Shake Shack sees promising early results in drive-thru

It’s early days, but Shake Shack likes what he sees so far from his drive-thru.

Over the past four months, the burger chain’s six drive-thru restaurants have generated average weekly sales of more than $80,000, compared to a system-wide average of $76,000.

Executives said customers visit its drive-thru more often, and about half of visitors use the drive-thru in places that have it.

The results left the channel optimistic about the future of the format. Shake Shack opened its first drive-thru in December 2021 and plans to open more.

“We obviously want to be careful not to share too much data at this early stage, but we continue to be encouraged by the AUV potential as well as the long-term profit and return metrics we believe we can derive from this model. ,” CEO Randy Garutti told analysts on Thursday, according to a transcript on financial services site Sentieo.

The 395-unit chain expects to have at least 10 drive-thrus open by the end of this year and between 20 and 25 next year. Garutti added that the format opens up new real estate opportunities for the chain, which started out as an urban concept but has focused much of its recent development on the suburbs.

Tempering the chain’s enthusiasm for drive-thru is a challenge associated with building restaurants these days. The cost to build a drive-thru, for one, “is significantly higher than a normal Shack at the moment,” Garutti said, adding that Shake Shack construction costs have increased by about 15% this year.

Construction also takes longer. Stores slated to open in 12 to 15 months are being pushed back to 15 to 18 months, Garutti said, noting delays for things like cold rooms and air conditioners. The drive-thru may take even longer due to the additional perm. “That’s been the most frustrating thing,” he said.

Drive-thru was a bright spot in an overall strong quarter for the New York-based chain. Same-store sales increased 10.1% year over year, boosted by a 7.8% increase in traffic. Sales in urban locations continued to rebound, up 19%, while suburban locations rose 3%.

Sales declined towards the end of the quarter and into July, however, which executives said was in line with normal summer trends. And the chain is still struggling with declining foot traffic in major cities.

“We believe our recovery would have been much stronger without mobility, namely the return to the office, urban transport and urban tourism stabilizing and, in some cases, reversing,” said chief financial officer Katie Fogertey.

Lunch and dinner traffic in its key Midtown Manhattan market, for example, is still more than 40% below 2019 levels.

“Forty percent of our lunch guests just aren’t there yet,” Garutti said. “And you look at whether it’s metro, mobility, tourism and other things, they just haven’t come back to where they were.”

Shake Shack also saw an expansion in its bottom line: operating margins at the restaurant level were 18.8% for the quarter, up more than 3 points from the first quarter and approaching its margins of 19.2% from a year ago.

And yet, the chain expects food and packaging costs to continue to rise through the end of the year. It will raise prices again – up to 5% to 7% – to keep pace. That would lift its year-over-year prices to 3% to 4% in the third and fourth quarters, Fogertey said.

“We wish we didn’t have to, but it’s really the minimum we need to do as we look at so many of our business’s rising input costs,” Garutti said. French fries in particular have seen record inflation, he said. “And while the beef has kind of leveled itself, it’s leveled at a very high level.”

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