Add Shake Shack to the small but growing list of restaurant chains that are cheering a decline in delivery orders.
The fast-casual burger chain did not quantify the drop-off but noted that transaction counts were down overall for the second quarter by 1.3% despite a 4.7% increase in the number of on-premise orders. The decline held same-store sales growth to 3% even though menu prices were running 4.3% above the year-ago level.
Yet management expressed near elation at the decline in delivery, noting the greater profitability of in-store transactions. “We benefited,” CFO Katie Fogertey stressed during the company’s Q2 earnings call with financial analysts.
She explained that a meal eaten in the dining room does not require as much packaging as a delivered order does, a considerable savings on top of the elimination of third-party delivery fees. Plus, the tendency of guests to add on a drink or a dessert is considerably higher, according to Fogertey.
The chain's experiences with delivery are consistent with what other restaurant operations have been saying about the channel, a source of phenomenal growth during the pandemic. Other brands have similarly reported a drop-off in third-party orders in 2023, with the high cost of the service usually cited as the main reason consumers are shifting to pickup and dine-in occasions.
Further benefits have came from Shake Shack’s growing reliance on in-store ordering kiosks. “We’re starting to see some labor savings there,” the CFO commented.
As a result of the kiosks and other recently adopted operational enhancements, including use of a new scheduling tool, Shake Shacks have cut their labor needs by about 50 hours per week, the executives said.
The self-ordering devices have also changed Shake Shack’s sales mix in a favorable way, according to Fogertey. The self-service stations have proven more effective than Shake Shack’s menu boards in merchandising products, a result of the kiosk users having longer exposure to the visual depictions.
She and CEO Randy Garutti noted that units ran out of a premium promoted product, a burger flavored with white truffles, before the limited-time offer was set to expire during the quarter. Although traffic was dampened by having to end the promotion prematurely, unit-level profit margins rose above 21% during the quarter, buoyed by a doubling of sales via kiosks, the executives revealed.
The kiosks have become Shake Shack’s most profitable sales channel, Fogertey observed.
The company also indicated that there are service benefits to the devices. Having more customers input their orders has freed staff members to run orders to patrons’ tables as a standard operating procedure instead of an occasional above-and-beyond effort, Garutti indicated.
The upshot is an acceleration of the device’s systemwide rollout. Kiosks are already in a majority of stores, and a key priority for the chain in 2024 will be realizing more of the kiosks’ benefits, such as suggestive selling and gathering more customer data, the CEO said.
“We’re still in the very early days here,” said Fogertey.
Similarly, Shake Shack is stepping up its use of drive-thrus. Currently, that ordering option is offered by only 18 of the chain’s 471 branches. The plan is to add 15 more drive-thrus in 2023 and every year thereafter, Garutti said.
Simultaneously, he revealed, the chain will strive to reduce unit development costs by at least 10%. “Overall, we’re targeting a $2.3 million average,” Garutti said.
He revealed that the company intends to standardize an array of formats and systemize the development process for each. “It takes time,” the CEO said.
The chain has traditionally taken more of an opportunistic approach, adapting a layout to an attractive available site. The original Shake Shack is a retro-looking, seatless walk-up store inside a New York City park, while a new unit in the Bahamas has more of a resort feel, right down to sporting a bar.
Fogertey said the chain will monitor and analyze sales trends in September and the fall to see if the patterns hold to what has traditionally been an up and down stretch for Shake Shack. Sales tend to ebb with the beginning of the school year and then pick up again in the weeks afterward.
Garutti noted that sales dipped for Shake Shack during May and then rebounded in June.
The chain intends to test a new mini-sized milkshake as a way of facilitating sales grow.
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