Final Project Report: Shake Shack
BUS 468-001 Business Policy and Strategy
Team 3: Chow, Garcia, Ghazanffer, Harish, Hooi, Nguyen, Singh
May 14, 2020
Shake Shack is an American fast casual restaurant that is known to many customers for
their well-known juicy burgers and tasty milkshakes. Danny Meyer, a restaurant owner in New
York City, founded Shake Shack back in July 2004 with the help of his Union Square Hospitality
Group. Their idea for Shake Shack was inspired by hot dog carts and food trucks that offered
simple foods like hamburgers, hot dogs, milkshakes, and french fries, made with high quality
ingredients. The first Shake Shack location opened its doors to customers in Madison Square
Park while showing their support to the park’s first art installation.
Since the launching of the first location, 275 other locations have opened both within the
United States and internationally. Being in the restaurant industry, it is not uncommon that Shake
Shack would be up against many well known companies. Shake Shake most resembles
companies like: In-N-Out Burger, Subway, Five Guys, Smashburger, and Noodles & Company.
In-N-Out Burger was founded in 1948 by Henry Snyder in California, who also first introduced
the idea of a drive-thru hamburger stand. Subway started out from Peter Buck who gave Fred
DeLuca the idea of starting a submarine sandwich shop nearly 50 years ago. The first Subway
was opened in Bridgeport, Connecticut, serving affordable and freshly made sandwiches. Five
Guys was established at Arlington, Virginia in 1986 when founders Jerry and Janie Murrell
thought of the idea of serving hand-formed burgers and fresh-cut fries cooked in pure peanut oil.
Smashburger was founded in 2007 in Denver, Colorado with the unique style of smashing
burgers and cooking them on a flat top grill to give it a unique texture. Another one of Shake
Shacks competitors is Noodles & Company, although they offer different cuisine. Noodles &
Company delivers the same fast casual dining experience and is a publicly traded company that
competes directly with Shake Shack.
Similar to the five companies above, Shake Shack is dedicated to serving their customers
high quality food that is not only tasty but affordable. With their mission statement of “stand for
something good,” Shake Shake has become an enjoyable restaurant to many. Similar to its
competition, Shake Shack uses freshly made ingredients, has its own specialty: the Shacksauce,
and a dedication for its customer service. Shake Shack is successful in retaining their customers
to the point where there are almost always long lines at their locations.
Having only been around since July 2004, Shake Shack has unequivocally made a name
for itself, domestically and internationally. That being said, there are concerning signs of a
decrease in growth for the fast food chain. As we have already established the vast amount of
competitors Shake Shack has, we see the company using its strong image as a higher quality fast
food establishment to its advantage. However, there is a theme of this newer 15 year old
company which shows that current assets aren’t being used as efficiently as possible. While
overall revenue has been rising for the company, Shake Shack’s growth rate has increased by
2.0%, and overall traffic growth only makes up 1.2% of this, according to their third-quarter
results in 2019. Shake Shack’s decision to use only one delivery partner, GrubHub, may have
contributed to the below percentage growth rate of 2.5% that analysts were expecting from the
company. Shake Shack is ending its partnerships with other delivery companies such as
DoorDash, Postmates and Caviar. This is limiting their ability to reach more customers,
especially now during the coronavirus lockdowns, where customers are relying on food delivery
services to avoid leaving their homes. GrubHub themselves have stated recent warnings of
slower growth amid intensifying competition, which only further proves challenges for Shack
Shack. Instead, the burger chain is deciding to temporarily close some of its restaurants for
upgrades this year, which is likely adding to further pressure profits in 2020.While this may add
to the customer’s overall experience, the company can be spending its money in more beneficial
ways, such as addressing problems the company is facing instead. Not to mention these
renovations may prompt the company to raise menu prices even higher than they already are,
which can push away future customers.
