5 Lessons Learned from Shake Shack’s Strategy & Growth
Behind every great brand is a great success story and Shake Shack is no different. The fast casual restaurant chain which brought in $900.5 million in 2022 has figured out how to carve out a stake in the highly competitive food service industry. Shake Shack may not have the sales or reach of a McDonald’s but it does have a place in the hearts of millions of consumers. If you are curious about how Shake Shack became a household name, then consider how it has grown over time.
1. Don’t underestimate small beginnings. Shake Shack famously started off as a small hot dog stand in Madison Square Park in New York City in 2001. The stand didn’t even serve Shake Shake’s now signature hamburgers but it was a runaway success with long lines of customers often waiting two to three hours to be served.
Shake Shake’s founder Danny Meyer set up the hot dog stand as part of a revitalization project for Madison Square Park with all sales being funnelled back into the park. Since the hot dog stand was so popular Meyer decided to bring the stand back to the park for two more summers before deciding to open the first Shake Shack location in Madison Square Park in 2004.
2. Find the white space. One of the reasons Shake Shack took off is because there weren’t a lot of similar options at the time. Shake Shack focused on serving fresh, natural food (without hormones or anti-biotics), often derived from locally sourced ingredients. While eating organic food for many is a way of life now it took a while before it would become mainstream. Walmart, for example, became the largest seller of organic food in the United States in 2015 more than a decade after the first Shake Shack opened. The fast food industry has also taken a while to catch up with McDonald’s only starting to make burgers using fresh beef patties in 2018.
The other trend Shake Shack helped to popularize is the rise of fast casual restaurants. These restaurants cater to consumers who want to grab a burger on the go but want an elevated version of it. Elevated means higher quality food made from fresh, natural ingredients. The casual part comes from the fact that fast casual restaurants do not offer full table service. These restaurants sit in between fast food restaurants like McDonald’s and casual dining restaurants like The Cheese Cake Factory. For many retailers success or failure has to do with timing. Shake Shack had a vision twenty years ago for what consumers never knew they wanted and it was right.
3. Serve the local community. Shake Shack tries to differentiate itself by adapting to local markets. While the core of its menu tends to stay the same it often adds a local flair. As Randy Garutti, the CEO of Shake Shack explains: “that's the entire strategy we have of being the anti-chain. Take, for instance, what we did in Philly: when we started construction, instead of doing what everyone else does--put up a big, ugly wall that's an eyesore in the neighborhood during construction--we teamed up with a local Philly designer to turn the plywood siding into a living green wall. It was a little… ‘park,’ if you will, and our neighbors responded enthusiastically!”
“Then, for our menu, we teamed up with local favorites, La Colombe Coffee, Termini Brothers Bakery, and Federal Donuts--some of the best artisanal producers in the city--and added their best products into our "Concretes" on our Frozen Custard menu. Each one is named for Philly, and each is produced near our Shack. We even sell Yuengling beer!
When we talk about design, menu, team, and everything else that goes into building our Shacks, we always talk about doing it ‘of its place’." Shake Shack’s philosophy is no different when its expanding into international markets. It has served a cherry blossom shake in Japan, a red bean shake in South Korea, and a shake made from pandan, a tropical plant, in Singapore.
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4. Go slow. Instead of moving fast and breaking things which is Facebook’s mantra Shake Shack’s philosophy is slow growth over time. After Shake Shack opened its first location in 2004 its second location didn’t open until four years later in 2008. Then in 2010 the first Shake Shack outside of New York opened in Miami. Shake Shack went public in 2015 and in its IPO filing it outlined its plan to open 10 stores a year. That’s a far cry from Five Guys which opened 145 stores between 2010 and 2013. Two decades after opening its first hot dog stand Shake Shack has more than 400 locations a relatively small number given the popularity of the brand.
Part of this slow growth strategy comes from an experience Meyer had when he was a child when his dad’s travel tour company when bankrupt after overexpanding. “I'll never forget sitting in the living room with my brother, sister, and mom as my dad tearfully told us his travel company was not going to make it,” says Meyer. “As a 14-year-old, I'd never heard the word bankruptcy before. After that, I always associated his bankruptcy with overexpansion. I think that's why after my first restaurant, Union Square Cafe, opened, it took me 10 years to open a second one.” “It's easy to think running a business has to be a sprint. If I've learned anything at all, it's that if you're lucky enough to lead a healthy, long life, there's time,” says Meyers.
Meyers also explains that: “time helped Union Square Cafe achieve something very few businesses do, which is essentiality, the sense that it mattered in people's lives. The shelf life of innovation is about two seconds today. Even if you have the best idea, it's going to get copied. The thing that cannot be copied is how I made you feel.”
Another cornerstone of Shake Shack’s success is: "the bigger we get, the smaller we need to act." As Garutti explains: ”we want to be the ‘anti-chain chain.’ We never talk in terms of ‘units’ or ‘templates’ or ‘how fast can we go?’ We talk about, what great community can we be part of’?”
5. You get what your pay for. Shake Shack has a history of paying its employees more than industry standard. Meyer believes if you pay employees higher rates they tend to stay longer and are of a higher quality than employees who accept roles at lower rates.
In 2020 as a thank you for enduring the pandemic Shake Shack paid its hourly employees holiday bonuses of $250-$400 and it shelled out an additional $6 million in wages. In 2021 Shake Shack announced it would be increasing staff compensation in total by $9 million by the end of 2022. A job at Shake Shack can be lucrative with General Managers at Shake Shack making over $100,000 including equity based compensation.
In the past Meyer has said: "one of the things I'm proudest about is just how many of the managers at Shake Shack, who all have stock options, started off as hourly workers, but at a much higher rate than they might have made in the fast-food world."