How people eat out has changed because of the Covid pandemic.
Some of those changes happened because workplaces moved to a hybrid schedule. If people only go into the office two or three times a week when they used to go in every day, the restaurants near their offices will suffer.
Many coffee shops, fast food restaurants, and casual sit-down spots have had to close locations because their customer bases have disappeared. In addition, residential populations have shifted which has forced more closures.
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You can’t, however, blame every restaurant failure on population shifts. In some cases, chains and franchise operators have been hurt by added debt taken on during the pandemic and rising labor and food costs.
That’s a combination that had caused hundreds of Burger King locations to close while massive chains including Red Lobster have filed for Chapter 11 bankruptcy. It’s a challenging operating climate because consumers are demanding value while costs have continued to rise.
It’s a situation that has forced companies to reevaluate their portfolios and make hard decisions. Closing locations isn’t just for bankrupt or failing companies, it’s also something that successful brands have been forced to do in order to keep the overall company healthy.
Shake Shack has generally been very careful with its expansion efforts.
Image source: Shake Shack
Shake Shack has expanded very slowly
Huge chains including Starbucks generally close a small amount of locations each year. In the case of the coffee giant, it generally closes cafes due to population shifts or because it sees the opportunity to open in a better, but nearby locations.
Smaller chains don’t generally have to do this as often because they move slower and are very careful with picking locations. Shake Shack (SHAK) has generally been very deliberate in its expansion efforts.
The very popular burger chain has under 350 locations. and has expanded very slowly. That’s partially an effort to keep the brand special. Shake Shack clearly has unmet demand, but expanding quickly could undermine some of the mystique of the burger, chicken sandwich, and shake brand.
Shake Shack has also tried to keep its reputation as being a company that’s about more than just making money.
“When Shake Shack started as a hot dog cart in New York City’s Madison Square Park, our mission was simple: raise funds for a public art project,” it shared on its website. “As we grew into a global business, our mission to Stand For Something Good expanded to include taking care of our team, sourcing premium ingredients from partners with the same dedication to quality, designing our Shacks responsibly, supporting our communities through donations, events, and volunteering — and much more.”
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Shake Shack closing multiple locations
Shake Shack filed a document with the SEC on Aug 27 that detailed its plan to close some locations.
“Shack Inc. regularly evaluates its portfolio of Company-owned and operated Shack restaurants (“Shacks”). As a result, it has identified locations that are underperforming at the Shack level in part due to changes in the trade area and, in some cases, are negatively impacting other Shacks within their proximity by cannibalizing sales,” the company shared in the filing.
That led the company to make a difficult decision.
“These Shacks are not projected to provide acceptable returns in the foreseeable future. As a result of this evaluation, the Company has determined to close nine Company-owned and operated Shacks in California, Ohio, and Texas,” it continued.”These closings are expected to optimize the Company’s footprint in these states and maximize profitable growth moving forward, and are not anticipated to impact the Company’s plans to open additional Shacks in these states.”
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Shake Shack added that it does not expect any additional location “for the foreseeable future.” It also plans to find new positions for impacted workers.
“Management in these Shacks will be offered a position in neighboring Shacks and hourly team members will be eligible for rehire at other Shacks, and hourly team members (and any managers who do not accept a transfer) will receive up to 60 days pay. This Shack closure plan was communicated to impacted employees on August 27, 2024 and is expected to be completed by September 25, 2024, subject to finalizing third-party agreements and other contingencies,” the company shared in the filing.
