QSR April 2023

EVOLVING QUICK SERVICE FOR THE FUTURE

APRIL 2023 / NO. 302

®

Shake Shack’s Katie Fogertey is leading the brand through its most transformative time yet. Shaking Things Up / P.24

PLUS:

The Inflation Playbook P. 34 Dynamic Pricing: Myth or Magic? P. 40

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April

TABLE OF CONT ENT S A P R I L

plus:

2 0 2 3 # 3 0 2

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QSR / LIMITED-SERVICE, UNLIMITED POSSIBILITIES

DEPARTMENTS

FEATURES

N E W S

24 / KATIE FOGERTEY DIDN’T TAKE YOUR TYPICAL JOURNEY TO SHAKE SHACK’S C-SUITE. IT MIGHT JUST BE WHY THE CFO HAS MADE SUCH AN IMPACT DURING ONE OF THE MOST TRANSFORMATIVE TIMES IN BRAND HISTORY.

20 FRANCHISE FORWARD Lessons from a Young Operator How a rising Inspire Brands franchisee is changing the game. BY CALLIE EVERGREEN 67 OPERATIONS The Real Price of Real Estate While there’s space to grow on the backend of COVID, doing so can come at a cost. BY BARNEY WOLF 13 FRESH IDEAS The Great Value Proposition Offering consumers more for less is an easy way to bring them through your doors. BY AMANDA BALTAZAR 18 ONES TO WATCH Killer Burger The growing franchise stands apart using party vibes and creative signature burgers. BY BEN COLEY 69 OUTSIDE INSIGHTS The Design of Inflation Menus are hardly free and clear of the impact. Here’s where to start. BY TOM COOK 88 START TO FINISH Jane Abell Grote As Donatos continues to innovate, its philanthropy has followed suit. I N S I G H T

LIZ EIDELMAN

34 Shortages, Supply, and Relief BY CALLIE EVERGREEN Operators are clamoring to cut expenses through value engineering menu items, leveraging supplier relationships, and more.

40 The What, Why, and Where of Dynamic Pricing BY SHERRI KIMES

A suddenly buzzing topic brings forth plenty of debate, but also no shortage of opportunity.

4 BRANDED CONTENT

4 EDITOR’S LETTER

9 SHORT ORDER

71 ADVERTISER INDEX

ON THE COVER Katie Fogertey has her sights set on innovation as Shake Shack surges ahead. PHOTOGRAPHY: LIZ EIDELMAN

QSR is a registered trademark of WTWH Media, LLC. QSR is copyright © 2023 WTWH Media, LLC. All rights reserved. The opinions of columnists are their own. Publication of their writing does not imply endorsement by WTWH Media, LLC. Subscriptions (919) 945-0704. www.qsrmagazine.com/subscribe. QSR is provided without charge upon request to individuals residing in the U.S. meeting subscription criteria as set forth by the publisher. AAM member. All rights reserved. No part of this magazine may be reproduced in any fashion without the express written consent of WTWH Media, LLC. QSR ( ISSN 1093-7994 ) is published monthly by WTWH Media, LLC, 1111 Superior Avenue Suite 2600, Cleveland, OH 44114. Periodicals postage paid at Cleveland, OH and at additional mailing offices. POSTMASTER: Send address changes to QSR, 101 Europa Drive, Suite 150, Chapel Hill, NC 27517-2380.

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BRANDED CONTENT

E D I TOR I AL EDITORIAL DIRECTOR Danny Klein dklein@wtwhmedia.com

BRAND STORIES FROM QSR

QSR EDITOR Ben Coley bcoley@wtwhmedia.com FSR EDITOR Callie Evergreen cevergreen@wtwhmedia.com ASSOCIATE EDITOR Sam Danley sdanley@wtwhmedia.com

IN THIS ISSUE

16 This Massive Korean Fried Chicken Concept is Catching Fire in the U.S. bb.q Chicken continues to grow rapidly across American markets. SPONSORED BY bb.q

CUSTOM MEDIA STUDIO DIRECTOR OF CUSTOM CONTENT Peggy Carouthers pcarouthers@wtwhmedia.com ASSOCIATE EDITOR, CUSTOM CONTENT Charlie Pogacar cpogacar@wtwhmedia.com ASSOCIATE EDITOR, CUSTOM CONTENT Kara Phelps kphelps@wtwhmedia.com

