Maybe Shake Shack is just a New York thing.
Judging by analysts’ write-ups of the stock and New Yorkers’ Yelp ratings for Shake Shack fare, franchisees looking to launch new iterations of Danny Meyer’s successful chain may be best focusing on the Tri-State region.
Goldman Sachs’ report on Shake Shack notes that New York-based Yelp reviews are, on average, a lot better for the company than they are in other states.
That’s not all.
Shake Shacks in New York generate better cash-on-cash return, a key metric for franchisees, and generate a healthier margin here, as well, according to separate JP Morgan estimates:
New Yorkers are notorious for being among the nation’s pickiest and most patient eaters; even something as simple as a cronut can lure locals licking their chops in lines that stretch for blocks before a store opens, and hours before the first snack is sold.
But Shake Shack’s numbers outside of New York City aren’t anything for investors to line up for: international expansion to places like Dubai may not serve the brand better — instead, focusing on new markets with similar population density and foot traffic, like Washington DC and nearby suburbs might be a better margin driver for the brand.
The biggest difficulty Shake Shack will encounter outside of New York is existing brands: in the DC area, Five Guys Burgers and Fries, headquartered in Fairfax, VA, has established a strong presence with locals. Out west, it’s Fatburger, beloved by Californians (there is only one in New York). Danny Meyer clearly had an excellent idea in 2001 when he launched a better burger in New York — making that scale, and doing it successfully for his franchisees, could be the biggest challenge for Shake Shack and its founder.
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