Shake Shack is testing combo meals for the first time at some of its drive-thrus, as well as 8-ounce mini-shakes and sundaes at select restaurant locations, CEO Randy Garutti said during a conference call announcing the chain’s fourth quarter and annual earnings.
Garutti said the limited-service industry has already established that customers like combo meals, such as sandwiches, fries, and a drink, at drive-thrus, and he wanted to try them at his chain while still maintaining the brand’s identity of offering a relatively upscale experience.
“The question is whether [combo meals will] be the right thing for us long-term,” he said. “So we’re trying various pricing strategies, various visual and merchandising strategies, the things that do not put us in that fast-food category but still really give that consistency to the guest.”
He said the chain was testing whether guests wanted discounts as part of the meal, or whether they would be satisfied with easier ordering. He said they were also testing to see if combo meals would improve the number of items ordered and average check.
Desserts, such as the sundaes that Shake Shack offered before the pandemic and the mini-shakes that it started testing at the beginning of last year, are being tested at select locations to see if they can boost sales and increase afternoon traffic.
“We continue to hear from guests they want us to continue to have more [dessert] options,” Garutti said, adding that he wanted the chain to be more of a “dessert destination.”
“The whole goal there is can we increase some of that daypart expansion? Can we get some more afternoon [traffic]? Can we get a little [increase in] average check? And how do those things work into the digital universe that we live in today?” he added.
Shake Shack started testing sundaes in select markets last September.
He said those tests were small and would be immaterial to the chain’s overall performance.
That performance improved during the fourth quarter, with same-store sales up by 2.8% compared to the fourth quarter of last year. For all of 2023, same-store sales were up by 4.4%. Operating margins were up by 240 basis points to “nearly 20%,” Garutti said.
Systemwide sales were up by 21.4% for the quarter to $442.1 million. For the year they were up by 23.5% to $1.7 billion.
Net income was $6.8 million for the quarter and 20.5 million for the year.
Traffic, which restaurants as a whole have been struggling with, was up at Shake Shack by 1.4% for the quarter. Garutti attributed the increased traffic to the limited-time offers of spicy items and improved marketing
“I think it’s been a really well-played playbook by our marketing team,” Garutti said, adding that improved execution at restaurants also was a factor.
Sales were boosted in part by the rollout of kiosks, which are now at nearly all domestic locations, and raise average checks by “high single digits,” Garutti said.
Shake Shack opened 85 restaurants over the course of the year, of which 41 were company-owned domestic locations and 18 of those have drive-thrus. The chain ended 2023 with 518 locations globally.
Chief marketing officer Katherine Fogertey said sales continued to improve in January and provided guidance for the first quarter of 2024 of revenue between $288.4 million and $292.9 million.
Garutti said in December that he would be retiring this year, and told investors in Thursday’s conference call that a search for his replacement was underway and that a transition could be expected “in the coming months.”
He also announced the promotion of Michael Kark to president of global licensing from chief global licensing officer, effective Feb. 22. Kark has been with the company since 2012 and has grown the number of licensed units from four to 225.
“Michael’s been leading our international and domestic license relationships since he joined the company 12 years ago. He’s led one of the most nimble, innovative teams in the industry and will continue to chart the course for this exciting, critical part of our growth ahead,” Garutti said.
The chain also opened its first overseas licensed drive-thru locations, with one each in Mexico and Dubai. It added Bangkok, Thailand, as one of its markets and launched its first resort locations with a full bar in The Bahamas.
Contact Bret Thorn at [email protected]
