garutti said during his presentation.
"That could be a format we'd look at in the future," he said.
In Oak Lawn, Illinois, Shake Shack has a location with just a drive-up window, for food that has already been pre-ordered online.
"Not a traditional drive-thru, and we have a handful of these open and we'll be doing more this year," Garutti said.
The chain also plans to continue its urban expansion, with a Shake Shack slated for Manhattan's Meatpacking District at the base of the High Line, a public park built on a historic freight rail line elevated above the streets on New York's west side.
"We're looking at the outer boroughs, more in Manhattan," Garutti said.
Many of Shake Shack's recent sales metrics were positive.
"We are pleased with the continued recovery we saw in the fourth quarter of 2021, outpacing historical seasonality, with average weekly sales of $74,000 compared to $72,000 in the third quarter of 2021, and same-Shack sales versus 2019 growth of 2.2% in the fourth quarter, improving from down 7.3% in the third quarter, due to strength in both urban and suburban markets," Garutti said in a prepared statement.
But Shake Shack warned that its operations are being impacted by omicron.
"We also saw our operating hours drop in the last week of [fiscal year 2021] and the first two weeks of [fiscal year 2022] as a sharp increase in COVID cases had an impact on our ability to staff and keep all of our restaurants fully open," Shake Shack Chief Financial Officer Katie Fogertey said in a statement.
"We expect these trends to continue to impact sales in our company-owned Shacks and our licensed business," she said. "However ... we remain committed to investing in what makes us so unique: our people, our digital transformation, format evolution and the guest experience."