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Shake Shack Won't Chicken Out in 2016

By Rick Munarriz - Jan 13, 2016 at 1:05PM

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The fast-growing burger chain is upbeat about ChickenShack's prospects.

Image source: Shake Shack.

Shake Shack (SHAK 3.83%) is known for its all-natural Angus burgers, crinkle-cut fries, and frozen custard treats, but it wouldn't be a surprise if poultry becomes a bigger part of the Shake Shack story this year. 

The fast-growing eatery presented at the 18th Annual ICR Conference in Orlando yesterday. It didn't have any meaty bombshells to drop. Shake Shack continues to grow quickly, even if the stock remains well short of last year's highs. 

However, it did touch on its recent foray into chicken. ShakeShack began testing its ChickenShack sandwich in Brooklyn this summer. The stock peaked at $96.75 two months earlier on chatter about the chain applying for a ChickenShack trademark. The market was speculating on Shake Shack introducing a sister concept specializing in fried or grilled chicken, but by July we learned that the trademark application was just for a fried chicken sandwich. The trademark application was also eventually shot down since there's a Detroit-based fried chicken chain called Chicken Shack. That took some of the helium out of the shares, even though the online buzz generated by those trying the crispy antibiotic-free chicken breast sandwich topped with lettuce, pickles, and buttermilk herb mayo was generally positive.

Shake Shack didn't provide actual metrics on how the test exclusive to its three Brooklyn locations panned out, but management seems excited by the potential. 

"Stay tuned," CEO Randy Garutti told conference attendees yesterday.

Taking the ChickenShack sandwich national as it is likely to do this year could be a mixed blessing. In theory, giving patrons a new dining option makes sense. Not everyone in a group of friends, work associates, or family members wants a beefy burger or hot dog. Why not widen its offerings so it doesn't risk having someone in a group shoot down Shake Shack as a dining option?

However, there are plenty of cautionary tales of burger chains that have spread themselves too thin by broadening their menus in the pursuit of winning everyone over. McDonald's (MCD 0.50%) suffered through a rough stretch of negative domestic comps as it ramped up its chicken, salad, and premium beverage options. On the other side of the spectrum, we have places including Five Guys and In-N-Out that are thriving by sticking to the basics. 

Things got so out of hand at McDonald's that it's promising franchisees that it will simplify the menu this year, but it's not fair to compare Shake Shack to McDonald's. Shake Shack is attempting to add a single menu item in addition to the "limited time offers" that it already sprinkles in throughout the year. It hasn't super-sized the menu board the way that Mickey D's has done over the years.

Adding the ChickenShack sandwich isn't likely to slow down the consumer experience. The same wasn't true at McDonald's, where studies showed that wait times were lengthening and customer dissatisfaction heightening as the menu grew more complex.

It's also important to remember that McDonald's is perceived to be a value brand. It's locking horns with other fast-food giants in a burger war, where sandwiches cost as little as a buck. ShakeShack is trying to sell $5 burgers. The push to go upscale at Mickey D's with "gourmet" buttermilk chicken sandwiches and artisan salads went against its brand identity. A fancy fried chicken sandwich will fit right into the Shake Shack vibe. It's going to work. Shake Shack just needs to make sure that it doesn't chicken out.

Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Shake Shack Inc. Stock Quote
Shake Shack Inc.
SHAK
$50.97 (3.83%) $1.88
McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$261.36 (0.50%) $1.30

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