Shake Shack’s Business Expansion Strategy

By the end of 3Q17, Shake Shack (SHAK) was operating 143 restaurants—79 domestic company-owned restaurants, ten domestic franchised restaurants, and 54 international franchised restaurants.

In the last four quarters, Shake Shack has increased its restaurant count by 38 units—21 company-owned restaurants and 17 franchised restaurants. In 3Q17 alone, the company added four company-owned restaurants, one domestic franchised restaurant, and four international franchised restaurants.

Since then, the company has opened company-owned restaurants in Dallas, San Diego, Michigan, and New York City. The restaurant opened at Astor Place, New York City, boasts a kiosk-only ordering facility, a cashless environment, and a split kitchen for greater throughput.

As for international franchised restaurants, Shake Shack opened restaurants in Tokyo, Seoul, Doha, and Istanbul. In 3Q17, it announced plans to enter Hong Kong and Macau through Maxim’s Caterers. The development plan includes the development of 14 restaurants in the next ten years. The company has also extended its plan to develop 25 restaurants in Shanghai between 2019 and 2028. Since 3Q17, the company has opened a restaurant in Yokohama, Japan.

Shake Shack has raised its unit growth guidance for 2017. It expects to open 24–26 domestic company-operated restaurants in 2017, compared with its earlier estimate of 23–24 units. It has also increased its guidance for franchised restaurants from 15 new restaurants to 18. In 2018, the company aims to open 32–35 new company-owned restaurants, and 16–18 franchised restaurants.

During the same period, Chipotle Mexican Grill (CMG) and McDonald’s (MCD) increased their unit count by 196 units and 361 units, respectively. Next, we’ll look at Shake Shack’s 3Q17 EBIT (earnings before interest and tax) margins.