Shake Shack shares are mysteriously crashing for the second day in a row.
While the stock price had previously risen 40% over the last month, some experts doubt Shake Shack could become as ubiquitous as Chipotle.
The main problem? Shake Shack is entering a market already packed with better burger chains.
“Shake Shack will certainly have its success,” Brian Sozzi, chief equities strategist at Belus Capital Advisors, told Business Insider. “But the brand enters an industry chock full of better burger businesses and chains doing healthier fast food, such as Chipotle.”
Fast food powerhouses like Starbucks, McDonald’s, and Chipotle offer customers fundamentally different experiences, Sozzi says.
“Starbucks created premium coffee, McDonald’s arguably created the burger and french fry,” he says. “Chipotle was the anti-Taco Bell and was transparent about ingredients.”
While Shake Shack’s food has a cult following, it faces steep competition.
Brands like Five Guys Burgers & Fries and Smashburger have been selling upscale fast food for years.
Shake Shack is still relatively small, with 36 restaurants in 10 states. Executives believe the domestic restaurant count could grow to at least 450 locations.
By comparison, Chipotle has more than 1600 locations and is expanding rapidly.
Sozzi also says that Chipotle’s huge portion sizes mean that Americans perceive it as a better value.
“At Shake Shack, you’re paying $US10 for a burger and fries,” he says. “At Chipotle, you get almost two meals in one.”
While it might not be the next Chipotle, Shake Shack’s outlook is still bright.
“The company is in the right place, at the right time,” Sozzi says.
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