Current Situational Analysis: Shake Shack

Introduction:

The report on the external analysis of the Shake Shack will analyze the geographical, demographic, social, political, economic and environmental factors that may have or may have not any significant effect on its performance. The analysis will show the factors which can be instrumental in its performance and also which does not have any effect on Shake Shack’ operations.

Economic Forces:

• GDP:

Year	Growth Rate (%)
2013	3.3
2014	4.4
2015	4.0
2016	2.8
2017	4.1

 

(Bea.gov)

The growth rate of GDP has an increasing trend. The effect of an increase in GDP can be positive for Shake Shack. Gross Domestic Product /GDP refers to the total value of the produced goods and services by a country within a stated period. The consumer spending is one of the constituents for the computation of GDP. The relation between the consumer spending and the GDP is positive (William Baumol). The greater the consumer spending on products shows greater disposable income and greater chances of growth in the economy. This would lead to greater chances for financial growth in the Shake Shacks.

• Inflation

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Ave
2017	2.5	2.7	2.4	2.2	1.9	1.6	1.7	1.9	2.2	2.0	2.2	2.1	2.1
2016	1.4	1.0	0.9	1.1	1.0	1.0	0.8	1.1	1.5	1.6	1.7	2.1	1.3
2015	-0.1	0.0	-0.1	-0.2	0.0	0.1	0.2	0.2	0.0	0.2	0.5	0.7	0.1
2014	1.6	1.1	1.5	2.0	2.1	2.1	2.0	1.7	1.7	1.7	1.3	0.8	1.6
2013	1.6	2.0	1.5	1.1	1.4	1.8	2.0	1.5	1.2	1.0	1.2	1.5	1.5
2012	2.9	2.9	2.7	2.3	1.7	1.7	1.4	1.7	2.0	2.2	1.8	1.7	2.1

(Bureau of Labor Statistics)

Any change in consumer spending or the Disposable income would affect Shake Shack financial performance. As the company operating in US economy is vulnerable to its variations. Any increase in price inflation would affect the consumer spending power or their ability to purchase and pay for goods. This means that consumers can afford less with their earned money. Alternatively, any inflation in wages would increase their ability to purchase products. The US inflation rate has an increasing trend which means that the purchasing power of the consumers including that of Shake Shack will lower.

• Unemployment Rate

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Annual
2012	8.3	8.3	8.2	8.2	8.2	8.2	8.2	8.1	7.8	7.8	7.7	7.9	8.08
2013	8	7.7	7.5	7.6	7.5	7.5	7.3	7.2	7.2	7.2	6.9	6.7	7.36
2014	6.6	6.7	6.7	6.3	6.3	6.1	6.2	6.2	5.9	5.7	5.8	5.6	6.18
2015	5.7	5.5	5.5	5.4	5.5	5.3	5.2	5.1	5	5	5	5	5.27
2016	4.9	4.9	5	5	4.7	4.9	4.9	4.9	5	4.9	4.6	4.7	4.87
2017	4.8	4.7	4.5	4.4	4.3	4.3	4.3	4.4	4.2	4.1	4.1	4.1	4.35

(Bureau of Labor Statistics)

The increase in the unemployment rate would adversely affect the company, Shake Shack. The US unemployment rate is declining from the last five years. This means that the consumers spending power is increasing with decrease in unemployment rate.

Social, Cultural, Demographic, & Environmental Analysis:

• Population

Year	Population Growth (%)
2010	0.84
2011	0.75
2012	0.75
2013	0.70
2014	0.74
2015	0.73
2016	0.69

 

The decline in population’s growth rate means a lower rate of increasing consumers of Shake Shack restaurant. The decline in growth rate is not very large enough. However, it is a negative prospect for the business if it declined substantially.

(World Bank)

• Aging

The US Population is growing and the older generation of Baby Boomers is transferring the reign of the economy to the new generation, Millennial. In the next few years, the population demographic is about to change drastically. The growth rate of the older population is going to increase dramatically making it double of what it is today (Institute of Medicine (US) Food Forum.). This will also affect the spending pattern and consumption behavior of the markets. The new generation is more spending on Debtand, housing, and education whereas less on food.