ART & PRODUCTION ART DIRECTOR Tory Bartelt tbartelt@wtwhmedia.com GRAPHIC DESIGNER Erica Naftolowitz enaftolowitz@wtwhmedia.com PRODUCTION MANAGER Mitch Avery mavery@wtwhmedia.com

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SmartChain / p. 47

THE FAST TRACK / OFF-PREMISES AND DRIVE-THRU PROGRAMS ARE CHANGING QUICKLY. 48 Expanding Off-Premises 60 Engagement in

SmartChain VENDOR RESOURCES / TRENDS / NEW PRODUCTS

APRIL 2023

SALES & BUSINESS DEVELOPMENT GROUP PUBLISHER Greg Sanders gsanders@wtwhmedia.com NATIONAL SALES DIRECTOR Eugene Drezner edrezner@wtwhmedia.com 919-945-0705 NATIONAL SALES MANAGER Edward Richards erichards@wtwhmedia.com 919-945-0714 NATIONAL SALES MANAGER Amber Dobsovic adobsovic@wtwhmedia.com 919-945-0712 NATIONAL SALES MANAGER John Krueger jkrueger@wtwhmedia.com 919-945-0728 SALES SUPPORT AND DIRECTORY SALES Tracy Doubts tdoubts@wtwhmedia.com 919-945-0704

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New Options P. 48 Tech and Data P. 54 Engagement P. 60 Key Players P. 64

Line What’s the best approach to customer engagement?

Options Operators are adapting to new guest behavior. 54 Better Tech, Better Data New innovations are improving overall success.

64 Key Players

THE FAST TRACK

Here are the biggest names in the world of drive thru and off-premises.

Off-premises and drive-thru programs are changing quickly. ■ BY KARA PHELPS

QUIKSERV / KEN CHILDRESS PHOTOGRAPHY

SPONSORED SECTION | APRIL 2023 | 2023

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MENU ENGINEERING

BACK OF HOUSE The Printing

DATA INSIGHTS

FOUNDE R Webb C. Howell

Solution Helping Modern Kitchens Become More Efficient

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EDITOR’S LETTER

Restart the Connection

A few weeks back, I made the (maybe ill-advised) decision to share two charts on social media. Both were maps of America you often see where each state gets highlighted by a winner. In this case, a breakdown of which casual-din ing chain was America’s favorite, market by-market. That one stirred light-hearted debate. But then, came the fast-food one. Comment after comment every one disagreed—except for In-N-Out in California—with roughly 97 percent of people informing me I was personally off-base, despite a disclaimer I had no stake in this data. “There’s no chance Chick-fil-A doesn’t win Georgia!” “How can Whataburger not reign in Texas!” And on it went. Ultimately, I deleted the post to save some shred of sanity after somebody suggested that, even for an ex sportswriter, I should of known better. Once that combative dust settled, though, I think you’re left with some important takeaways. For one, as some body told me years ago, fast food is the heartbeat of the American consumer, and you can’t tell me otherwise. But it is interesting to watch how regional bias has evolved as scale has. It’s one reason I’m not sure In-N-Out or White Castle will ever try to become truly national. There’s upside in exclusivity. Or why a brand like Whataburger can be so well received in Florida (a state the chart claimed it won) as demographic migra tion connects markets. Are younger consumers as tied to brands as older ones were? In other words, many of us, at least in my generation, favored restaurant chains our parents brought us to as we grew up. Yet will we now take our chil dren there? I’m not sure it’s so simple. This was a topic that came up recently

when I was chatting with Duncan Smith, the U.S. CEO of Journey Further, a brand agency working alongside Sizzler on revamping its media. It’s a story this industry has witnessed on repeat. Siz zler was a 700-unit-plus brand globally. There’s now about 73 in the U.S. When it arrived in the late 1950s, this accessible and affordable service model was a trail blazer that drew a roadmap competitors would follow for decades. However, these same markets and communities the chain planted flags in changed around Sizzler faster than Sizzler could adapt. Everything from the makeup of local diners to how they access information (and restaurants). And so, the task of tak ing Sizzler from memory bank, “our par ents took us here when we were kids” to action—“and now I’ll take my kids here, too” is a multifaceted journey a lot of leg acy chains find themselves on. The good news is the industry has more connec tive tissue than ever. We’re well past just broadcast TV, radio, posters, and placing coupons in the mailbox—not that these don’t still work. But the ability now to find and speak to guests where they are is broader than even pre-COVID days. And the channels are more accountable. Digital media can tailor toward users, and restaurants have the power to tap CRM for things like reorders, one-to one offers, and really the ability to antici pate when people are going to want to connect and, in turn, data to capitalize on that moment. For generations old and new, familiar and discovery, it’s a chance to bring them all in.

