This New Burger Chain Won't Dethrone the Big Mac


Source:  Shake Shack.

Step aside, Chipotle Mexican Grill (NYSE: CMG  ) and McDonald's (NYSE: MCD  ) . There's a new kid on the block when it comes to fast and yummy. And you thought the world of "fast casual" was overheating. Well, now kick it up a notch, and welcome "fine-fast" or "fine-casual" chain Shake Shack. This place has burger lovers crowding around, but rest assured:  the new chain is no threat at least not any time soon.

Danny Meyer, founder of Shake Shack, explained:

One of the magical elements of Shake Shack has been to take our fine dining background -- and chocolate and coffee that we would use at our Michelin-starred restaurants and then offer it at a popular price.

It sounds like a tastier, better version of fast casual, though on June 24, Steve Ells, founder and co-CEO of Chipotle Mexican Grill, said something similar. He stated in a press release:

[We are] pushing ourselves to find the best quality ingredients -- ingredients that have traditionally been available only in high-end restaurants and specialty food markets -- and making them available in a way that is accessible to really mainstream customers.

Shake Shack is shocking
It began a decade ago as a single kiosk selling hot dogs in New York City.. Randy Garutti, CEO of Shake Shack, thought it would never be anything but the single stand. But then he added a "fine-dining" quality hamburger to his quick-service restaurant's menu. Instant success.

Just how successful? In a recent video, you can see very long lines across the park at one recent event with patrons happily admitting that they waited for six-and-a-half-plus hours and even turned down offers to sell their burgers for $100 each.  Sure, the lines aren't normally that long but the mere fact that they were even for a minute shows at least strong curiosity.  But fear not, Chipotle and Mickey D investors.

Five years ago Shake Shack opened its second restaurant. It opened its 47th location on June 17 of this year. At such tiny numbers, it's like an ant compared to an elephant in terms of a threat to McDonald's tens of thousands of locations around the world. Could Shake Shack one day become a more domineering threat?  Perhaps decades into the future at this pace. 

Source: Shake Shack.

It is though a symbol of the times that consumers are demanding better quality than McDonald's can be seen as offering so there is certainly at least a tiny niche for fine-fast burgers. McDonald's recently went a bit more upscale with its Bacon Clubhouse Burger on an artisan roll released in April, but it has failed so far to translate into solid sales growth numbers domestically. McDonald's reported a 1% drop in May.  It's safe to say the Big Mac still outsells the new sandwich.

More expansion
Shake Shack plans to continue to expand next at a snail's pace compared to the bigger chains.  And if for some reason fine-casual really takes off, McDonald's and Chipotle may very well be ready to respond with their own higher class offerings.

Interestingly, Shake Shack already has 13 international locations in four countries. Domestically, the other 35 locations are concentrated in just five states.  It seems that such a small chain is casting quite a wide net in the search for location spots.  Normally small new chains find markets in more concentrated areas for a number of reasons.

Source: Shake Shack.

Foolish final thoughts
For now, Shake Shack compared to McDonald's or Chipotle Mexican Grill is no comparison. However, over the long term, that could change so it's worth a lookout just in case especially if deep-pocketed investors wish to accelerate its growth. Chipotle Mexican Grill probably seemed like a tiny nothing, too, with 16 restaurants in 1998, and now it's up beyond 1,600 and climbing.  But I wouldn't bet on it with Shake Shack.

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  • Report this Comment On July 12, 2014, at 2:18 PM, Taz wrote:

    There are lots of places that offer better burgers (and other foods) than McDonalds. Sonic, The Habit, Whataburger are just three off the top of my head.

  • Report this Comment On July 12, 2014, at 4:53 PM, hermit57 wrote:

    For me personally, ANYTHING is better than Mcdonalds! Even more so now after i read the article where they found not one but TWO different male DNA samples on one of, ( i think it was the fish fillet) their sandwiches! To be more specific, and to be the least disgusting as possible, semen! There is NO way i will EVER eat at Mcdonalds again, so like i said, ANYTHING is better!

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