NEW YORK — Shake Shack, Inc. plans to hike prices by up to 3.5% in March to offset rising labor and supply costs, after previously raising prices by a similar amount in October. This means the company will have raised prices by as much as 7% in the past six months, said Randall J. Garutti, director and chief executive officer, during a Feb. 17 conference call with analysts to discuss fourth-quarter and full-year results.
The burger and shake chain also will raise prices on third-party delivery services from 10% to 15% higher than its in-store pricing.
“Shake Shack has historically taken roughly 2% price per year, and that's given us a strong value proposition for our premium products,” Mr. Garutti said. “We believe these current price raises are necessary to protect margins. We’ll be keeping a close eye towards the cost of our business, and we'll consider whether additional price may be necessary later this year.”
Total expenses in 2021 rose by a third compared to 2020, including a 37% increase in labor costs and a 42% increase in food and paper costs, he added.
The company sustained a loss of $10.1 million for the fiscal year ended Dec. 29, 2021, which compared with a loss of $45.5 million in fiscal 2020. Total revenues increased 42% to $739.9 million from $522.9 million. Same-store sales growth was 24%.
Shake Shack saw a comeback in the fourth quarter, with total revenues increasing 29% to $302.2 million from $157.5 million in the same period a year ago. Store sales grew 29% to $195.9 million. Same-store sales in urban locations were down 4% from 2019, an improvement from down 15% in the prior quarter. Most urban markets outside of Manhattan were up relative to the pre-COVID period, and same-store sales in suburban locations were up 9% from 2019.
“Each month of the quarter outperformed historical seasonality, driven by a function of higher menu price and a building recovery in our urban shacks as well as continued strength in our suburban shacks,” said Katherine Irene Fogertey, chief financial officer at Shake Shack.
Those benefits were short-lived, however. The company saw a swift reversal in the end of December and throughout January as rising COVID cases from the omicron wave discouraged customers from dining out and set back recovery in urban locations. Average weekly sales fell to $63,000 in January, flat to last year, and same-store sales momentum slowed to 2% year-over-year. Winter storms across much of the country and rising case counts among employees forced the company to close restaurants.
“These pressures, of course, are not new, but rather consistent with what we have experienced in prior COVID waves,” Ms. Fogertey said. “While the timing of when our guests will return to pre-COVID momentum or movement patterns is uncertain, our sales in February are showing strong improvement from January levels.”
Shake Shack added 36 domestic company-operated stores in fiscal 2021 and plans to add an additional 45 to 50 locations in fiscal 2022, primarily in the fourth quarter. Around 25% of those locations will feature new formats like-drive-thru lanes or walk-up windows.
The company in December opened its first drive-thru locations in Minnesota and Missouri and in February opened its third drive-thru location in Michigan. Additional drive-thru locations are in the works in Florida and Colorado.“Our strategy is to open this first group in busy traffic locations so we can optimize learnings,” Mr. Garutti said. “While our preliminary results have been impacted by omicron, we're really encouraged by what we're seeing and how the drive-thru is operating.”