Brand loyalty is hardly dead. Yet activating it

might need a second look.

DKLEIN@WTWHMEDIA.COM QSR MAGAZINE

Danny Klein, Editorial Director

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SHORT ORDER

For Sheel Mohnot and Amruta Godbole, one of their first dates took place over a romantic beachfront meal at Taco Bell’s famed Pacifica location.

Vows in the Metaverse

LIFELONG TACO BELL CUSTOMERS Sheel Mohnot and Amruta Godbole said “I do” in late February with an out-of-this-realm wedding celebration in “Decentraland,” a 3D browser-based platform that allows for shared virtual exploration. Winning out over 300 couples who applied to win the Taco Bell metaverse wedding of their dreams, Sheel, a co-founder of Better Tomorrow Ventures, a venture capital firm and Amruta, a lawyer at Instagram, worked closely with Taco Bell and their partners to plan an other-worldly event. Organizing a wedding in the metaverse allowed for the maximum level of creativ ity and customization to authentically tailor the event to the couple, Taco Bell said. This included a special “Master of Ceremonies” to facilitate the wedding. Kal Penn, an American actor who shares the couple’s Indian heritage, joined in.

Taco Bells were ringing for one lucky couple.

TACO BELL (4)

www.qsrmagazine.com | QSR | APRIL 2023

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SHORT ORDER

As of Q1 2022, Starbucks had more than $3.3 billion loaded onto “Starbucks Cards” across the U.S, exceeding a company record. In fact, the java giant’s gifting business was so strong the unit sales of Starbucks Cards were greater than the next four brands of gift cards combined, executives said. Paytronix recently released its Restaurant Gift Card Report: 2023, which found restaurants have moved on from the pandemic, yet still face challenges thanks to inflation. Those changes a ect both how operators sell cards and how consumers purchase them.

The Analysis: “Gift card purchasing appears to mirror that of loyalty guests. Our research shows that loyalty guests’ checks match inflation. From the beginning of 2020 to the present day, restaurant loyalty guest check size grew in tandem with menu prices,” says Kirstin Lynch, Paytronix’s strategy and analytics director.

The Big Point: In 2022, dollars spent on gift cards rose 6 percent over 2021, a high-water mark for gift card value. But, the overall number of gift cards sold fell.

Why? People loaded on more value, choosing more cards of over $25 and fewer that are under $10. Consumers also showed a preference for digital gift cards, not only by purchasing more, but loading them with higher values than on their physical counterparts.

Other Findings: Average dollars loaded per gift card increased 8 percent from 2021.

It’s Not Just About Guests Restaurant marketers are targeting this behavior, too. “Brands themselves may be influencing the trend of higher-value cards by only selling higher-value cards or by making lower value cards less available,” Lynch adds.

Digital cards outperformed physical cards in terms of value, with the average digital card loaded $82 more at a fine-dining establishment than a comparable physical card.

Third-party retail sales grew, while in-store sales dropped, indicating a channel shift.

A Final Point Card sales also showed a shift toward full-service restaurants, with that segment showing significant growth, even as quick-serves, the segment that best weathered the pandemic, showed a 5 percent drop in revenue. This trend was particularly appar ent for fine-dining restaurants. “Fine-dining gift card sales have not only recovered completely from the pandemic, they’ve also been

the only concept to see an increase over 2019 numbers. This indicates a chan nel shift in consumer preferences—as guests emerge from the pandemic, they prefer to gift experiences at fine-dining establishments,” Lynch says.

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fresh ideas | VALUE MENUS REIMAGINED | The Great Value Proposition

Offering consumers more for less is an easy way to bring them through your doors

Mendocino Farms has introduced group deals to entice at-home diners.