This brings us to the next point of Shake Shack’s very high inventory turnover rate. Due
to the company's entire model of differentiation from its competitors for having higher quality
fast food, sourcing from farmers, bakers and ranchers directly means that these suppliers have a
higher bargaining power, and there are less options of suppliers for the brand, compared to other
fast food companies. That being said, Shake Shack doesn’t have to switch up their model of
higher quality foods, but can work to continually revamp their menus to fit with in season
ingredients that they can supply and in return make more profits on. Being flexible and adapting
to new menu items is what Shake Shack will have to do to help this issue of a high inventory
turnover rate, especially in their global locations, where these American ingredients may be
limited or international tariffs may be in place. Shake Shack also needs to work on expanding
and maintaining their international locations. The company has taken the unique approach of
creating a global path for themselves as they’ve had locations in London, Istanbul, Dubai and
Moscow before even reaching Los Angeles. As these international locations have proven to
perform very well, Shake Shack doesn’t put the same emphasis on promotions and remodeling to
their international locations as they do for their domestic ones. Adapting to the menu and high
quality ingredients of the foreign countries they are in, will only help the global path the
company prides itself with establishing this early on. Not to mention allocation of funds to more
international locations will help in the company’s growth as they would be expanding their
goods to a whole new demographic of customers. Michael Kark, Shake Shacks’ chief global
licensing officer even admitted that the Asian market is important to Shake Shack’s growth.
Shake Shack has already built a successful model for themselves and a brand recognition which
has paved a path in the new world of a more upscale fast food experience. However, if the
company continues to not allocate their resources more efficiently in accessibility across more
delivery options, reinventing menu items appropriate to seasonal and regional items, and
broadening their global scope, growth rates will remain relatively low for the chain restaurant.
By doing an internal and external analysis, the strengths, weaknesses, opportunities, as
well as threats for Shake Shack can be better understood.
● Quality Products: Shake Shack prides itself
using premium and all-natural ingredients. On
their website they say, “Our burgers are made
with 100% Angus beef that’s humanely raised,
vegetarian fed, and source verified. Our
chicken is real white-meat that’s fresh, never
frozen. Our flat-top dogs? 100% beef from the
pros at Vienna® Beef in Chicago. Our fries
are crinkle-cut golden potatoes with no trans
fats. And our vanilla and chocolate frozen
custards only use real sugar (no high-fructose
corn syrup) and milk from dairy farmers who
pledge not to use artificial growth hormones.”
● Eco-Friendly Reputation: Shake Shack has
made multiple efforts to be eco-friendly. Their
paper disposables (ex. fry boxes and burger
wrappers) are made with eco-friendly
Sustainable Forestry Initiative-certified paper.
They participate with Restaurant Technologies
● Limited Traditional Marketing: According
to Shake Shacks’ Chief Marketing Officer
the company prefers to keep paid media to
minimum. They have a strong presence on
social media platforms including Twitter,
Instagram, Facebook, and YouTube. Shake
Shack prefers to promote through
collaborations. These include chefs in local
areas, GrubHub, BarkBox, and more.
● Fluctuation in Commodities: Since Shake
Shack does not contract commodities, there
can be fluctuations in ingredient prices. In
their annual reports they have the
disclaimer “increased food commodity and
energy costs could decrease our Shack-level
operation profit margins.” Recently, Shake
Shack had to deal with a spike in the cost of
beef due to the meat shortage caused by
Inc. to have a clean oil management system.
Additionally, Shake Shack participates in 1%
for the Planet where 1% of their SHACK2O®
bottles sold supports the cleanup of water
sources around the world.
● New Products: Shake Shack has the
opportunity to expand their products. Last
year, they introduced the Veggie Shack, a
● Store Expansion: Last year, Shake Shack built
49 restaurants across 27 states and 13
countries (Klein 2019). Shake Shack has the
opportunity to create new stores domestically
● Competitors: Shake Shack has many
competitors in the American fast casual
industry such as In-N-Out Burger, Subway,
Five Guys, and Smashburger
● Cheaper Alternatives: Customers can
always turn to the lower-quality, cheaper
alternative restaurants such as McDonalds
Shake Shack’s leadership consists of its CEO, Randy Garutti, former COO of the
company. Tara Comonte serves as the President of CFO; prior to this role she was the Chief
Financial & Business Affairs Officer and Executive Vice President of Getty Images. Zachary
Koff serves as the COO, Jay Livingston as CMO, Dave Harris as CIO, and Andrew McCaughan
as CDO. Other leadership consists of Michael Kark as the Chief Global Licensing Officer, Ron
Palmese as SVP of General Counsel, Diane Neville as SVP of People Resources, Victoria Shih
as SVP Controller, and Jeffrey Amoscato as SVP of Supply Chain and Menu Innovation.
Competitive Analysis (Porter’s Five Forces)
Competition for Potential New Entrants: It is easy to enter the food industry because of the low
barriers. In 2018, the NPD Group found that there were 25,312 fast casual restaurants in the
United States. Living in an age where new eateries constantly bring innovation to their
businesses, it poses a high concern for Shake Shack. New entrants are able to stay competitive
against Shake Shack by matching their prices and providing new or similar products.
