Urban recovery continues to challenge Shake Shack
Despite the lifting of COVID-19 dining restrictions across the country, Shake Shack is still struggling to get people in.
With fewer people roaming the streets of urban areas like downtown Manhattan, the New York-based burger chain has struggled to recover pre-pandemic numbers in many of its urban units.
“There is no doubt that our hardest hit Shacks are downtown, downtown Chicago, not just New York, ”CEO Randy Garutti said during the brand’s earnings call on Thursday. “These are the places that are bustling with offices, events, tourism, Broadway, some of our busiest shacks in the world continue to be down significantly.”
Garutti said the lack of international tourism is part of the reason sales in some urban locations are dropping. Without tourists, international and domestic, the cabins in the destination’s hot spots struggled.
“The takeover in our urban shacks always presents the greatest opportunity to recover sales, ”said Katie Fogertey, Chief Financial Officer.
Overall, second quarter comparable store sales were down almost 12% from the period 2019, a slight improvement from the 15% decline in April this year compared to April 2019. The fast casual ended the fiscal month of July down 9% from the previous year. quarter of the year in 2019. Comparable store sales in the second quarter were 52.7% higher than in the COVID round of 2020.
Even with the reopening of units at Union Station (DC) and Grand Central Terminal (NYC), Shake Shack executives expect the recovery of lost sales to be a slow process.
“Both of these huts depend on urban transport, ”Fogertey said. “They’ll likely weigh on the results in the interim, but it was important to reopen them and get them up and running as fall and winter approached.”
The numbers aren’t all bad, however. Sales at stores in the Southeast region, such as those in Texas, are above the 2019 averages for the same period. Company-wide sales ($ 187.5 million) were up 104% from Q2 2020. Fogertey pointed to the brand’s digital presence as cause for optimism.
“We are encouraged by the double-digit year-over-year growth in our digital sales, even as our sales in Shack improved over 300% year-over-year in the second quarter.” , Fogertey said. “As sales in Shack started to return, our digital retention remained strong at around 80% in fiscal June compared to fiscal January 21 when digital was at its peak. “
Despite the still tough quarter, Shake Shack has no plans to slow growth anytime soon. The company opened 20 national units operated by the company this year, with 15 to 18 more in the works by the end of 2021, with the majority of them expected in the fourth quarter. The chain will also open the first drive-thru Shack later this year, with a commitment to open 10 more drive-thru services in 2022. The licensing has also provided a boon for expansion prospects.
“Our expansion has been filled with dynamic openings,” she said, “including our first Shack in Shenzhen, China, our third in Beijing and our first at Istanbul Airport. We opened 15 new ones. Shacks licensed so far this year.
She said that “due to better than expected development conditions in Asia,” another 20-25 licensed Shacks can be expected across the region in 2022.
“We have a strong focus on the Asia-Pacific region,” added Fogertey. “After successful openings in Shenzhen, Macao, Beijing, Shanghai and Hong Kong, our partner in the region plans to build on its momentum in China with an expanded partnership to open more Shacks across the country over the next 10 years with new development agreements now signed. across central and southern China, including the cities of Chengdu and Guangzhou.
Food and paper costs were up 70 basis points from the previous quarter, which Fogertey attributed to the inflated cost of beef. Rising food and paper costs coupled with precautionary measures related to ongoing staffing issues across the industry means brand customers can expect menu prices to rise by 3. at 3.5% in the fourth quarter.
“That’s about 2% higher than the menu price we’ve historically taken at the end of most calendar years,” Fogertey said. We will assess the need for further price increases that may take effect in 2022, depending on how the cost landscape changes throughout the year. “
Shake Shack also recently introduced a 10% premium on third-party delivery orders.
Newly introduced menu items like the Hot Honey Chicken Sandwich, Hot Honey Chicken Bites, and Triple Chocolate Chip Milkshake have proven to be successful. The Chicken Sandwich has had a 10 percent attachment rate since its launch. Fogertey believes successful LTOs and premium additions are viable strategies to increase sales.
“The hot honey chicken, the bites… all of that comes with a higher ticket,” Fogertey said. “It’s a consumer who wants to add avocado, who wants to add bacon. These are ways to make the check grow more organically rather than just arbitrarily throwing away 5% or 6% in price across the board. “