BY AMANDA BALTAZAR

H igher prices or shakiness of the economy notwithstanding, people still have to eat. But quick-serve and fast-casual restaurants have had to rethink the definition of “value" against the ever-evolving backdrop. “Both guests and restaurateurs alike are price sensitive at this moment, so everyone is looking to create and communicate value, and bundled or value meals make that possible,” says Sean Willard, a menu engineering specialist in San Diego, California. Del Taco is one brand that welcomed 2023 by offering more value. Every day in January, the brand presented a “20 under $2” menu, featuring items like Chicken Tacos Del Carbon and 3

Layer Queso Nachos. And in case that wasn’t enough, the 600 unit chain also offered a free item from that menu to any of its Del Yeah! Rewards members with a $3 purchase through its app, which helps encourage consumers to sign up. “We know when inflation is coming and we saw this and said here’s a really great opportunity for us,” chief marketing officer Tim Hackbardt says. While historic value menus focused on the $1 mark, Del Taco decided to make its slightly more expensive “to offer products with a little more flavor or were a little more interesting,” Hackbardt says. “We know consumers tend to think value menus are less exciting menu items.”

MENDOCINO FARMS

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fresh ideas

| VALUE MENUS REIMAGINED |

Along with food choices, Del Taco displayed iced drinks, mini shakes, and dessert items like churros. “We knew if you could deliver vari ety for the consumer, they liked it. What they didn’t like was a value menu with just a cou ple of items. They would frequent a brand with variety and decent quality much more often,” Hackbardt says. Del Taco’s 20 for $2 menu has a very high take rate, he says. “It’s a good portion of our menu so we know it’s popular. This also works well to make the brand more appealing for your meal occasion. And it’s interesting because every time you come in you can pick some thing different off this menu.” Subscription drops Urban Plates also decided to start 2023 with a value bang, upgrading its signature Plate Pass program to include more savings on additional menu items. The program offers 20 percent off a guest’s entire check; it includes purchases made on the company’s app and at the cash register; and the new subscription price was sliced in half, to $5 a month. “People are cutting back. And we want to make Urban Plates an easy choice; we don’t want them to feel they have to cut back on our food,” says Steve Greer, the fast casual’s chief marketing officer. “It’s better that they come with a discount than they don’t come.” To raise awareness, Urban Plates relied heavily on in-store signage. Customers can make back the $5 subscription cost in one trip if they’re buying more than two entrees, Greer explains. And it’s easy to sign up new members in the store—they can join while buying a meal and start saving immediately. Information on the program is also dis seminated on social media. “We want it to be across the brand story,” Greer says. The specials are not valid for delivery due to the hefty commissions third-party compa nies charge. “It would be really hard and not financially feasible to make Plate Pass avail able for delivery,” he adds. Focus on large orders Other restaurant operators are focusing on offering value to larger groups.

while providing a home cooked-style meal for the household.” These meals are beneficial for operators, too, she adds. “Large orders have a higher ticket average than single-serve. With the curation of a fixed-price menu, with limited choices, operators can control and predict their food costs and associated delivery fees.” Fazoli’s is focusing its value menu toward family bundles, notes Tisha Bartlett, its vice president of marketing. “Bundles are a great value but we also have a la carte so they can add pasta or a salad which are great for add-ons,” she says. The most popular offering is the Super Family Meal ($30), which serves eight people and includes two pasta dishes, a pizza, lemonade or tea, and breadsticks. “That’s a differentiator for us,” she says. “Most [quick-service restaurants] serve four. Ours is a hearty meal plus leftovers. And we do have different levels so they can pick and choose what they want.” The biggest one is Super Family Meal that serves eight. Family meals are 6–7 percent of Fazoli’s menu mix, so it makes sense to offer some thing that caters to this group. Mendocino Farms rolled out group order deals starting on Super Bowl Sunday, which offered 25 percent off catering orders of $100 or more. “Super Bowl Sunday is not a big day for us but it is a big gathering day,” COO Steve Mintzer says. “But how do we get into their houses? Pre-COVID catering was a significant part of our business and during COVID it was zero but we’ve been climbing back into it. We have always been recognized for great value so how do we get people to think of Mendocino Farms when they’re outside the restaurant?” As an added plus, Mintzer says, catering consumers often convert to in-store guests. Mendocino Farms is featuring something for individual orders, too, menuing the reformu lated Countryside Cobb Salad for $8 (normally $13.95) to its My Mendo members. “It’s impor tant right now for people to focus on value and we wanted to surprise and delight our My Mendo members,” Mintzer says. The company is promoting both of its value

Del Taco (above), Urban Plates (middle), and Fazoli’s continue to engage customers through multi-faceted value—not just price.

offerings on social media, with some in-store signage. It also sends out email blasts to My Mendo members, which, Mintzer says, “is our way to stay con nected.” q

“Offering complete meals including side dishes, bread, bever ages, and dessert for a fixed price is extremely appealing,” says Arlene Spiegel, a restaurant consultant in New York City. “It also helps the homemaker feel less guilty for not cooking from scratch

Amanda Baltazar is a regular contributor to QSR and is based in Washington.

