Despite receiving federal relief geared for retaining employees, Shake Shack has furloughed or laid off more than 1,000 workers at restaurants and its New York City home office as a result of temporary closures and reduced operations at stores that remain open for carryout and delivery.
The layoffs come a week after the fast-casual burger chain received a $10 million loan under the Paycheck Protection Program, which is forgivable if businesses meet certain criteria including using the funds to keep 75% of its workforce. The $349 billion PPP loan program ran out of funds Thursday.
To date, Shake Shack has temporarily closed 17 company restaurants. Of the brand’s 120 licensed locations, 57 remain open, the company said Friday in reporting its preliminary first quarter results.
Same store sales for the quarter decreased 12.8%, dragged down by a 28.5% drop in same-store sales in March. The double-digit decline underscores the devastating impact the COVID-19 crisis has had on restaurants, especially brands like Shake Shack whose restaurants are situated in destination cities with high foot traffic.
The staff reductions come a few weeks after Shake Shack, one of the fastest growing brands in the U.S., announced plans to halt unit growth and cut 20% of its corporate staff.
Dozens of independent restaurants and national chains have been forced to downsize their workforce and cut corporate salaries to survive the pandemic. Darden Restaurants, the casual dining parent of Olive Garden, has furloughed about 150,000 hourly restaurant workers.
Shake Shack, which had been experimenting with a four-day work week for managers, said it is committed to providing full pay for general managers during the crisis and “regardless of whether their Shack remains open.”
The company said it is paying out paid time off and covering 100% of medical benefits through July 1 for all furloughed managers and home office employees.
The measures taken to sustain the business come as the industry still faces uncertainty about when restaurants will be allowed to reopen.
On Thursday, the White House announced a science-based plan for slowly reopening businesses across the U.S. No timeline was given by federal health officials.
Governors and local counties will be allowed to stagger the reopening of restaurants and bars after meeting certain criteria such as a 14-day downward trajectory of documented coronavirus cases.
While dining room service remains closed, Shake Shack said it has taken several steps to increase its off-premise business by adding new third-party delivery partners, selling cook-at-home burger meal kits through Goldbelly and at San Francisco restaurants and expanding curbside pickup. Shake Shack founder Danny Meyer is an investor in Goldbelly, an e-commerce company that sells and ships food from popular restaurant concepts across the U.S.
Some Shake Shacks have also created modified drive-through lanes to serve customers.
Since making these adjustments, the company said sales across domestic company-operated restaurants have seen consistent week over week increases over the last two weeks.
“Given the ongoing impact of COVID-19 on our business, our Shack teams have demonstrated their entrepreneurial spirit and continued to adapt our operating models and business strategy,” CEO Randy Garutti said in a statement. “As a result, we’ve seen strong sequential sales increases on a weekly basis since the last week in March.”
Garutti said he’s encouraged by the sales trends, and is proud at how hard restaurant teams are working to support each other and their communities.
“Shacks around the country continue to provide thousands of meals to hospital workers, first responders, firefighters, humane societies and food banks.” he said. “Our priorities remain the health and safety of our team members and guests, preserving financial flexibility and serving our communities safely.”
The company reported preliminary first quarter revenue of $143 million, compared to $132.6 million in the same quarter, last year.
In the filing, the company said it has 33 signed leases for new restaurants. The company said it “intends to complete and open these Shacks as soon as the business environment improves to more normalized levels.”
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