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How Shake Shack is shaking up the burger industry

Thanks to new restaurant openings and new menu items like the Chick'n Shack, Shake Shack is increasing sales and traffic while other burger chains are faltering. 

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    Passersby walk in front of a Shake Shack restaurant in Manhattan.
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Shake Shack continues to swim against the current in a difficult economy. Its comp sales are up nicely; it’s opening stores globally; existing stores are averaging $102,000 a week, evenly split between lunch and dinner; and it can succeed with LTOs priced at nearly $7 and thinks they could go higher.

For its Q2, ended June 29, 2016, same-store sales were up a muscular 4.5%—a 1.2% increase in traffic combined with a 3.3% increase in price and mix—on top of a 12.9% jump a year earlier, as total sales rose 38.3% thanks to new store openings (it has opened No. 100). Its updated 2016 Outlook calls for comp sales growth of between 4% and 5%. What other burger chain can say that?

CEO Randy Garutti gave some of the credit for the strong quarter to the success of the $6.29 Chick’n Shack sandwich. “As we discussed in Q1, the Chicken Shack has been an important addition to our menu. In Q2, it represented 8.4% of our total sales, and has already become the third highest selling individual item on our menus domestically,” Garutti told analysts last week. “That’s an incredible behavioral shift, and demonstrates the trust our guests have in us, and their eagerness to try new menu items when we create them at the Shack.”

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Shake Shack followed with the even pricier Bacon Cheddar Shack (shown above; $6.89/ $9.69 for a double), which Garutti said “has been the best performing LTO we’ve run since we launched the LTO program last year. It’s also been a positive contributor to mix, given its higher price point.” It will continue to be the main LTO for a while longer, although the chain has brought back Bacon Cheddar Fries (below) nationally and Shack Corn Dogs in its Mall of America, Forest Hills and Upper East Side Shacks.

Garutti’s takeaway from the success of the LTO program is that it “demonstrates that our fans to continue to love it when we create new items, and that they’re willing to pay a higher price than any of our LTOs in the past, all positive contributors to mix, average check, margin and our future opportunity.”

Asked if he thinks the brand can be positioned as even more premium than it is now, Garutti said, “Yes, I think we can. The most encouraging thing, and I said it in my notes, was with the Bacon Cheddar Shack at $6.89. So in previous LTOs we charged [$6.19]. We were able to do a more premium product at $6.89 and it has become the No. 1 seller, both in sales and quantity just in one month.  The data is really raw; we only have one month of it. But it shows you that people are willing to pay.”

Other LTOs, all unlike what’s being served up elsewhere, include a Blueberry Pie Oh My concrete and shake, created in conjunction with Brooklyn bakery Four & Twenty Blackbirds, Shack Shandies and a Shackmeister Ale.

The biggest news onn the new-store front is that Shake Shack has signed a licensing agreement with HMSHost, which controls (and operates) the restaurant and retail market in most major airports. Garutti says Shake Shack has moved slowly in opening airport sites but “we’ve consistently been pleased with our performance [in JFK Airport and in Dubai], and we’ve heard guests reach out, and thank us for bringing a Shack to their travel schedule.”

Licensed growth has slowed in the Middle East due to slumping oil prices and the UK “brexit” from the European Union “brings new uncertainty, and will temper our near-term expectations.” Still, two more central London Shacks will open this year.

This article first appeared in BurgerBusiness.

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