DEL TACO, URBAN PLATES, FAZOLI’S

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This Massive Korean Fried Chicken Concept is Catching Fire in the U.S. / BY CHARLIE POGACAR

South Korean-based franchise bb.q Chicken is widely known on an international level. Now, the brand is making a name for itself in the U.S., too. The Korean Fried Chicken brand has over 3,500 locations across 57 countries worldwide and has grown to 160 stateside locations. The brand has forged a unique identity by leaning into its authenticity. At bb.q (pronounced bee-bee-que), marinades arrive directly from Seoul. All recipes, processes, and ingre dients are exactly the same in the U.S. as they are in South Korea, which means the food eaten at a local bb.q in the U.S. tastes exactly the same as it does in Seoul. “Our brand is authentic as it gets,” says bb.q Chicken USA CEO Hyongbong Kim. “We don’t try to ‘Americanize’ our food in the way other international brands do. We stay true to our Korean traditions because we want the dining experience to be as consistent and authentic as possible.” The menu boasts fried chicken mari

nated in a unique blend of spices, fried in a way that makes it lighter, less greasy, and crispier than other fried-chicken alterna tives. bb.q customers can choose to have their chicken tossed in an array of bold signature sauces, o ering a great degree of customization. Other menu favorites include tteokbokki and kimchi fried rice. The brand has four different service models with something for every type of consumer—or franchisee. The original and core concept is bb.q Chicken Express,

touchless lockers. BSK locations can be built into spaces as small as 800 square feet and require only a handful of employees per shift. “The new BSK concept will be perfect for high-density areas where square footage is more expensive but foot traffic is high,” Kim says. “It’s a streamlined way of doing things, al lowing for faster service and helping sta focus on fulfilling orders instead of managing the takeout counter.”

“ Our brand

which focuses on takeout and delivery channels. This model has floor plans between 1,000–1,500 square feet, making it ideal for urban areas. The bb.q Chicken & Beer full-service model has floor plans that range from 2,500–5,000 square feet. Customers can order chicken and other Korean food, as well as drinks from a full bar. Also a full-service model, the bb.q Chicken Cafe o ers beer and the entire menu, with layouts ranging from 1,500–5,000 square feet. The brand’s newest model is the tech-forward bb.q Smart Kitchen ( ), o ering electronic ordering and carryout orders fulfilled using

The Korean brand is looking for franchisees to incrementally grow a portfolio. “We hope franchi sees start with a location in a metro area and then grow to two, three, or more locations after each

is authentic as it gets. ”

successful launch,” Kim says. “We are interested in working with all franchisee types—from those who are deeply experienced to those who are new to restaurant franchising.” Those interested can look for the bb.q Chicken booth at both the Multi-Unit Franchising Conference in Las Vegas in late April, as well as the International Franchise Expo in New York in early June. ◗

Interested in franchising with bb.q? Visit franchise.bbqchicken.com.

bb.q (2)

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DEPARTMENT ONES TO WATCH

Killer Burger The growing franchise stands apart using party vibes and creative signature burgers. BY BEN COLEY

six openings, which would put Killer Burger at around 25 locations. Additionally, this is the year of the chain’s first leadership summit since pre COVID. Dikos says the meeting is crucial for alignment purposes. Executives can dis cuss goals and meet inside restaurants, but nothing compares to getting an entire group together to digest the long-term roadmap. The highlight of the meeting is returning to hospitality, the CEO says. Pandemic forced circumstances pushed Killer Burger to be more of a digital business, but at its core, serving a customer face-to-face is in its DNA. The concept wants to elevate exe cution and develop team members so it can drive that point home to new and exist ing guests. The momentum is already present. Same-store sales were positive to end 2022, and that continued into the early part of this year. Sanders expects high single digits to low double digits. “It helps us get to a point of better finan cial stability and the ability to start growing organically a lot faster,” Sanders says. Killer Burger is part of a swiftly growing fast-casual burger segment—one in which differentiation is table stakes. The box is typically 2,400 square feet, but the brand can dial that down to 1,500-1,800 square feet for its digital-centric, pickup locations with fewer tables and chairs. Although Killer Burger’s unit count is small, it’s already demonstrated success in multiple venues, including two locations in prom inent professional sports facilities (Moda Center and Providence Park), a freestand ing unit with a drive-thru pickup window, and a handful in high-end suburban neigh borhoods, urban locations, endcaps, and inlines. One of the first things Dikos did when he joined Killer Burger was move to an architectural company CONTINUED ON PAGE 70

