November 28, 2016

Shake Shack is Beating The Competition with This Simple Strategy

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With November coming to a close this week, shares of Shake Shack (NYSE: SHAK) have had an exceptional month, surging 19% overall and 11% since reporting Q3 earnings on Wednesday November 9th. The earnings beat of 15 cents per share on $74.9 million in sales was a 40% increase from Q3 2015 with Wall Street expecting sales of $69.3 million or 14 cents a share.

The most noteworthy number on the call was the same-store sales increase of 2.9%. That is high by any measure, but is especially pronounced in the face of lackluster performance in same-store sales growth from competitors such as Starbucks (NSDQ: SBUX) and McDonalds (NYSE: MCD) that have blamed downturns on everything from election jitters to meal-kit delivery services. So how is Shake Shack besting the competition in such a crucial space and what are they doing right that others are doing wrong?

One key to making a clear impact in same-store sales growth is simply by increasing loyalty. As we know, net promoters and brand evangelists will spend more money onsite, bring friends and family members and visit frequently. When visits and check sizes go up, so do same-store sales. Easy to say, hard to accomplish.

But Shake Shack has gone and done just that, not with gimmicky loyalty programs like Chiptopia, that are heavy on freebies and light on customer experience. Shake Shack is improving loyalty the old fashioned way – by simply focusing on the constant improvement in the customer experience.

Shake Shack, the brainchild of Danny Meyer, is like all of his other higher-end properties – rooted in the customer experience above all else. The customer experience for Danny Meyer is composed of two parts: customer service and guest hospitality. For Meyer, “the most important thing you can do is make the distinction between customer service and guest hospitality. You need both things to thrive, but they are completely different.” 

According to Meyer, customer service is “how product is delivered — the technical aspect…and it is the number one reason that guests’ site for wanting to return.” That service is what helps to build brand loyalty.

Good hospitality, on the other hand, is something far greater. For Meyer, that means going above and beyond the call of duty to create something more than a meal but rather something magical. In Meyer’s hospitality bible “Setting the Table,” he talks extensively of how one can go about creating guest hospitality. But he sums it up nicely when he writes “hospitality, which most distinguishes our restaurants – and ultimately any business – is the sum of all the thoughtful, caring, gracious things our staff does to make you feel as we are on your side when you are dining with us.”

For Danny Meyer, “hospitality means never having to ask for anything.” It is the recognition of what the customer needs, delivered in the most hospitable way possible. And all of that creates brand loyalists far and wide. Loyalty can’t be won with quick fix apps and cards. It is a cultural shift toward providing excellence to the customer in every aspect of the experience.        

With Shake Shack hitting a number of important milestones in Q3, like the opening of their 100th store worldwide and their first $1 million sales day, it seems like they might be on to something with this hyper focus on providing a top notch customer experience.