Shake Shack has weathered the COVID crisis well so far—and a strong CEO-chair relationship is a big reason why
The next time you wander into a Shake Shack and sit down to a burger and some crinkle-cut fries, take a moment and give thanks that the popular chain is still around.
When the COVID pandemic first hit and the country essentially shut down—with no vaccine yet, and little information about how the virus was even transmitted—it was impossible to know what lay ahead, even for a seasoned industry veteran like Shake Shack CEO Randy Garutti.
“For a moment there in 2020, it felt like no company was unsinkable,” says Garutti, who has led the company since 2012. “The last couple of years have been the most challenging of all of our careers. It has been a tough time to be a leader of anything—whether a restaurant company, a hospital, or the country.”
That said, Garutti did have some high-grade expertise to lean on: board chair Danny Meyer, Shake Shack’s founder and CEO of Union Square Hospitality Group.
As the impresario behind famed restaurants like Union Square Cafe and Gramercy Tavern, Meyer is intimately aware of every aspect of the restaurant business, and its famously thin margins. So as the COVID roller coaster clicked ominously toward a plunge, the two men went into crisis mode to save the operation, shoring up financial defenses on multiple fronts.
The duo had little choice, with March 2020 comps tanking 28.5% compared with the previous year. Among the emergency measures taken: They closed a number of locations temporarily, with the rest shifting to curbside pickup and delivery, and the firm’s digital transformation thrust to the forefront. Shake Shack laid off or furloughed over 1,000 employees—“the first time in our history,” laments Garutti, although he notes that all were eventually hired back. Corporate staff took temporary pay cuts. The company raised millions in stock sales, to cope with over $1.5 million in operating losses every week. And they initially took a $10 million PPP loan, although the company later returned it.
“It has been the most incredible test of resilience and entrepreneurial spirit,” says Meyer. “It has tested everyone, no matter how much experience you had, or how long your company has been in business. No one had ever gone through anything like this before.”
A time-tested bond
One built-in advantage the two enjoyed was that their relationship long predated Shake Shack itself. In fact Garutti—who cut his teeth in the business working at a New Jersey bagel shop as a kid, for $3.50 an hour—first wrangled a meeting with Meyer as an up-and-coming 22-year-old. He later came on board as general manager of Indian restaurant Tabla in New York City, and eventually became director of operations for the entire Union Square Hospitality Group.
But Garutti so loved the concept of Shake Shack, which originally started out as a single hot dog stand in Manhattan’s Madison Square Park, that he left that post to become CEO of the new venture.
Garutti and Meyer claim to have similar outlooks on many issues, including being extremely thoughtful about new locations. It was years, for instance, before Shake Shack expanded beyond that one original stand. (It’s now up to 364 locations, including a newly minted drive-thru, the chain’s first.)
But they also admit to having very different strengths. Garutti’s, according to Meyer, is his operations savvy. “Randy is a far more effective operator than I will ever be,” says Meyer. “He knows how to get from the opening bell to the closing bell, and make everything in between successful, much more effectively than I know how to.”
And Meyer’s strength, according to Garutti: “He’s a long-term thinker, and never talks about the short term. That helps when you’re running a public company, because almost no decision that is made on a quarterly basis is good for the company over the long term.”
Of course, holding titles like board chair and CEO doesn’t mean you don’t make missteps—sometimes large ones. A prime example: the company’s push back in 2013 to use fresh fries instead of frozen. While enticing in theory, the problems that move entailed—from the sourcing of quality potatoes year-round to the retrofitting of kitchens to customer response—made the idea a loser. “We were both pretty stubborn about it, but it turned out we were completely wrong,” says Meyer. “We finally killed it, and it was one of the best decisions we ever made.”
Having a long-standing relationship doesn’t mean the duo agree on everything, either. One famous bone of contention: Shake Shack’s sundaes. They were among the chain’s original offerings, but Garutti and his team eventually wanted to axe them because of complicated production processes and sluggish sales.
“I said, ‘What are you talking about? Sundaes are part of who we are,’” Meyer remembers. “He made a strong case, and I completely disagreed, but it wasn’t something I wanted to fall on my sword for. So sundaes left the menu.”
Looking ahead, the existential crisis of the pandemic era may have eased slightly, but the industry is certainly not out of the woods yet. From supply chain nightmares, to the ongoing health threats of new variants like Omicron, to the challenges of finding and keeping labor, 2020 and 2021 seem to have been tailor-made to keep restaurant operators tossing and turning at night.
Still, at the moment, it seems those early emergency measures to save Shake Shack have paid off. Same-store sales are virtually back to 2019 levels, just 1% off. And total third-quarter 2021 revenues grew 48.7% year over year, to $193.9 million, making for Shake Shack’s biggest quarter ever.
“That was a scary time for our team, both healthwise and trying to save jobs,” Garutti remembers of the first wave. “I will always remember that moment, because striking that balance was so incredibly challenging. When the history books are written, I hope that people will judge us on the decisions we made during that time.”
Never miss a story: Follow your favorite topics and authors to get a personalized email with the journalism that matters most to you.