On 04 May 2015, burger giant and the largest fast food chain in the world, McDonald’s Corporation (MCD, Financial) unveiled an extensive turnaround plan to reinvent itself in the evolving food industry. The consumers are currently favouring the wide range of fresh and organic offerings of upcoming burger joints like Shake Shack Inc. (SHAK, Financial), with soaring share prices while McDonald’s stock fell by 1.17%.
The fast-casual restaurant market
The fast food loving American consumers seems to be wary of the traditional burgers of the mass producing older players. The smart buyers are aware of the health benefits of organic produce and antibiotic free meats and beef, and are willing to pay for their favourite burgers and hot dogs. This growing popularity has triggered a spurt of fast-casual eating joints which offer fresh and healthy gourmet style fast food. This niche demand for appetising quality food has nurtured the upsurge of new age fast food outlets like Shake Shack, Zoe's Kitchen Inc. (ZOES, Financial) serving Mediterranean cuisine and the Californian Habit Restaurants Inc. (HABT, Financial) famous for their chaburgers with a huge potential for even further growth.
Shake Shack, which had humble beginnings in a food cart in Madison Square Park, soon rose to prominence with its classic American menu of signature style burgers, hotdogs and milk shakes. With a successful IPO in Jan 2015, the Manhattan based burger chain, seems to be capitalising well on the fast increasing popularity of fast casual restaurants in US and following the footsteps of Chipotle Mexican Grill Inc. (CMG, Financial). Established in 2006, the super successful burritos chain is booming with 1800 restaurants. Piper Jaffray analyst Nicole Miller Regan calls Chipotle an ATM courtesy its phenomenal returns.
Thriving fortunes of Shake Shack
With 68 outlets operating in the US and global market, the valuation of each Shake Shack restaurant at $40 million as per current stock prices is a staggering fifteen times that of each McDonald outlet and four times that of a Chipotle centre. This super performer of Wall Street has risen by 260% since its IPO in Jan 15 and closed on a high of $78.36 on Tuesday rising by 3.58%. According to many market analysts, Shake shack stock is overvalued and analysts have recommend going short to reap benefits.
Our Take
At the launch of its Independent Public Offering, Shake Shack CEO Randy Garutti announced the expansion plans of opening outlets in 10 locations every year focussing on domestic US and international markets in Europe and Middle East. Along with its contemporary food delights, Shake Shack, which believes in offering "enlightened hospitality," charms the young and tech savvy food lovers with its active social media presence. Goldman Sachs (GS, Financial) notes that for every $1 million spent on real locations, Shake shack acquires nearly 1,800 Instagram followers in the virtual world building loyalty in leaps and bounds compared to the lowly 11 Instagram followers for McDonald's Corp.
With the launch of its first outlet in Austin Texas moving on to West Hollywood later, this modern day ‘American burger stand’ is simply irresistible in its gourmet and seems irrepressible in its growth too.