Competition from Rival Sellers: This is a high concern for Shake Shack because of the low
barriers to enter the industry. Shake Shack has a lot of established competitors in the American
fast casual industry, including Smashburger that was created after Shake Shack in 2007. The
competitors all mentioned before can all pose a threat to Shake Shack because of the similarity in
the products being served.
Competition from Producers of Substitute Products: For Shake Shack, this is a high threat
because of established low price alternatives like McDonalds and Burger King. They are not
direct competitors, but they offer a lower price point than Shake Shack. For example,
McDonald’s offers their simple plain cheeseburger for around $2-$3 and their specialty burgers
for $6-$8 while the Shake Shack burger can range anywhere from $9-$11. Other substitutes
include higher scale restaurants that are higher or similar to Shake Shack’s price point. The high
threat of substitute products demonstrates that customers can pick and choose the eateries that fit
Supplier Bargaining Power: This is a high concern for Shake Shack because of the nature of the
company’s high quality ingredients. Shake Shack partners with farmers, bakers, and ranchers
from all over the world to supply ingredients for their products. The suppliers can easily charge
more from Shake Shack to increase their profit margins because the suppliers are all carefully
selected and fit the company’s high standards. Because of this, it is difficult for Shake Shack to
try to find other suppliers so they must comply with the supplier’s price points. The suppliers
also have high bargaining power because it can be difficult for Shake Shack to switch from one
supplier to another.
Customer Bargaining Power: This is a low concern for Shake Shack due to its differentiation
from its competitors. The company offers specialty products and unique services that cannot be
offered anywhere else and this will decrease customer’s bargaining power. Shake Shack has a
large base of customers and has a strong relationship with them and the communities they serve.
With the connections and partnerships that Shake Shack has, it increases the likelihood that
customers will stick with their restaurant instead of others. This is an advantage to them because
customer loyalty can lower the customer bargaining power.
Corporate Culture and Values
As mentioned before, Shake Shack commits their entire company to “Stand for
Something Good” and this is implemented all over their culture and day to day operations. The
best way they implement their motto is through the food they serve; they carefully source
premium ingredients in everything they serve. This isn’t something that every restaurant can
achieve so for Shake Shack to have this commitment, changes the whole industry. Shake Shack
also partnered up with companies to give back to the world. For example, Shake Shack partnered
with Waterkeeper Alliance to help the cleanup of water sources around the globe and Restaurant
Technologies Inc to help eliminate trash and oil waste. Shake Shack also commits to giving back
to the communities and charities on a frequent basis through their Shack Gives Back Program.
The Shake Shack’s core values include hospitality, team, food and drink, The Shack, and
communication. These core values all contribute to how the company runs its business while
keeping employees and customers in mind. According to their website, Shake Shack hires
leaders that are “committed to championship performance, remarkable hospitality, and active
personal growth.” By hiring employees that fit into their core values, the company can ensure
that their mission statement can be achieved. This can help contribute to their overall goals and
mission statement. The Shacks (Shake Shack establishments) are all carefully constructed with
creative and unique designs to create a one of a kind environment that competitors don’t have.
Things from the table tops, seats, booths, and walls all fit within the commitment to Stand for
Something Good. They are all crafted and designed by local artists and made from sustainable
materials. For instance, the classic brown thick table tops that The Shack uses are reclaimed from
Brooklyn bowling alley lanes by New York’s Counter Evolution.
