Shake Shack raises chicken prices, delivery could be as follows

By Erika Adams, Skift Table

May 2, 2019

The higher prices will come for two things that Shake Shack's customers love: chicken and delivery.

Like its counterparts in the sector, Shake Shack has been hit hard by higher operating costs, including higher food prices and higher delivery fees. But the fundamental principles on which Shake Shack has built his brand – high-quality foods, avoiding a value-based sales approach – are the same blocking points that could make it more difficult to manage the rising costs of the industry compared to to competition.

In the first quarter, each operating expense of the national stores operated by the company increased as a percentage of revenue. The cost of food and paper increased by 41% over the same period last year. Other operating expenses, which include delivery commission costs, increased by almost 45%. The position now accounts for 12.1% of sales, compared to 11.2% of the first quarter of last year.

Shake Shack currently operates 129 national stores owned by the company, compared to 95 national stores in operation at the same time last year.

Higher chicken costs

The fastest response to rising operational costs is to increase menu prices accordingly. Shake Shack's CEO, Randy Garutti, said the channel had not increased menu prices nearly as much as its competitors, staying resolutely in the range of 1 to 2% when it increased them. (For comparison, Chipotle increased its prices by 2.5% in the last quarter.)

"There are a lot of companies taking a lot of prices right now," Garutti said at the company's first quarter earnings conference with badysts. "We obviously had an impact on our margins with some of the insidious costs we had. But we are in the loop for the long term. "

National stores operated by Shake Shack generated an operating profit margin of 21% for the quarter, compared to 25% for the same period last year.

There are several specific cases in which Shake Shack will rethink its prices. For example, Garutti admitted that the price of his new Chick'n Bites was too low for his national launch. Although consumers liked the product, the starting price of $ 4.39 in major markets was simply not high enough to cover the costs of chicken without hormones or antibiotics, while making a reasonable profit. Chicken nuggets are now starting at $ 4.99 in New York restaurants.

Delivery price

While others have negotiated lower fees with their delivery partners by concluding exclusive offers, Shake Shack is still testing potential partnerships with multiple delivery services. Given the increasing consumer demand for this service, the company plans to increase prices specifically on delivery menus to offset higher operational costs.

"Today, the prices of our menus do not change on any channel," said Garutti. "That being said, we are quite willing to look into these things. I think there seems to be a great willingness to pay on digital channels. "

Shake Shack has sailed into new menu items and higher costs, while the company is simultaneously experiencing a high rate of expansion and growth compared to the previous year. Over time, customers have proven their willingness to pay for hamburgers, fries and even chicken: overall sales increased 34% over the previous year, and same-store sales ( calculated on a month-by-month basis) increased by 3.6%. The numbers were encouraging enough for the company to raise its 1% to 2% forecast for the full year on sales by store metrics.