Crain’s Extra: What burgers and fries can tell us about the economy

What burgers and fries can tell us about the economy

As I write this, I’m counting the minutes until I grab Shake Shack for dinner.

There weren’t as many like-me diners as the Hudson Square-based publicly traded company would have liked for the quarter ending June 29, however, according to its second-quarter financial results, released Thursday.

Still, Shake Shack’s average weekly sales were the highest since the onset of Covid, a reminder that Americans have returned to relatively normal patterns in their daily lives – though perhaps not as much as the company had anticipated. .

CEO Randy Garutti and I agree that Shake Shack revenue isn’t just about burgers. The results for the quarter encapsulate many of the challenges in the economy, both those specific to New York and those challenging businesses and consumers across the country and around the world.

Inflation. Ingredients, equipment, gasoline and wages are expensive. Even beef, which the company says has stopped getting more expensive, has stabilized at a high price. Cost pressures appeared to be surmountable, with Shake Shack reporting strong profit margins, according to Garutti. But the effect of inflation on consumers contributed to sluggish sales in mid-May and June, he said during the company’s Aug. 4 earnings call, noting “a some caution on the part of low-income consumers”.

Modified routines. In the major cities of the Northeast, potential customers were simply not as plentiful as Shake Shack had anticipated. Although New York stores achieved their highest sales volume since the onset of Covid, with same-store sales in Manhattan up 37% year-over-year, total sales are still “well lower” than 2019 levels, particularly due to drops during weekday lunch and dinner, according to the company’s presentation. Midtown, in particular, has sales volume more than 40% below 2019 levels. This matches transit charts that show subway ridership stuck at about 60% of pre-pandemic levels, a pattern which could be disastrous for the fiscal well-being of the Metropolitan Transportation Authority.

Wages. Despite New York City’s high minimum wage, which is double the national figure, compensation costs for the greater New York metropolitan area for the year ending June 2022 increased by 5.2%, just behind the national increase of 5.5%, according to the United States. Bureau of Labor Statistics. For the hospitality industry, rising pay is eating away at margins. Shake Shack said labor and related expenses rose 50 basis points during the year, although down slightly from the prior quarter, as they increased starting salaries for employees, a hedge against turnover that Garutti says directly drives sales down.

As one of the few publicly traded catering companies based in New York, Shake Shack has the ability to pre-price ingredients like potatoes. But advance planning and buying power haven’t inoculated it with an unfortunate supply chain pressure already being felt by small town restaurants: a shortage of potatoes for French fries.

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