Comparing these values to its competitors,
Current Ratio= CA
Current Ratio =2.7392
Quick Ratio= (CA-Inventory)
Quick Ratio= 0.8598
Quick Ratio =2.6999
Cash Ratio= Cash
Cash Ratio =0.4129
Cash Ratio =0.6321
Financial Leverage Ratios
Total Debt Ratio= Total Assets-Total Owner’s Equity
Total Liabilities & Owner’s Equity
Total Debt Ratio=0.6914
Total Debt Ratio=0.6297
Total Debt Ratio=0.6398
Receivables Turnover =___ _Sales______
Receivables Turnover= 74.9992 times
Receivables Turnover = 91.4050 times
Receivables Turnover = 104.3052 times
Profit Margin = NI / Sales
Profit Margin = 0.04199
Profit Margin = 0.04926
Profit Margin = 0.02565
Market Value Measures
PE ratio = PPS / EPS
PE ratio March 2019 =123.23
PE ratio July 2019 = 141.57
PE ratio September 2019 = 150.83
PE ratio December 2019 = 96.08
PE ratio March 2018 = 0.00
PE ratio July 2018 =2,206.00
PE ratio September 2018 = 0.00
PE ratio December 2018 = 85.70
PE ratio March 2017 = 63.02
PE ratio July 2017 = 60.14
PE ratio September 2017 = 53.60
PE ratio December 2017 = 0.00
There are many factors to consider when looking at the overall financial analysis for
Shake Shack Inc. For the fiscal year of 2019 Shake Shack’s revenue grew by 29.44% compared
to 2018, to 594.52 million dollars. The higher-end fast food establishment has a 67.75 million
EBITDA, and a net income of 19.83 million with a 3.06% return on capital. As we see later on in
our current ratio, although Shake Shack’s is high, the company is able to pay off all its debts
within a year. It is important to note that Shake Shack is going through a downwards trend and
has a high inventory turnover rate. However, this is due to the use of fresh produce that are more
perishable in this higher quality fast-food chain. With an overall positive financial analysis, and
according to MSN stock details, analyst recommendations are to buy stocks as of 3/30/2020.
Similarly to Shake Shack, Noodles & Company is a fast-casual restaurant that serves
International and American noodle dishes and pastas, instead of burgers and shakes. However,
Noodles & Company is a publicly traded company which allowed us to easily compare ratios
between the two. For the financial analysis, we decided to compare the following ratios; current
ratio and the inventory turnover. We felt that these ratios gave an accurate representation and
consequently used these ratios to determine which restaurant has a stronger presence for
creditors, customers, and stakeholders.
The current ratio tells us a company’s ability to pay short term obligations or obligations
that are due within one year. This ratio shows future investors how a company can take
advantage of the current assets on its balance sheet to satisfy its debts and payables. A current
ratio above 1 suggests that a company’s short term debts are greater than its assets. While a
current ratio above 1, tells us the company is capable of paying off its short term obligations. For
a restaurant, short term obligations or debts may be food, staff wages, and beverages. Below is a
table showing both Shake Shack’s and Noodles & Company current ratio for the past three years.
As you can see from the table above, for the years 2018 and 2017 Shake Shake had a
current ratio greater than one. Meaning it could pay all of its debts due within one year or less.
However, for the year 2017 Shake Shack has a rather high current ratio of 2.74. This could also
show that the company is not using its current assets efficiently. On the other hand, Noodles &
Company struggled to have a current ratio above one for the past three years. This can be
worrisome for some investors. However, Noodles & Company is generally on an upward trend
where as you can see from the table. Shake Shack is in a downward trend, with the current ratio
substantially getting lower and lower every year. Shake Shack’s current ratio is more volatile as
well, jumping from 2.74 to 1.69 in a single year which could signify an increase in operational
risk. While Noodles & Company although has a current ratio below one is more stable.
The inventory turnover ratio tells us how many times a company has sold and replaced
their inventory over a given period. Investors and analysts may use the inventory turnover ratio
and compare it to industry averages in order to make a strategic decision. A low inventory
turnover ratio can suggest that there are weak sales and possibly imply an excess in inventory.
While a high ratio can imply that sales are strong or a high ratio can also suggest that there is
insufficient inventory. It is also important to note that a low ratio is not necessarily a bad sign. A
low ratio is good when prices are expected to rise or when a shortage is expected. For
restaurants, this is immensely important since most restaurants depend on perishable goods.
Below is a table highlighting the inventory turnover ratio for Shake Shack and Noodles &
From first glance, you can see that Shake Shack’s ratio for the past three years is
tremendously higher than Noodles & Company. However, when we take the ratio and divide it
by 365 we can determine how long they keep on hand per day. For 2019 we can determine Shake
Shack held inventory for an average of 1.6 days (365/244.99 = 1.6) while Noodles & Company
held inventory for an average of 9.3 days (365/39.28 = 9.3) We should also take into
consideration the type of inventory each restaurant holds. Shake Shack offers burgers and shakes
so ideally their inventory will be meat and fresh vegetables. On the other hand Noodles &
Company offers pasta and speciality noodles, so their inventory will be pasta, sauce, and
noodles. With that in mind, it makes sense as to why Shake Shack has such a high inventory
turnover rate. They need fresh ingredients to make their product and any inventory they keep
longer than one day will be bad. While Noodles & Company can afford to hold inventory longer
since ingredients like pasta and sauce have a longer shelf life.
