The Anti-chain Strategy of Shake Shack
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Case Code: BSTR456 Case Length: 18 Pages Period: 2001 - 2014 Pub Date: 2014 Teaching Note: Not Available |
Price: Rs.500 Organization: Shake Shack Industry: Fast Food Industry Countries: US,Global Themes: Brand Management, Business Strategy |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Strategy for Selecting Location of an Outlet
Shake Shack operated each of its outlets as if it was a standalone restaurant and not a part of a chain of outlets and took business decisions regarding them on the same basis. Consequently, it rejected opportunities for franchising, catering, and operating food trucks, as it believed that these ventures did not jell with Shake Shack's brand identity Shake Shack's stated business strategy was to ensure that the location of each new store was unique and that they were far apart from each other, so that each of them served as a destination dining experience for which people would be ready to line up. Speaking about the company's strategy while opening new stores, Garutti said, "It's not our intention to open hundreds of Shake Shacks a year. When a Shake Shack is coming to town, we want people to say, 'Wow, we're getting a Shake Shack in our neighborhood!' There are few brands out there where people have that reaction. That's what we've been able to do so far, and we want to continue doing that."....
Focus On Food Quality
The brand mission of Shake Shack was to be "The Best Burger Company in the World". The company claimed to use the freshest ingredients in the food it offered. For its burgers, the company used Black Angus 29 beef that was grown without the use of antibiotics or hormones and was, moreover, freshly ground every day (non-frozen). Unlike its competitors, who used beef strippings in their burgers, Shake Shack used whole beef which enhanced the flavor. Moreover, its cooking method was designed to enhance browning of the meat, which improved the texture. It used fresh baked buns and carefully sourced toppings such as tomatoes, onions, and lettuce.
The milkshakes on offer were made from a base of frozen custard that was prepared at each of the outlets, using hormone-free milk. Moreover, it replaced the harmful corn syrup in its custard with real sugar. It used Vienna beef Chicago-style hot dogs for making its hot dogs...
Enlightened Hospitality Through Better Employees
Shake Shack expended considerable effort, time, and money in recruiting its employees, including its hourly wage workers. It looked out for people with an instinctive sense of hospitality and a keen desire to provide excellent customer service. Speaking on the issue, Garutti added, "We can teach them how to make a great shake, but we can't teach them to be great human beings. All we're really looking for is a genuine sincere sense of hospitality. If that exists, there's a spot on our team for you."
Analysts felt that for brands that were keen on maintaining the feel of a small chain, providing a defining customer experience was the definitive factor, which made the role of employees critical. The company had a concept of 'enlightened hospitality', wherein it placed high emphasis on meeting its team's needs, so that they in turn would be motivated to attend to the needs of the customers....
Challenges in the Fast Casual Industry
The fast food industry was one of the largest food services sectors in the world and one of the most competitive and saturated markets. The average retail price of a Big Mac (burger sold by McDonald's) in the US was US$ 4.56, while the Shack Burger (burger sold by Shake Shack) was US$ 7.35. Moreover, the average check size at Shake Shack was US$ 13, while it was US$ 5 at McDonald's. Analysts felt that Shake Shack operated in the 'Premium Fast Food' segment, which had taken off in the early 2000s and did not have many market players.
Analysts felt that when Shake Shack first came into the picture in 2004, there was a customer segment that was ready to pay more for quality fast food. Hence, it was easily able to outdo mega chains like McDonald's and Burger King through its offerings of quality fast food and excellent customer service...
The Road Ahead
In January 2014, Shake Shack's burger, 'ShackBurger' (the most popular Shake Shack menu item) was placed 7th on 'Time' magazine's list of 'Most Influential Burgers of All Time' made up of 17 burgers. According to burger historians and experts, the burgers on the list had been instrumental in bringing about a change in the burger industry.
Shake Shack did not release annual sales figures. As per statistics released by the National Restaurant Association 54 , 'full service' restaurants having an average check of US$ 25 or more per person had profit margins that ranged from -2% to 6.8%, with a median of 1.8%. Meyer claimed that Shake Shack, being a 'limited service' restaurant, enjoyed a 13% profit margin....
Exhibits
Exhibit I: The US Fast Casual Restaurant Industry
Exhibit II: Shake Shack Locations
Exhibit III: Top Restaurants in US Quick - Service and Fast – Casual Industry
Exhibit IV: Information on Key Competitors
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