growth. CEO John Dikos and vice presi dent of finance Adam Sanders are fairly new to the brand as well, with Dikos join ing in July 2021 and Sanders following in December of that same year. “Across the board, everything’s been upgraded, so really putting all the systems in place and team in place to let us grow going forward and facilitate that growth,” Sanders says. “I mean financially it was a challenging year a little bit because of that, but I think a necessary step.” After making those investments in sys tems and people, Dikos says 2023 is the year to start showing improvement in terms of efficient processes and unit economics. After jumping from 50 percent staffing levels to 80 percent and opening three restaurants in 2022, the goal is to double development to

FOR KILLER BURGER, 2022 SET UP THINGS TO COME in the next five to seven years. The fast casual significantly upgraded its tech stack, including a transition to Olo for online ordering and Paytronix for loyalty membership. It also switched its account ing software and began using a new real estate analytics tool for more predictable FOUNDERS: TJ Southard HEADQUARTERS: Portland, Oregon YEAR STARTED: 2010 ANNUAL SALES: $21.96M, 2023 system sales projected at $26M TOTAL UNITS 20 FRANCHISED UNITS: 8

KILLER BURGER

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DEPARTMENT FRANCHISE FORWARD

Lessons from a Young Operator How a rising Inspire Brands franchisee is changing the game BY CALLIE EVERGREEN

very competitive segment. Typically, we see the ones that cannot staff delivery employees are the ones that don’t offer competitive wages.” Though raising wages can be expensive upfront, having a higher percentage of deliv ery roles staffed allows restaurants to be able to handle a greater volume of delivery sales, versus having to shut off delivery because of staffing shortages, Fulton explains. “People in this industry constantly high light how tough staffing is, but is your franchise appealing to be employed at?” Fulton says. “I think people have to look in the back lens and look at their business and employees and say, ‘Would I want to have a job here? And what can I do to make it appealing from a benefits, from a life-balance perspective, and from a compensation perspective.’” Fulton knew he had more to learn before becoming a franchisee himself, so he became a franchise operations consultant for Burger King’s parent company, Restaurant Brands International, in the U.S. southeastern divi sion for 250 locations.

Jimmy John's has room to grow across the East Coast.

“From that point, taking that step into fran chising is not as challenging as it seems, and I always had people who wanted to back me financially, who wanted to back restaurants but remain absentee,” he says. While looking into opportunities towards the end of 2021, Ful ton came across Jimmy John’s, which he saw a lot of potential in to grow across the East Coast. “I wanted to join a concept that had a solid backing, and I liked it was owned by Inspire,” Fulton says. “I wanted the Inspire fam ily and beliefs, advantages from a tech standpoint, and leading the competition in a sense.” So in an impressive roll-up acquisition that took about five months, Fulton consolidated seven Jimmy John’s units—six in Maryland, and one in York, Pennsylvania—from three franchisees, which meant adjusting three separate teams to one set of systems, a challenge for even the most seasoned entrepreneur. “It was definitely unique and challenging to consolidate three franchisees and close them. We bought all of them on the same day, so that was fun,” Fulton says. “But it’s definitely paid off, and we’re seeing quick positive movement. We’ll be a success story when it comes to Jimmy John’s in this section of Mary CONTINUED ON PAGE 70

A s a 24-year-old Jimmy John’s franchisee with eight restau rants and counting, Maxwell Fulton doesn’t want anyone to think he simply inherited his success. “Sometimes peo ple think, ‘Oh it’s a young franchisee, he must have been handed this,’” he explains. But Fulton’s experience says otherwise. When Fulton became a general manager at Taco Bell at 18 years old, he already had his career path mapped out. He knew he wanted to “be in this business and make something of myself” as a future franchise owner, and he knew he had to align himself with the right leaders to help get him there. After joining Domino’s in 2020 as a district manager, Fulton quickly rose through the ranks and began running stores in the Washington, D.C. area as manager of corporate operations. There, he learned the important skill (alongside the rest of the restaurant industry) of managing staff during a global pandemic and subse quent tough labor market. “[Concepts] in the pizza segment are some of the ones having the toughest time staffing delivery,” Fulton says. “A lot of it comes down to what kind of schedules and wages you can offer them, as it’s a

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Katie Fogertey didn’t take your typical journey to Shake Shack’s C-suite. It might just be why the CFO has made such an impact during one of the most transformative times in brand history.

