Name: Shake Shack—the Anti-Fast Food Chain—Turns to Drive-Thru as It Expands
Uploaded: 2024-05-30T04:01:00Z
Duration: 6 min 31 s
Description: Shake Shack built a $4 billion business as an alternative to fast food, with gourmet cachet and lofty prices. But as it expands, it’s embracing a proven fast-food strategy—drive thru—while trying to preserve its premium branding. Photo: Shake Shack

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Shake Shack built a $4 billion business as an alternative to fast food, with gourmet cachet and lofty prices. But as it expands, it’s embracing a proven fast-food strategy—drive thru—while trying to preserve its premium branding. Photo: Shake Shack

https://m.wsj.net/video/20240529/cf2ceace-d03b-4547-bd3f-60e8e29a92c7/1/hls/manifest-hd-wifi.m3u8

Shake Shack—the Anti-Fast Food Chain—Turns to Drive-Thru as It Expands

Narrator: Shake Shack has always made it clear it isn't fast food. Everything is made to order, and that customization means customers have to wait. But as Shake Shack expands, it seems to be taking a lot of ideas from fast food. It's building drive-thrus, adding rest stop locations, and installing ordering kiosks. As Shake Shack tries to compete in spaces traditionally dominated by fast food, it's got to speed up operations because many customers expect to get their food quickly. But this is a major challenge for a company built on a guarantee of fresh cooked meals every time. This is The Economics of Shake Shack. Long lines have been part of Shake Shack's DNA from the beginning.

When they first started this popup, roadside hotdog and restaurant stand in Madison Square Park, there was lines, so it really had this kind of cult vibe around it in New York.

Narrator: But as Shake Shack continues to expand, it has to speed up.

We want it to be a little more convenient. We wanna be a little more consistent on our speed and our execution.

Narrator: A big part of this initiative is drive-thru. That's been a major priority for Shake Shack since the pandemic dampened walk-in business in some of its main markets. Shake Shack has opened more than 30 drive-thru locations in the past few years, and it's planning to build about a dozen more this year.

Have a good one, all right? Take care.

Narrator: Drive-thrus can be significantly more profitable than dine-in service because customers cycle through the restaurant faster and they do big business. McDonald's, for instance, does about 70% of its multi-billion dollar US business from drive-thru.

They can be very efficient. You can do a lot of sales quickly. There's not the expense of maintaining a dining room in the same way, so you really save in certain ways, particularly if you can get the volumes of people who are able to go through your drive-thru at peak.

Narrator: This has led lots of companies to get into the drive-thru business, and they compete fiercely over wait times. Taco Bell, for instance, has a four-lane drive-thru outside Minneapolis with dedicated pickup points for mobile orders and delivery drivers. Chick-fil-A has used so-called upstream ordering for years, where staff come out with tablets and take orders in person. That avoids a bottleneck of customers waiting to reach the menu board, all to save precious seconds. According to Mystery Shopper Data, Taco Bell and McDonald's drive-thrus had total wait times of about four to seven minutes, which includes the time you're waiting to order, ordering, paying, and then receiving the food. Shake Shack doesn't disclose wait times for its drive-thrus, but it said on past earning calls that just filling orders typically takes it around six to eight minutes. Decreasing wait time has been a major initiative for the company.

We do a couple of things a little bit differently in our drive-thrus than we do in our restaurants. It's not compromising the cook fresh, but it is really on the technology side.

Narrator: They start cooking orders as soon as customers place them, rather than waiting until they pay.

Hello, how are we doing today?

Narrator: Similar to Chick-fil-A, they sometimes send staff to bus orders. Maintaining a premium feel is important to justifying its prices. Shake Shack is middle of the road for a fast casual restaurant, but much more expensive than fast food.

It is a tension that we battle every day between speed and cook to order food. We can't compete on speed because we wanna cook our food in a certain way, but we can certainly emphasize our hospitality and certainly delivering on the high quality of the product.

Narrator: We've also done time motion studies to maximize efficiency in their kitchens.

We've been working on a bunch of different ways of how we're flowing food throughout the kitchen to really optimize and reduce the number of steps that our team members have to take. For example, we used to wash and cut all of our lettuce in house. We've then transitioned to pre-cut lettuce, so now our team members focus on, you know, making sandwiches and not having to sit there in the back of the house and cutting up and washing lettuce all day long.

Narrator: Shake Shack operates most of its own restaurants, but it's increasingly relying on licensed locations as it expands internationally, and to rest stops, stadiums, and airports. That means it selects outside companies to partner with and those companies pay fees to Shake Shack. That's been a major driver in Shake Shack's rapid expansion. Shake Shack opened its first permanent location in 2004. Its sales pitch to customers emphasized fresh ground antibiotic-free beef, and it was founded by fine dining leader Danny Meyer, known for its restaurants like Eleven Madison Park, which gave it cachet. It's now a $4 billion company with over 500 locations around the world. The company says its international locations have also helped it develop new products, particularly limited time offerings.

We learn a lot from our licensed locations. Even our Chicken Shack Sandwich was actually born out of the international licensed business for Shacks that did not serve beef. We also had locations that had kind of more of a regional flavor profile, like the Korean fried chicken sandwich that we brought over here.

Narrator: But operating at this scale with fresh ingredients in a premium experience has challenges.

It's important for them still to be premium and have that vibe. I mean, people are paying more for Shake Shack than they would at Burger King, and so you have to believe that the food's better and the brand's better.

Narrator: Shake Shack had to invest significantly in data operations so it doesn't order too much or too little food.

The ability to get a sales forecast very, very tight really sets the tone for how the profitability can be at that location and across your entire fleet. It means that your waste is within control and that you're not selling out of items and you're able to meet guest demand. We're not having to make decisions on a particular menu item, which might have a negative impact, we're literally just getting smarter at our operations.

Narrator: Shake Shack has ambitious expansion plans led by its new CEO who brings experience growing major chains in the quick service restaurant industry. Over Rob Lynch's time at Arby's, first as CMO and then as president, sales grew over 20%. At Papa Johns, he helped the company recover from a significant slump and opened hundreds of new restaurants, Though the chain has been lagging recently.

It's challenging to take a homespun New York City brand or any brand that's, you know, grew up in a certain geography and push it out nationally. I mean, the company is really working now to try to be more efficient, to try to make restaurants run better and they are having some success. But I think the real focus on Shake Shack now is can they keep running these restaurants profitably and continue to grow?

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