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Meet Shake Shack's Gateway Drug to Breakfast

By Rick Munarriz – Feb 5, 2016 at 10:00AM

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The fast-growing burger chain could do big things with its new chicken sandwich if it can set the alarm clock.

Image source: Author's photo.

It's been three weeks since Shake Shack (SHAK -2.28%) introduced its fried chicken sandwich across all of its domestic restaurants. Initial market reaction to Chick'n Shack -- the antibiotic-free chicken breast sandwich topped with lettuce, pickles, and buttermilk-herb mayo -- has been encouraging. 

Chicken's hot, and Shake Shack hasn't received any kind of material resistance to expanding its burger-centric menu with the addition of fried poultry. Yes, this could be a dangerous road. We've seen how the identity of McDonald's (MCD 0.65%) and other leading fast food chains has disintegrated as they have expanded their menus. We've also seen the darling burger flippers including Five Guys and In-N-Out stick to their beefy sandwiches with great success.

In-N-Out has shakes. Five Guys has burgers, and is now introducing shakes at some of its restaurants. Their menus are still pretty simple, and neither one plans to put out chicken anytime soon. Why would Shack Shack follow the fast food chains into fried chicken sandwiches when the trend is siding with those passing on poultry?

Shake Shack's ambitions run deep. The stock initially rallied last year when it took out the sandwich's trademark, assuming that Shake Shack would be opening a stand-alone chicken chain. That did not happen -- at least not yet.

It's also worth wondering if adding a premium chicken sandwich to the menu is the first step to expanding its operations into the breakfast market. 

Fried chicken isn't exactly the star at McDonald's. Outside of a modest chicken biscuit offering, McDonald's leans on bacon and sausage as its primary proteins on its breakfast menu. However, some of the other quick-service chains that have succeeded in breakfast are big on birds. Chicken is the star on the breakfast menu for Chick-fil-A and Bojangles' (NASDAQ: BOJA), and that's a pretty big part of the day for the chains. Bojangles' prospectus indicated that 38% of its revenue was booked before 11 a.m.

Obviously, there would be some serious challenges to Shake Shack if it were to entertain the push for early risers. A big setback would be that its restaurants don't have drive-thru windows, something that's material to rushed commuters. It's not a deal breaker. The leading coffee house and bagel shops have a limited number of locations offering drive-thru convenience. 

There's also a pricing issue. Shake Shack is selling the fried chicken sandwich for $6.29, a stiff price point in the morning. It can't sell the same fried chicken breast patty inside of a bagel or English muffin at half the price. Lunch and dinner patrons would feel as if they were being cheated.

These are all questions that Shake Shack will have to eventually answer if it wants to follow the masses into the feeding the morning hungry. For now, the chicken sandwich is a good start to eventually getting there. 

Rick Munarriz owns shares of Shake Shack. The Motley Fool has no position in any of the stocks mentioned. 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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