Shake Shack is set to close nine of its underperforming locations by September 25, according to a recent filing with the Securities and Exchange Commission (SEC).
The burger chain made this decision as part of a routine evaluation of its company-operated units to strengthen its overall portfolio. The locations slated for closure were determined to be underperforming due to changes in the trade areas and, in some cases, cannibalization from other nearby Shake Shack locations.
Shake Shack to Close 9 Units, Including 6 in California
According to NY Post, the company has not linked these closures directly to the recent minimum wage increases in California. However, six of the nine locations to be closed are in California, including five in the Los Angeles area and one in Oakland.
This comes at a time when wages for fast-food workers in the state have increased to $20 an hour, sparking industry-wide adjustments. While Shake Shack did not comment on whether the wage increase influenced its decision, the closures align with a broader trend among fast food chains adapting to higher operational costs in California.
Shake Shack spokespersons have indicated that this is the first time the company will close restaurants for reasons unrelated to construction.
Besides California, the closures will also affect locations in Texas and Ohio. Employees working at these soon-to-be-closed restaurants will be given the option to transfer to other Shake Shack locations, and those who choose not to relocate will receive 60 days of pay.
Shake Shack Eyes Drive-thru Expansion
Shake Shack CEO Rob Lynch, who took the helm in May after previous roles at Papa John's, Arby's, and Taco Bell, has expressed a desire to broaden the brand's appeal. Lynch aims to make Shake Shack a popular choice for families and not just a premium option for higher-income customers.
He also mentioned plans to expand the number of drive-thru locations, moving beyond the brand's traditional image as an urban, dine-in establishment.
Despite the planned closures, Shake Shack's overall growth strategy remains strong. The company currently operates 330 locations in the United States and over 180 abroad.
In the second quarter of this year, Shake Shack reported a 4% increase in same-store sales, driven primarily by higher menu prices. However, there was a slight decline in customer traffic, with a decrease of 0.8% during the same period.
The company stated in its SEC filing that these closures are expected to result in cumulative pretax charges of approximately $28 to $30 million in the third quarter. This move will allow Shake Shack to focus on more promising locations and invest in areas where growth potential is higher.
According to Restaurant Business, Shake Shack has opened 18 new company-operated units so far this year, with plans to open 40 by the end of the year. The company is also exploring ways to reduce construction costs by around 10%, aiming to maximize its return on investment for new openings. The details of Shake Shack's development plans for 2025 are yet to be disclosed, but the company's focus on strategic growth and efficiency remains clear.
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