Overall, from these comparisons we can infer that Shake Shack has a better standing and
a more appealing look for investors. Shake Shack is a safer investing showing consistent results
year after year. While Noodles & Company has the potential to be a good investment, they lack
consistency and their profits fluctuate year to year.
Shake Shack has easily cemented itself as one of the leaders in the fast casual dining
experience. With its exponential growth over the years and its commitment to quality
ingredients. It's clear why Shake Shack remains at the top. However, with increasing pressure
from its competitors like Five Guys, Smash Burger and Noodles & Company, Shake Shack
needs to implement new strategies that will further its growth and bring in new customers. Two
strategies that Shake Shack can utilize are, focusing more on international sales and revising its
With 147 restaurants in the United States and 15 restaurants across twelve countries.
Shake Shack has already solidified its international presence, with restaurants in countries like
Japan, Philippines, South Korea, Turkey and the United Kingdom. Shake Shack has made a
name for itself outside the United States. However, Shake Shack tends to focus more on its
domestic restaurants than its international restaurants. Causing its international locations to fall
behind. Shake Shack already has plans to expand domestically and penetrate the markets it is
already in, such as urban cities. However, they do not have plans to further its international
footprint, Shake Shack can simply implement plans to redesign stores or open new locations in
central tourist spots internationally. Opening locations in places like airports, hotels and famous
landmarks can boost sales drastically leading to higher profits for the company.Additionally,
focusing on its international restaurants does no harm to Shake Shack. For example, if things go
poorly in their Turkey location, it likely wouldn’t impact domestic sales here in the US.
Furthermore, it is clear that international markets is where Shake Shack should look towards in
the future. When we compare domestic and international sales for the years 2019, 2018 and 2017
provided by the table below. We can see that domestic sales have been gradually decreasing
since 2017 however, international sales have been gradually rising. Especially from 2018 to
2019, domestic sales saw close to a $300 decrease while international sales saw the opposite.
Shake Shack can also further its international footprint, by customizing the menus to fit
each specific country. In the United States, every menu has the same options however, when
expanding into international borders it’s important to note the customs of that respective country.
For example, the milkshakes that Shake Shack offers are wildly popular here in the US. But we
cannot expect them to be popular in places like Japan or China. In Japan, flavours like chocolate
and vanilla are not as popular. Changing menu items internationally to meet customer needs
leads us to our next strategy that Shake Shack can implement. Revamping the current menu in
domestic locations to reflect healthier options.
Across the United States, Shake Shack’s menu items have been consistently the same. In
2019, Shake Shack introduced “Chick’n Bites,” however, the new product did not resonate well
with some markets. Furthermore, there were issues with the consistency of the supply chain in
terms of finding a supplier. We suggest that Shake Shack enter the vegetarian market. Already
Shake Shack offers a mushroom burger, however, it is not the most popular food item. Therefore
Shake Shack should introduce a new veggie burger, maybe with beyond meat. Many of Shake
Shack’s competitors have already turned to serving more healthier vegetarian options. Five guys
offer a vegetarian sandwich along with another option with cheese. Smashburger offers a healthy
alternative to a burger, by providing salads. Furthermore, recent studies have shown that more
and more Americans are turning towards healthier options or meatless options. An important
thing to note, is that the people purchasing these meatless burgers are not just vegetarians they
also consist of meat lovers alike. A study done by the market research group NPD shows that
90% of people who purchased a plant-based burger, also ate meat. So providing a veggie burger
on Shake Shacks menu may not hurt profits and actually give domestic sales the boost they need.
It’s clear Shake Shack has become a common name and their burgers are well known.
However, to combat decreasing sales and increasing competition. Shake Shack needs to institute
many strategies that will help it stay on top. Firstly, Shake Shack needs to focus more on
international growth. It is clear that international markets are untapped and if Shake Shack
penetrates these markets it will secure itself as the top fast casual restaurant. Secondly, Shake
Shack needs to propel itself into the vegetarian market by revising their menu. Majority of Shake
Shack's competitors have already done this and if Shake Shack introduces a new veggie burger
or salad option it brings in a new customer base that will be looking for healthier options. If
Shake Shack can implement these strategies, we believe it can lead to new growth for the
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