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Shake Shack CEO convinced digital is the future
The company will continue to enhance its digital channels by integrating technology that supports each one and adding guest-spacing functionality on a regular basis. The key, however, is to keep its experience "as frictionless as possible."
August 6, 2019 by Cherryh Cansler — Editor, FastCasual.com
The burger and digital business are good for Shake Shack Inc., which reported that second-quarter earnings beat estimates on a 31% revenue increase.
"Our digital channels, including delivery, were a key contributor to these results, in conjunction with a benefit from the shift in Easter timing within the second quarter, CEO Randy Garutti said in a company press release.
Before releasing the financials Monday afternoon, the chain first announced that it had named Grubhub as its national delivery partner.
Garutti spoke more in-depth about the deal during a Monday earnings call with analysts, saying that although he expects to see some volatility in delivery sales as the platform rolls out nationally, the chain will be better off when the dust settles.
"Making Shake Shack more accessible is an important growth lever for us, and this is something our digital channels allow us to do," he said.
The company will continue to enhance its digital channels by integrating technology that supports each one and adding guest-spacing functionality on a regular basis. The key, however, is to keep its experience "as frictionless as possible," which is never easy when adding multiple ordering channels.
"The proliferation of these additional ordering channels is a key consideration in our thinking for designing new Shacks, and how we continue to evolve in existing Shacks," Garutti said. All of this necessary physical, technological infrastructure will require continued investment in order drive long-term sustainable growth."
The infrastructure changes could mean split kitchens as well as adding better pickup areas to clear some of the congestion.
"So next year, you'll see some Shack designs that will really have a completely separate section for the digital pick up from the in-house pickup, because we really want to honor our guests who continue to come to Shake Shack," Garutti said.
Getting the data but no loyalty?
What may come to as a surprise to some is that Shake Shack's integration with Grubhub doesn't include a loyalty component, but Garutti plans to learn the ropes from the delivery company.
"They've just launched their new loyalty plan, so we've got a lot to learn about how that will work from their marketplace, but in terms of data and the tech integrations, there's a few important things," he said. "We've been able to work with Grub in a significant design that'll have optionality for us for just-in-time delivery, as well as really try to pair up that real delivery courier with real time how busy we are at Shake Shack in the moment. That tech integration is going to be crucial for us."
And that includes data.
"That was one of the most important considerations to this decision was for us to be able to have that data and be able to connect with our guests regardless if they choose to order on a third-party platform," Garutti said. " And that's one of the things we're really excited about. So over time, we expect to do some really great marketing both Shake Shack direct and together with our partnership with Grub."
Financial Highlights for Q2 ending June 26 were:
- Total revenue increased 31.3% to $152.7 million.
- Shack sales increased 31 % to $147.9 million.
- Adjusted pro-forma net income fell 6.5% to $10.2 million, or 27 cents a share.
- Same-Shack sales increased 3.6%.
- Licensed revenue increased 42.9% to $4.8 million.
- Shack system-wide sales increased 33.2% to $225.9 million.
- Net income was $11.2 million and adjusted EBITDA*, a non-GAAP measure, increased 18.5% to $25.9 million.
- 19 system-wide openings, comprised of 11 domestic company-operated Shacks and 8 licensed Shacks.
"It has been a tremendous year so far for our international business, having entered mainland China for the first time in January, the Philippines and Singapore in the second quarter, and most recently Mexico, earlier in the third quarter," Garutti said.
Don't forget about Beijing
To further the chain's international growth in Asia, it is entering Beijing through an agreement with Maxim's Caterers.
"We've had an incredible start in Hong Kong over the past year, and combined with our first six months in Shanghai, we're bullish on the tremendous growth opportunity we believe exists for the Shake Shack brand in Mainland China," Garutti said. "Overall, we have strong and positive momentum across the business heading into the second half of the year and continue to execute well against a robust domestic and international development pipeline, while also testing new Shack formats, and increasing accessibility and convenience through ongoing digital innovation."
Based on the numbers, the chain is raising its overall revenue guidance.
Updated 2019 Outlook
About Cherryh Cansler
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