Three Questions to Ask About the Shake Shack IPO
Whenever an up-and-coming restaurant brand IPOs, the most important question to ask is whether the chain belongs to a true trend or simply a fad, one more flash-in-the-pan in a long line of cupcake shops, cereal cafés, and new takes on frozen yogurt. And in the case of Shake Shack, this question may be more important than ever: Not only is the chain part of a strong consumer movement that has already been booming for many years, but it is one of many chains looking to cash in on the same surge in demand. Fortunately, better burger competitors have history on their side, and there is plenty of reason to think that they are going to be around for many years to come.
Unlike cupcakes, which carved out an entirely new dining occasion based on giving adults permission to grab cupcakes on their way home from work, better burgers’ success hinges on a pastime that is about as traditional as it gets in American foodservice. Going out for burgers and fries is something consumers have been doing for decades, and better burger chains have given them a new—arguably better—way to experience a perennial favourite.
The second most important question is of course whether or not Shake Shack has what it takes to beat out all of the other better burger competitors. The movement has already outlasted the usual restaurant concept boom-and-bust cycle, but it now faces a very crowded landscape in which many strong regional players have come to own parts of the country, yet few have emerged as true national leaders. Of course, an influx of capital from a successful Shake Shack IPO could do much to help the chain achieve that goal, but there are also other reasons to believe in a positive prognosis.
Primarily, Shake Shack has placed itself at the intersection of some of the strongest consumer trends in global restaurants. Beyond participation in better burgers, Shake Shack’s positioning is “fresh casual” or “fine casual”, an emerging upper tier in which ingredients are a major focus, food is prepared fresh in-house, and there are fewer limitations on pricing than would typically be seen in limited-service formats. It also strikes a balance between wholesome and indulgent—burgers and frozen custard “concretes” are hardly low-calorie, but they’re made fresh and don’t include hormones or artificial ingredients. This balance resonates well with consumers, allowing them to feel like they’re gaining an experience worthy of the cost of dining out, while still feeling good about their purchase.
In fact, Shake Shack goes all in on the latter benefit, checking all of the moral boxes that appeal to millennials, including building outlets with sustainably sourced materials, donating to various causes, and fostering a community-focused environment, both virtually and within restaurants themselves. To achieve this, Shake Shack has an active social media presence, chooses locations that can serve as “community centres” and even hosts group events such as running clubs at some urban outlets. While this strategy may feel nostalgic, it’s actually a strategy that has gained popularity in recent years after being utilised successfully by fitness retailers like Lululemon. Modern consumers look at the brands they visit as extensions of themselves, and such community events only serve to solidify that bond.
Finally, the last question potential Shake Shack investors should ask involves saturation. Sure, at just over 30 domestic outlets Shake Shack has plenty of room to grow in the US, but when it comes to long-term potential, growth in chained foodservice has definitively moved elsewhere. The good news is that Shake Shack has already taken steps toward building an international presence, with 27 international outlets in the UK, Turkey, Russia, and various Middle East markets. To this end they’ve signed franchising agreements with some very powerful and experienced partners, including Kuwait’s MH Alshaya, which operates franchises for dozens of premium brands in lucrative markets like Dubai and Saudi Arabia. This partnership in particular is a testament to the high demand for Shake Shack all over the world, and the very real potential for a much larger global presence in years to come.