I don’t trade individual stocks but if I did I would be buying shares of Shack Shack (New Yorker has the history) in its upcoming IPO. A visit to Harvard Square is sufficient to show how well-managed Shack Shack is compared to the competition. Tasty Burger and Shack Shack opened up at roughly the same time. A visit to Tasty Burger involves multiple return trips to the counter so that the order can be corrected. The staff have trouble taking orders and making change. Although they are hiring from the same labor pool, Shake Shack is full of energetic workers who seem competent and, indeed, have never messed up one of my orders.
Because IPOs are nearly always overvalued due to hype I am going to predict that Shake Shack does well but not spectacularly. My guess is that an investment in Shake Shack will outperform the S&P 500, between now and January 2020, by 20 percent.
Its really, really hard to do mass market fast food where the food and the restaurant experience is of decent quality. The problems of controlling costs and managing lots of locations at once tend to lead to lowest common denominator decisions. If Meyer and Shake Shack can solve that problem, they could really clean up. They have done well so far, but I think the problem is insolvable.
I think a better idea than the fast food chain restaurant would be a sort of restaurant REIT that invests in lots of different standalone restaurants. The REIT would help where economies of scale would be useful, such as negotiating with suppliers, training and sharing information, and setting baseline quality standards. But it wouldn’t try to impose a different look or style or menu on its restaurants. If one if its restaurants tries out a menu item and it works, the others could be told about it and taught how to prepare it, though they wouldn’t necessarily have to adopt it.
…they are hiring from the same labor pool…
Are you sure about that? Out west, In-n-Out pays noticeably more than the other fast food chains. In my experience, the staff there is substantially more competent than someplace like McDonalds.
J: http://www.dailykos.com/story/2014/03/21/1286433/–10-an-hour-wages-benefits-promotions-and-it-s-a-burger-chain# says that Shake Shack pays $9.50/hour outside of NYC and $10/hour inside NYC. So the answer is “yes, it is the same labor pool” (minimum wage in MA is now $9/hour and nearly all employers have to pay more than that to get someone to show up).
Never been there, but how is Shake Shack different from Five Guys, which, in my experience, also is very well run?