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Shaking the Status Quo Statu s KATIE FOGERTEY WAS ALREADY WELL KNOWN WITHIN SHAKE SHACK CIRCLES. As Goldman Sachs’ lead analyst covering restaurants, she wrote a bull report for the fast casual during a time when few pundits agreed. How investors saw the company, Fogertey felt, wasn’t reflec tive of Shake Shack’s unicorn position among quick-serves, or its growth potential. ¶ There were 297 systemwide Shacks at this time—end of Q2 2019. Today, there’s more than 430. ¶ Going back, Fogertey held a number of “big conversations,” she says, about how she came to that conviction and buy rating. It earned her a measure of notoriety. ¶ But soon enough, Fogertey was having an entirely different discus sion around Shake Shack’s prospects. ¶ When COVID-19 arrived (good luck trying to model sales), Fogertey decided she wanted to get off the sidelines. “I wanted to be part of the solution and the path forward,” she says. “It felt like it was just something that was inside of me.” / BY DANNY KLEIN BRAND LEADERSHIP

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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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and multiple format investments. The total addressable market for Shake Shack today versus 2019, frankly, isn’t comparable. Digital and kiosk sales are up 330 percent since 2019, from $147 million to $494 mil lion. Digital guests spend 20 percent more than traditional ones. They boast higher frequency and offer Shake Shack access to new occasions. Fogertey refers to the movement as “migrating people into the omnichannel.” “We want to make sure what we’re see ing is that they might be coming to the app sometimes, they might be coming into the Shack at other times, and we want to meet them wherever they are,” she says. For Shake Shack, this meant leveraging and improving what was already built to provide a compelling guest experience. In Q3 of fiscal 2022, Shake Shack ballooned its digital app purchasers by 40 percent, year-over-year (more than a million app installs since the beginning of the calen dar). From March 2022 forward, it gathered more than 4.5 million unique first-time dig ital app purchasers, feeding the base with offers like giving digital users first access to LTOs. Shake Shack’s digital guests spent, on average, 25 percent more per visit than non-digital users that quarter, and digital mix was 36 percent of sales. Switching lanes, Shake Shack launched direct delivery in March 21—a decision that triggered a 70 percent increase in delivery order volume through its app in one year. Also, going native allowed Shake Shack to put its best brand foot forward. “Our strat egy in the delivery wars is to own the guest ordering, regardless of pickup or delivery mode, and ensure our guests have a uniquely Shake Shack experience, even if they order delivery and never walk into our Shack. The guest ordering experience is the best presentation of our full menu—we highlight imagery, descriptions and modifications in a way that provides the optimal guest experience,” says Steph So, head of digital experience. “While third-party apps offer a wide range of restaurant choices and are a great way for guests to try Shake Shack the

“We want to make sure what we’re seeing is that they might be coming to the app sometimes, they might be coming

into the Shack at other times, and we want to meet them wherever they are.”

ital channels that never existed a few years ago,” Garutti said in December, pushing the brand to optimistic heights. Shake Shack’s total revenue in Q4 rose 17.4 percent, year-over-year, to $238.5 million as same-store sales upped 5.1 percent. Shake Shack’s future unfolds across new, dynamic buckets— the expansion of its delivery services, kiosk, digital, drive-thru,

first time, they create a ‘sea of sameness’ with the number of restaurants surfaced to a user, and our unique brand voice and interactions are not able to shine through. We also want to offer our guests the best value, which we can control most directly on our channels, and be transparent with fees.” Shake Shack first piloted nationwide delivery via its iOS app