(Morgan Stanley Wealth Management)

• Family Structure

As the consumer ages, their spending also increases. The US consumer’s peak earnings and spending years are around 35 to 55 years. The new generation of millennial as compared to their predecessors is starting their families later. Moreover, there are more divorced or single parents as compared to their predecessors who had firm family structures. This will affect the Shake Shack as consumer spending on food and restaurants will also change as compared to the older generation.

(Morgan Stanley Wealth Management)

Political, Legal and Governmental Forces

• Minimum Wage

The change in minimum wage adversely affects the consumer spending of the economy. Raising the minimum wage would increase the consumer spending. As per the researchers, a $2.55 increase would result in total $40 billion increments in the wage of low-wage workers. This would increase their spending probability. This is also same for the Shake Shack (Committee on Education & The Workforce Democrats). The current minimum wage for the US is $ 7.25 per hour. In 2009, the minimum wage was raised from $6.55 to $7.25 per hour (Jamieson and Bendery).

• Immigration Reform

Effective immigration policy is said to be a powerful instrument for the economic growth. This is credited by the increase in population, in working labor force, higher wages, and increased consumer spending. This shows that for Shake Shack the increase in consumer spending will result positively (bipartisanpolicy.org). The USA has been incompetent in the successful implementation of the immigration reforms. Moreover, the new government has restricted many countries immigrants’ entrance into the US (The Economist). This can be very negative for Shake Shack progress prospects.

• Menu Labeling

In 2015, FDA passed the Final Rule Act of Menu Labeling requiring the restaurants to show the calories of the menu served at their restaurants. A study has found that the consumption pattern of the customers tends to get affected by the mentioned calories. The customers of calorie-mentioned restaurants tend to order fewer calories than the others (Roberto, Larsen, and Agnew). Shake Shack has implemented this and listed its calories immediately (Chou). The menu labeling can have an effect on consumers who are conscious of their calorie intakes.

Technological Forces

• Digital Menu boards

Technology advancements have made everything to work in lesser time. The quick service experience has been revolutionized by the advancements in technology. From digital menu boards to online ordering, the technology has had an overwhelming effect on the fast-casual business. The digital menu boards have been added by Shake Shack, McDonald’s, and Chipotle Mexican Grill. These have affected the company in the respect that companies have listed their calories in menus on boards. The customers now would know the calories they are going to intake. This can affect the revenues for the company Shake Shack negatively. However, the goodwill of the company has been raised (Hardy).

• Apps

The burger chain Shake Shack has used technology to its fullest for customer satisfaction. The company has launched the mobile ordering app for the customers to order from their iPhone. The company is going to launch its Android app as well. The news reports have reported that it took 40 minutes to order and then get the burger at a midtown branch. The business generated by these applications has been substantial for Shake Shack (SOLOMON).

• Kiosks

Kiosks are small open-fronted cubicles or stands form which products can be sold. Cashless kiosks are opened by Shake Shack in New York. Customers would be able to get past the lines and send the orders directly to the kitchen and get the orders faster. This has positively affected the business of Shake Shack (Whitten).

Competitive Forces

Habit Inc / Chipotle Mexican Grill / Zoe’s Kitchen:

• Mobile App / Management / Menu labeling:

The habit has not yet launched the online ordering app. If it is launched in future, then this can substantially affect the profits of Shake Shack. Other than this, any change in the management of any of the competitor companies i.e. Chipotle Mexican Grill, Zoe’s Kitchen Inc, and Habit restaurants Inc which would change the direction of the company can affect the financial prospects of Shake Shack. Chipotle has also initiated menu labeling like Shake Shack, but Habit and Zoe have not done it yet. Thus, the companies are still benefiting from the non-disclosure of calories of their menus.

Restaurant Industry Trends

• Industry Growth Rate

The industry growth rate is 3.1% with $799 billion sales of the overall industry. The overall industry is at stable growth offering steady profits to its businesses and participants. Any decline in the growth rate can substantially affect the profits of Shake Shack.

