NRN editor and restaurant finance expert Jennings breaks down what you should be watching in the industry this week. Connect with her on the latest finance trends and news at @livetodineout and firstname.lastname@example.org.
Shake Shack's "mother ship" location in New York's Madison Square Park
It’s Monday, so there’s another rumor of a possible restaurant company initial public offering.
Shake Shack, the better-burger concept owned by New York-based Union Square Hospitality Group, is considering an IPO this year, according to a Reuters report Friday citing unnamed sources.
The news follows an earlier rumor that the parent to the West Coast’s Habit Burger Grill chain is also preparing an IPO.
And don’t forget Denver-based Smashburger, which has also long hinted that an IPO may be in its future.
Shake Shack made its debut in 2004 as a walk-up kiosk in New York’s Madison Square Park. Since then, the chain has grown to 53 restaurants worldwide. In the U.S., all are east of the Mississippi River, though a location is scheduled to open in Chicago this fall, and units are scheduled to debut in Atlanta; Austin, Texas; and Las Vegas before the end of the year.
Internationally, Shake Shack already has 15 units in the Middle East alone, four units in Turkey, and one each in Moscow and London.
According to Reuters, the company is expected to report earnings of about $20 million next year.
The concept appeared to generate a cult following from Day One. Lines regularly wrap around the block at the chain’s New York locations. A live web cam at the Shake Shack “mother ship” in Madison Square Park lets guests see how long the line is before they arrive.
Parent Union Square Hospitality, founded by Danny Meyer, is known for its higher-end concepts, including the New York restaurants Blue Smoke, Gramercy Tavern and Union Square Café.
According to the New York Times, Meyer is credited with helping to stoke the now huge hunger for gourmet burgers.
Not surprisingly, given Meyer’s history, Shake Shack emphasizes quality ingredients. The burgers are made from Angus beef that has been raised without hormones or antibiotics, and is freshly ground.
The menu also includes all-natural, flat-top hot dogs. The chain recently brought back its original crinkle-cut fries, a frozen, pre-cut product. A fresh, hand-cut alternative was attempted, but guests didn’t like them as much.
Frozen custard and concretes are offered for dessert. Beverages include house-made lemonade, beer and wine. You can even get treats for your dog at some locations, such as a Pooch-ini, a dog biscuit with peanut butter sauce and vanilla custard.
Shake Shack chief executive Randy Garutti said the concept is designed for people who don’t eat at fast-food restaurants, but when they do eat a burger and fries, they want it to be good.
What investors look for is growth, and Shake Shack has that going for it — without franchising.
A minority investment in 2012 by private-equity firm Leonard Green & Partners L.P. has helped support Shake Shack’s expansion.
No doubt the brand will be welcomed on the West Coast, though it will face stiff competition from the long-beloved 295-unit In-N-Out Burger, as well as better-burger players like the nearly 100-unit Habit Burger Grill, the 270-unit Smashburger and even the much-smaller Umami Burger, which is scheduled to open its 23rd location next week in Las Vegas.
Shake Shack is awfully small to be considering an IPO.
Other restaurant companies that have gone public recently, including Noodles & Company, Potbelly and Papa Murphy’s Take ‘N’ Bake Pizza, are reportedly causing investors to “grab the Tums,” according to a report in The Street.
However, El Pollo Loco’s recent IPO, which had a first-day pop of 60 percent in the grilled-chicken-chain’s stock price, has added fuel to the IPO fire.
Some are wondering if investors are buying into companies that won’t be able to keep up with expectations.
When all is said and done, in a still-challenged economy, it may be the concepts that offer the best value for the price that show staying power as public companies.
Contact Lisa Jennings at email@example.com.
Follow her on Twitter: @livetodineout