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BRAND LEADERSHIP

in New York City and Miami. It then rolled nationwide as part of an exclusive deal with Uber Eats. That’s when the jump in delivery order volume took shape and led Shake Shack to plant firmer roots. The brand built out its technology development team in collaboration with Uber Eats fulfillment, allowing for more direct contact with guests, So says, and “ensuring the ultimate, frictionless experience.” Alongside, Shake Shack launched a mobile-first web redesign and introduced deliv ery in the Android Shake app as well as new payment options, including Apple Pay, Google Pay, and contactless options. The overall value proposition was a lure, too. “Our app menu is our lowest price menu compared to all nationwide delivery apps, and we don’t require subscription fees to access our low deliv ery fees,” So says. Fees don’t change, there’s no surge pricing, or menu markups. Shake Shack is rewarding direct guests in an effort to bolster its base and get personal. “We’ll regionalize their experience and target offers based on their behavior, which we cannot see if guests are ordering via third party,” So says. For instance, if a guest is based in New York City, Shake Shack can share local events and relevant news, everything from chef collaborations, events, and new openings. GETTING PHYSICAL Returning to the point of in-store traffic, this might be where Shake Shack is most visibly evolving—inside and outside. Starting with the former, the brand in November committed to retrofitting all locations with kiosks by the end of 2023. At that point, roughly half of units had them. Fogertey says kiosks “are a really important part of our story right now,” and it’s easy to grasp where she’s coming from. On paper, they’re a great

the merchandising is. “We’re selling more LTOs,” Fogertey says. “We have more of a higher premium attach rate on those [kiosk] channels.” Spun another way, kiosks empower Shake Shack to optimize labor to other parts of its guest journey. They provide operators flexibility during peak traffic and staffing challenges. Additionally, kiosks represent Shake Shack’s highest-mar gin channel, which doesn’t hurt, either. In restaurants where it has kiosks, about 75 percent of sales flow through kiosk and digital channels. As noted, digital plus kiosk mix 57 percent of total sales today for Shake Shack. In 2019, the figure was 26 percent. “We have the ‘Stand For Something Good [mantra],’” Fogertey says. “We’re hopeful the kiosks will make you stand not as long for something good.” Shake Shack doesn’t generally lack for buzz. One trip to the Times Square store and the boisterous lines that wrap around, will prove that. But the reality is Shake Shack remains a brand relatively young in its growth journey. Back in January 2020, ahead of the crisis, 60 percent of the burger chain’s domestic units were less than 3 years old. Twenty four percent had been on the market for 12 months or less. The average age of restaurants across 163 U.S. corporate venues was 2.9 years. Twenty-three of Shake Shack’s 31 markets at the time boasted five or fewer locations. And this isn’t even getting into the global and licensing picture (the brand ended 2022 with 182 licensed Shacks and expects 25–30 openings in 2023). The 430-plus global locations today cover 32 states, plus Washington, D.C., and 16 countries. Shake Shack opened 36 new domestic corporate stores last fiscal year, 22 of which landed in Q3. It debuted 33 licensed Shacks, 13 in the final period. There are 23 airport Shakes open worldwide; four roadside travel plaza spots, with three to five more on deck for this year. Ahead as well is Shake Shack’s first licensed opening with a resort partner in the Bahamas, at the Atlantis Resort. In all, Shake Shack’s roadmap has a vast Atlas in front of it. Fogertey says the kiosks play a key role here as well, given they visually lay out the brand’s differentiators from the out set. What makes Shake Shack’s menu unique? Guests can see instead of read it. A recent note from Fogertey’s past shop in Goldman Sachs expressed excitement over the brand’s “diversification of store formats and think this will be key in driving unit growth for the company.” This sentiment, as much as any, illuminates Shake Shack’s promise. COVID and all of its disruption, as well as the brand’s relatively small footprint compared to its overall projection, means the future is rife for innovation. The fast casual launched “Shack Track” at the start of the pandemic in response to the digital boom. “Many of the fast pivots in the early days of the pandemic soon became perma nent functions,” Fogertey says. And this included implementing multi-channel delivery, enhancing digital pre-ordering, and expanding Shake Shack’s fulfillment capabilities. Shack Track, dressed down, is the brand’s digital pre-ordering and fulfillment experience. It manifests across pickup shelves, curbside pickup, pickup windows, and more. The need to enhance the physi

return on capital. You can put four to five-plus in each location and take out cash registers (there will always be at least one of those, Fogertey says, for guests who use cash or for the sake of alcohol purchases). The brand can redirect labor within stores and appreciate a nice lift on ticket sales given how superior SHAKE SHACK'S ASSET EVOLUTION MIGHT BE THE MOST VIVID PART OF ITS JOURNEY FORWARD.

SHAKE SHACK

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