We started as a hot dog cart, now we’re here
Danny Meyer made his career creating Michelin star restaurants. In 2001, his restaurant empire Union Square Hospitality Group (USHG) launched a temporary hot dog cart to support an art installation in Madison Square Park. It was 3 years before the first Shake Shack opened in the same spot – expanded into a “modern day ‘roadside’ burger stand serving a classic American menu of premium burgers, hot dogs, crinkle-cut fries, shakes, frozen custard, beer and wine”. (1)
Isn’t this just another burger chain?
Wait, why not?
On opening day of the Newbury street location, CEO Randy Garutti addressed the staff with the simple message: “I want to challenge you to put us out of business… because you are so damn generous with what you give the people who walk in this door…This is not merely about the occasional gratis dessert: It’s part of a larger effort to empower employees to do whatever it takes to make customers feel loved.”(2)
Does this sound like another chain to you?
The root of what makes Shake Shack different is the idea of “Enlightened Hospitality” – it guides every decision and dictates both the business and operational model, creating a unique and sustainable competitive advantage.
Enlightened hospitality – cliff notes version
In his book, Meyer explains how he prioritizes his restaurant stakeholders, in a way almost no restaurant does: (3)
“The idea is to create a welcoming atmosphere first for employees, next for customers, and then for the outside community, suppliers, and, finally, investors. This is similar to what J&J outlined in their “groundbreaking” 1943 mission statement that preceded decades of earnings growth, but dissimilar from what any other fast casual chain has laid out. (2) (4)
Compensation – “Entry-level Shake Shack workers make $10 an hour in New York … the real financial incentives are designed for employees who stick around…[with] a profit-sharing program called Shack Bucks that can…add as much as $2 an hour to paychecks. And every full-time employee was given the chance to purchase stock in the IPO. 2 The company has a 401(k) match and health coverage for workers who work more than 30 hours a week. (5)
“The No. 1 reason we pay our team well above the minimum wage is because we believe that if we take care of the team, they will take care of our customers,” said Randy Garutti.(6)
Career advancement — “…our job is to promote that person and show them how they can make a lot more money if they choose to be a leader.” Many of Shake Shack’s executives have been groomed from within, and it’s not uncommon for hourly employees to get bumped up to manager, general manager, and beyond.”
Hiring (“51%’ers”— Target 51% EQ (people skills) vs. 49% IQ (technical skills). They look for “people who are warm, friendly, motivated, caring, self-aware and intellectually curious.” (7)
Empowerment – As Garutti alluded to in the opening of the Newbury location, employees are not just able, but expected to go above to drive a better customer experience.
Employees are instructed to “trust” customers and “try to be on their side—to always make the charitable assumption”. Experience is key, it’s more than just satisfying a functional meal need.
Both Meyer and Garutti have publicly declared their goal of “creating a new kind of wealth called ‘community wealth’ that not only enriches individuals and corporations but also makes communities stronger.” (8)
Giving back – “We would raise the money philanthropically to build the kiosk, then we’d gift it to the park.” Even the (now world famous) logo was born out of pro bono work surrounding this venture. (9)
Restaurant design – Each restaurant is “of their place, not something that happened to their place” Each outlet is localized to some degree – on Newbury Street the walls are made out of materials from an old Boys & Girls Club in nearby Watertown.
Quality — “No hormones and no antibiotics ever.” (10)
Mission — They show ranchers “photos of Shake Shack’s infamous crowds to drive home how excited customers are” for top quality meat. This also includes working with the famed meat purveyor Pat LaFrieda’s (meat + custom patty machine’s each producing 80K/day) (fast company).
Are being rewarded. Revenue and EBITDA continue to grow steadily, as the footprint expands. The stock price has been volatile post one of the hottest IPO’s of the year, but there is little doubt that the chain will continue to grow “their way;” sustainably with 10 a year, eventually reaching 450 – enabling the chain to maintain its operating philosophy of enlightened hospitality. (11)
In an industry obsessed with how quickly they can get customers in and out, Shake Shack is winning by focusing their business and operations on a different prioritization of goals. If you’re not convinced yet, name another fast casual concept that celebrates their long lines with a live feed from the original.
So close the computer, and go get a burger (and maybe a shake!). Hopefully the line is slightly shorter than this: