The secret sauce in Shake Shack's success(Read article summary)
Shake Shack's first quarter earnings success was fueled by a new burger and price increases.
Both quick-service Jack in the Box and “fine-casual” Shake Shack reported solid quarters, and both were aided by introductions of popular new burgers as well as price increases. The latter indicates lessening consumer resistance to slightly higher checks, which can help all restaurants.
But the market remains highly competitive and sometimes edgy. Asked about the impact of the foray by Taco Bell and others into breakfast, Jack in the Box Chairman-CEO Lenny Comma noted that Jack has been in the daypart for a long time and that it will take rivals a long time to establish a serious presence there. He also laid down this challenge: “We know the space we play in and there’s no reason for us to change. We’ll stick to our space, but if folks encroach on our space, we’ll respond. You can count on that.”
For its Q2, ended April 12, 2015, Jack in the Box reported an 8.9% system increase in comparative sales. Company-stores’ 7.4% increase was the result of a 2.4% gain in transactions, 2.9% from mix changes and 2.1% from price. Comma called the ability to increase both average check and transactions “a real win.”
The primary drivers in the check-mix improvement were the premium-price Buttery Jackburgers that Jack in the Box added in January. These burgers have pre-seasoned patties and melted garlic butter. The Classic Buttery Jack is $4.49; the Bacon & Swiss Buttery Jack is $4.79. Comma said they were Jack’s most successful new product at least in the 14 years he has been with the company.
With Jack’s all-day menu, “a ton of Buttery Jack burgers are being sold at breakfast,” Comma said. They also have helped turnaround consumer perceptions of Jack in the Box’s burgers. In February he said research showed consumer disappointment with its burger lineup. “They said they expect bold craveable flavors from Jack in the Box and we weren’t doing enough of that,” he said then.
The success of Buttery Jack burgers mean they “foreshadow the kind of products we intend to introduce in coming quarters,” he added.
Shake Shack also was helped by a popular new burger as well as by price increases. It reported an 11.7% increase in per-store sales for its Q1, ended April 1, 2015. But half that increase—6%—resulted from price increases taken in September 2014 and again in January 2015. CEO Randy Garutti said the company doesn’t expect additional price increases this year.
“I’m proud of where our pricing is relative to other fine-casual concepts,” he said. Customer traffic gains accounted for 2.1% of the quarter’s gain.
Garutti said the $6.19/$8.99-double ShackMeister burger (with crispy marinated shallots and Shack Sauce) introduced at the beginning of this year will stick around and could become a permanent menu item. He also said he’d like to have a new LTO in the second half.
Shake Shack will open its first California store in 2016, sited on Santa Monica Blvd. in West Hollywood. It also will next year in Tokyo, where Garutti says it could do 10 stores over five years. Two additional Chicago stores are among 10 domestic openings planned for this year.