QSR April 2023

BRAND LEADERSHIP

Shake Shack’s chief financial officer positioned opened and Fogertey told her husband, “That’s the job I want.” She called the next day and pitched herself. For a brand founded in 2004 as a hot dog cart to benefit New York City’s Madison Square Park, spearheaded by hospital ity guru Danny Meyer, Shake Shack has never quite operated within fast-food convention. Its original openings catered toward younger consumers and a vibe inclusive of a changing generation. The food took longer to come out. Quality, ethos, and experience were placed out front from the initial step to the first bite. So the idea of tapping a CFO who had spent more than 15 years at Goldman Sachs and wasn’t carousel-ing around the industry C-suite ranks, fit Shake Shack’s disruptor DNA. “I have this very different background than others do, but coming in and them really embracing my ability to—and my desire— to statistically model out sales in a company that, frankly, is not very well understood by investors, there’s a lot of different drivers out there,” says Fogertey, who has a bachelor’s degree of busi ness administration in accounting, finance, and international business from Washington University in St. Louis (Meyer’s hometown, fittingly). “It’s been really exciting.” And perhaps it was destined. Fogertey was a colicky baby growing up in St. Louis. The only song that calmed her? Frank Sinatra’s “New York, New York.” She came up to the Big Apple in high school for an internship, took a college course at The New School, and knew exactly where she’d move when she got the chance. Now, stepping into the CFO role in June of 2021, New York City—and Shake Shake—had a COVID crater to climb out of. The brand’s average weekly sales sunk to $32,000 out of the pan demic gates, in April 2020. They were now up $69,000. It was a fast evolution. If you took all 126 locations in the company’s comp base at the time and removed the bottom 25 perform ers, the brand’s same-store sales in April 2021 improved from negative 15 percent to just under 3 percent. Simply, the urban footprint presented major challenges. Its Theater District and Herald Square locations—two of the busiest stores ever opened—were fractions of themselves. Shake Shack’s Grand Central unit remained closed. Q1 comp sales, year-over-year, were up 5.7 percent overall; in April, they boomed 86 percent off the pandemic floor. However, to get a sense of the full picture Fogertey took her skillset to, Shake Shack’s April performance was 15 percent lower than 2019 as suburban stores were flat. The brand hadn't quite yet recovered. Meanwhile, an interesting dynamic was taking shape indus try-wide. By mid-May 2020, 25 of the largest public restaurant chains more than doubled aggregator cash holdings, from $9.4 bil lion pre-pandemic to nearly $20 billion, according to financial services company Rabobank. All of them carried more cash suddenly than pre-virus. Shake Shack was definitely one of those. CEO Randy Garutti described the industry’s stock-piling as a “moment where no company was unsinkable.”

Shake Shack conducted an equity transaction and brought in a significant sum. The brand saw the convertible debt market reach “incredible opportunities,” Garruti said, and issue debt for $250 million at a zero percent coupon for seven years. As Gar ruti noted, “we may never see numbers like that in our lifetime.” The result was Shake Shack fortressed its balance sheet in a way it never had before. Come May 2021, the brand had more than $400 million in cash. In Baird analyst David Tarantino’s words, it represented “probably more than [Shake Shack will] ever need to grow the business.” Yet it was impossible for Tarantino, or any analyst for that matter, to guess just what Fogertey and Shake Shack had in store. DEEP IMPACT “They needed somebody who had a very strategic mindset,” Fogertey says of those early days on the job. “Having your clas sic CFO who might not be as strategic minded wasn’t going to do anybody any favors.” Sure, Shake Shack could use more support and rigor in defin ing its finance function overall. But when Fogertey looked at the wider opportunity, there were ample places her forward thinking vision could be levered at Shake Shack. She jumped into stores and spent weeks working with employees. “Getting to understand the company,” Fogertey says, “from soup to nuts.” It was clear to Fogertey Shake Shack’s culture was its launch pad. “Thinking about the long-term growth trajectory, what we’re doing every day is not just providing great experiences,” she says. “We’re really building up our people from the ground up.” We’ll get more into the labor side of Shake Shack later, but the operational transformation locked into place quickly. The brand’s omnichannel efforts predated COVID, as was the case for a plethora of quick-serves. However, the gravity of digital infrastructure was muted in comparison, to put it lightly. In addition to the chain’s heavy urban base, one of the reasons Shake Shack’s battle out the pandemic trough was so steep owed to many of its differentiators. The brand debuted as a social, hospitality-forward concept that encouraged guests to stick around. It wasn’t as transactional as some of its peers, or as streamlined across channels—core traits you might expect from a fast casual founded by a Michelin-starred restaurateur. That urban drag coupled with a lack of drive-thrus plunged Shake Shack’s U.S. sales as much as 90 percent at some U.S. venues in the opening COVID weeks. The average of 70 percent felt closer to full-service counterparts than counter-service ones. Beyond an easing in regulations and improved mobility as recovery progressed, Shake Shack turned course by finding its customers. And few have done it better. In March 2020, digi tal sales mixed 23 percent of the business. That climbed to 81 percent by May and settled to 59–62 percent by the final six months of 2020. Of late, much of the chain’s gains result from in-store din ing flooding back. People want to hang out in Shake Shacks again. And yet, this increased foot traffic layering on top of “dig

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APRIL 2023 | QSR | www.qsrmagazine.com