Shake Shack’s same-store sales grew 4.3% in the fourth quarter. |Photo: Shutterstock.
With an ambitious quest to quadruple its domestic store count, Shake Shack is now focusing on operations.
CEO Rob Lynch on Thursday said the company plans to open a new Kitchen Innovation Lab in Atlanta later this year, near a new support center there.
The lab will serve as a place to test innovations to improve speed, test new kitchen designs and ultimately roll out new formats a lot faster, as well as ensuring a better return on those operational investments.
In the past, Lynch said the 579-unit chain would test innovations by building units with new models. “So, while you’re trying to open up a new restaurant in an optimized way and drive performance, you’re also testing ideas and thinking about, well, maybe this could work, or maybe that could work,” he said.
It took a lot of time.
The new Kitchen Innovation facility would be a modular lab that would allow for the test of new kitchen equipment and build-outs, as well as flows and processes, which could greatly accelerate innovation, he said.
Lynch said the company is moving away from thinking of New York as “headquarters,” but instead thinking of three offices as support centers. No one is being relocated to Atlanta, he emphasized. The New York office will remain, as well as the existing international office in Hong Kong.
But having an office in Atlanta gives the company an opportunity to recruit talent from other regions, he said. Shake Shack recently named Justin Mennen chief information and technology officer, for example, and he will work out of Atlanta.
“Atlanta has over 60 universities within a two-hour drive from it. It’s a hotbed of restaurant operations talent. It’s also a hotbed of tech talent,” Lynch said. “So we feel great about opening this office, giving us a lot more access to recruiting, and also giving us a space to be able to do a lot of this innovation work.”
Lynch, who joined the company as CEO eight months ago, said several operational moves have begun to show results.
In January, the chain instituted a scorecard to measure performance of each restaurant. The management tool measures things like staffing and retention; performance, which includes things like speed of service; and profit.
Last year, a focus on speed of service has shaved one minute off average wait times, for example, and order accuracy rates were the best on record, Lynch said.
A new AI-driven labor model rolled out in the fourth quarter last year drove about 80 basis points of improvement. This year, the chain plans to develop and test new strategies for improving speed and accuracy in the drive-thrus.
A big push is driving frequency.
Shake Shack’s domestic same-store sales for the year increased 3.6%, but traffic was nearly flat. For the fourth quarter, domestic same-store sales increased 4.3%, which was largely based on menu pricing and mix. Traffic was slightly negative.
Lynch said marketing campaigns, like the Chicken Sundays and Worth It ads that ran last year drove incremental sales. Awareness of Shake Shack’s chicken offerings increased 5% in the fourth quarter.
But menu innovation will be the key driver and this year more product tests are planned, Lynch said. He warned that the chain didn’t have a new LTO to play against last year’s February launch of a Korean Barbecue burger, which was a big hit.
This fall, the chain brought back its Truffle Burger, which has outperformed its previous time on the menu in 2021 and 2023. But the LTO has been on the menu for about four months, which Lynch said could be too long to stimulate demand, even though guests love it.
“So, as we look to the future, our goal will be to strike that right balance between giving people a window to be able to drive repeat frequency around an LTO that they really love, but also making sure we have refreshed our LTOs enough, quickly enough, to be able to continue to stimulate new trial and new demand of new items,” he said.
The growth Shake Shack has planned will also require a big investment in people, Lynch said. The company aspires to increase the number of internal promotions by 10% this year.
Shake Shack has two new programs to enable that number to increase in future:
Shift Up is designed for high-performing hourly team members to attend an 18-week intensive development program to give then tools they need to run a restaurant with an average unit volume of $4 million.
Last year, all of the Shift Up team members have stayed with the company and nearly one-third have been promoted to managerial roles so far, Lynch said.
A second program called Lead to Succeed teaches newly promoted managers in support centers the skills they need to transition from an individual contributor to leading others.
“The need to promote from within is vital to our growth due to our unique group model rooted in fine dining, where everything is created fresh to order,” said Lynch. “As a result, this requires a different type of manager versus traditional QSR, and promoting from within helps ensure that we are opening our new restaurants with excellence.”
Lynch said first quarter results have been choppy, but that was largely because of bad weather across much of the country, as well as the impact of the fires in Los Angeles, where Shake Shack has about 27 restaurants.
All team members were safe and the chain has been matching donated contributions to support those impacted by the fires. But Lynch said sales were slow in January and that residual effect is expected to linger for a while.
Still, Lynch said the operational improvements, as well as the focus on marketing and culinary will help offset that impact.
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