Shake Shack Inc. introduced a mobile app in January, and provided customers with an incentive to use it: Free food.
Customers have responded: The app has been downloaded 200,000 times, and Shake Shack has given away 90,000 burgers, or 6 percent of total orders during that time.
“That’s a huge number coming out of nowhere,” Shake Shack CEO Randy Garutti said during an earnings call Wednesday. The promotion has since ended. “That should decline when we stop giving away free burgers. [But] it is our expectation that it will then come back. And I think it’s going to be more and more a piece here at Shake Shack that we are going to continue to work with.”
Mobile app usage has taken off in the restaurant industry, and operators are eager to promote them because they can drive use without adding point-of-sale terminals. Apps also let operators collect data more easily, and may increase efficiency.
Many say apps lure customers who make bigger orders. Excluding the free burgers, Shake Shack executives said mobile orders have been 15 percent larger than other orders so far.
Garutti also said that a quarter of app users have returned for repeat visits.
But the app isn’t without its challenges, executives said.
“The influx of app orders can, at times, have a slowdown impact at our highest-volume Shacks at peak,” Garutti said. “This is not a surprise to us, especially during this free burger promo. We’ve experienced many days when we’ve given out over 5,000 free burgers.”
Garutti said Shake Shack is working to evolve its kitchens to adapt to the influx of app users for the long term.
“There’s no question the expectation is that for the Shack of the future, if you choose to order that way, you should be able to order it and pick up your food,” Garutti said. “Our whole world is based on a community gathering experience. The app is just one tool to accommodate that guest.”
Shake Shack reported lower same-store sales in the fourth quarter. Same-store sales grew 1.6 percent, slower than in previous quarters. Executives blamed the problem on a combination of calendar shifts, bad weather and difficult comparisons.
Executives also said same-store sales would be weak in the first quarter of the year, as the chain runs up against more difficult comparisons, from last year’s introduction of the Chick’n Shack sandwich.
Same-store sales failed to meet investor expectations, and Shake Shack’s stock fell more than 2 percent on Thursday.
Still, revenue jumped 43.5 percent in the quarter, to $73.3 million, from $51.1 million the previous year, while net income tripled, to $3.9 million, or 15 cents per share, from $1.2 million, or 7 cents per share the previous year.
Growth is coming from new locations. Shake Shack added 20 new units in 2016, and 30 new locations systemwide. The company expects to add 22 to 23 domestic company locations this year.
Labor costs increased in the quarter, Shake Shack said. Labor as a percent of revenue increased 160 basis points, to 26.6 percent. And the company said it expects labor pressures to continue this year.
The company said that it beefed up staffing to prepare for growth, adding new managers and team members. The company also raised pay for managers in December.
“We’re playing offense,” Garutti said. “We’re building the biggest team to continue to ramp up growth. And we’re going to pay them.”
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