Shake Shack founder Danny Meyer says entering In-N-Out’s territory is like walking into the Vatican
Shake Shack founder Danny Meyer may be the unofficial king of high-end burgers, but he says there’s plenty of room at the table.
On Tuesday, Shake Shack opens its first California location on Santa Monica Boulevard in West Hollywood. The natural inclination is to claim that this is an attempt to take a bite out of the L.A. burger scene, most notably In-N-Out Burger, which is as ubiquitous in California as Shake Shack is in New York.
“I wouldn’t say we’re taking on In-N-Out. That would be like saying when you’re praying in the Vatican, you’re taking on the Pope,” Union Square Hospitality Group CEO Meyer told Yahoo Finance at South by Southwest in Austin.
The Hollywood location is not its first on the West Coast -- there are two existing locations in Arizona. The restaurant chain has expanded beyond its New York City roots, with a strong international presence in cities, including Tokyo, London and Kuwait City (24 of 87 Shake Shacks are in the Middle East).
Meyer says he’s been planning to open a Shake Shack in L.A. for a while and finally feels ready. The clear differentiator between the cities is that L.A.’s car culture paved the way to the proliferation of roadside diners and dives. Shake Shack, having started as a hot dog cart in Madison Square Park, was built on New York’s pedestrian culture, and Meyer says he has enough brand power to take on the L.A. food scene. (There are 229 In-N-Outs in California alone).
It’s also worth noting that Shake Shack does appeal to a wealthier demographic -- its signature cheeseburger (the “Shack Burger”) costs $4.55 whereas one at In-N-Out goes for $2.40.
“We just want to make it into the [Los Angeles burger] rotation. [Californians] aren’t going to quit going to In-N-Out. I go every time I’m in L.A,” he said.
The Shack story
Shake Shack (SHAK) has only been public for a little over a year, and shares are trading at nearly double their IPO price in January 2015, but the stock has had a rough year; shares are down 24% over the past 12 months. This month, the company reported solid fourth-quarter earnings and revenue, but shares suffered on a weaker-than-expected sales outlook.
The company said it expected same-store sales growth between 2.5% and 3%, while analysts were expecting 3.1% growth.
“Shake Shack has been having a nice honeymoon phase post-IPO, but increased competition and expanding into too many markets could start to become an issue,” says R.J. Hottovy, senior analyst at Morningstar. “Until now, they have managed the business just fine.”
Peak burger?
Meyer says the appetite for a good burger was, is and will continue to be insatiable. Unlike more fleeting trends -- see: cupcakes and cronuts -- people have been eating burgers globally for decades, and that won’t change.
According to market research firm NPD Group, Americans ordered nine billion burgers in 2014, an increase of 3% from the year before.
One thing that has shifted -- and in Shake Shack’s favor -- is the desire for better ingredients and the sense of customization. Shake Shack touts premium ingredients like 100% all-natural Angus beef and non-GMO rolls. The company also works with the local food scene in every city (for example, Austin has an exclusive “Lockhart Link” burger with a jalapeno cheese sausage from the Lockhart, Texas, Kreuz Market”).
“We’re not in danger of having a burger bubble because it can’t be a trend if it’s something whose roots are 60 years deep,” he says. And despite being in a saturated space, different brands can continue to coexist because no one eats just one kind of burger, Meyer says.
When asked whether there’s opportunity for other entrepreneurs in the burger business, he replied, “Of course there is. And I’ll be the first in line to try them.”