 (National Restaurant Association)

• Pricing

The pricing of the restaurant industry has declined and has been at 2.4%. The increment in the pricing of the restaurant industry to some extent can benefit Shake Shack; however, any further increase can cause a potential loss of customers due to higher prices.

(National Restaurant Association)

• Restaurant Performance Index:

The restaurant performance index shows that the expected performance is of expansion in the industry; however, the actual performance is more of contraction of the restaurants and is very uneven. Any changes in the performance index would affect the Shake Shack revenues as well.

(National Restaurant Association)

Conclusion:

The external analysis of the Shake Shack shows that the geographical, demographic, social, political, economic and environmental factors have a substantial effect on the performance and revenue generation ability of the company. The restaurant industry is currently not responding effectively to the customer preferences towards healthy options, and thus if Shake Shack will incorporate this in its future strategy, it can elevate from its competition.

References:

Bea.gov. National Economic Accounts. 2018. 6 February 2018 <https://www.bea.gov/national/index.htm#gdp>.

bipartisanpolicy.org. The Economics of Immigration Reform. 29 October 2013. 6 February 2018 <https://bipartisanpolicy.org/library/the-economics-of-immigration-reform/>.

Bureau of Labor Statistics. Current US Inflation Rates: 2006-Present. 12 January 2018. 6 February 2018 <http://www.usinflationcalculator.com/inflation/current-inflation-rates/>.

—. Labor Force Statistics from the Current Population Survey. 2018. 6 February 2018 <https://data.bls.gov/pdq/SurveyOutputServlet>.

Chou, Jessica. Shake Shack Launches Calorie Counts. 20 September 2012. 6 February 2018 <https://www.thedailymeal.com/shake-shack-launches-calorie-counts-too>.

Committee on Education & The Workforce Democrats. Fact Sheet: Raising the Minimum Wage: Good for Workers, Businesses, and the Economy. 2015. 6 February 2018 <http://democrats-edworkforce.house.gov/imo/media/doc/FactSheet-RaisingTheMinimumWageIsGoodForWorkers,Businesses,andTheEconomy-FINAL.pdf>.

Hardy, Kevin. The Digital Revolution. November 2014. 6 February 2018 <https://www.qsrmagazine.com/ordering/digital-revolution>.

Institute of Medicine (US) Food Forum. Providing Healthy and Safe Foods As We Age: Workshop Summary. Washington (DC): National Academies Press (US), 2010.

Jamieson, Dave, and Jennifer Bendery. The Federal Minimum Wage Has Not Been Raised In 5 Years. 7 July 2014. 6 February 2018 <https://www.huffingtonpost.com/2014/07/24/federal-minimum-wage-five-years_n_5617950.html>.

Morgan Stanley Wealth Management. Generations change how spending is trending. 31 August 2016. 6 February 2018 <https://www.morganstanley.com/ideas/millennial-boomer-spending>.

National Restaurant Association. Restaurant Industry Dashboard. 2017. 6 February 2018 <http://www.restaurant.org/Restaurant/media/Restaurant/SiteImages/News%20and%20Research/

Industry%20dashboard/Annual-sales-for-Dashboard-2017.jpg>.

Roberto, Christina A., et al. “Evaluating the Impact of Menu Labeling on Food Choices and Intake.” Am J Public Health 100.2 (2010): 312-318.

SOLOMON, FELIZ. You Can Now Order From Shake Shack On Your iPhone. 20 December 2016. 6 February 2018 <http://fortune.com/2016/12/20/shake-shack-mobile-app-fast-food/>.

The Economist. The curious case of Donald Trump’s travel ban. 11 September 2017. 6 February 2018 <https://www.economist.com/blogs/graphicdetail/2017/09/immigration-america>.

Whitten, Sarah. Shake Shack to open cashless, kiosk-only location in New York City. 2 October 2017. 6 February 2018 <https://www.cnbc.com/2017/10/02/shake-shack-to-open-a-cashless-kiosk-in-new-york.html>.

William Baumol, Alan Blinder. Economics: Principles and Policy. Cengage Learning, 2008.

World Bank. Population growth (annual %). 2016. 6 February 2018 <https://data.worldbank.org/indicator/SP.POP.GROW>.