Shake Shack Franchise Cost Exposed and 3 Alternatives (2024)

This article is based on a video originally recorded on Vetted Biz Youtube Channel

Do you love burgers and want to make it a business venture? Shake Shack Franchise is a fast-casual chain that sells burgers, hotdogs, chicken, fries, shakes, frozen custard, and more. The restaurant is based in New York City and is growing rapidly across the country.

The fast-casual restaurant is a $12.8 billion industry but with this, there is a high amount of competition. And the fast-food industry ranks 3.4 out of 4,4 being the highest in competition. Also, there is a high-risk ranking of 3.3 out of 4,4 being the most amount of risk.

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The fast-casual restaurant industry is growing exponentially where it is predicted to increase from 1.1% in 2016 to 2021 to 3.2% in 2021 to 2026. This is great to see where in the future there will still be a want for this industry.

If Shake Shack Franchise seems to be the right business for you, keep reading.

Is Shake Shack a Franchise?

Unfortunately, you cannot buy a Shake Shack as they are focused on growing their corporately owned and managed locations.

Shack Shack is not a franchise but continues to offer licensed stores in the U.S. and abroad.

Shake Shack Franchise History

Danny Meyer opened the first-ever Shake Shack which was a hot dog stand in Madison Square Garden in 2001. Danny converted his hot dog stand to a kiosk-style fast food restaurant. It then took off from there and now there are 275 locations around the world.

The CEO of Shake Shack as of April 2012 is Randy Garutti. The CFO of Shake Shack is Katherine Fogerty as of June 14, 2021.

Shake Shack is owned by Leonard Green and Partners which is an equity investment firm.

Shake Shack Franchise Cost

Expected Shake Shack franchise costs are similar to Wahlburgers franchise. The Wahlburgers franchise serves burgers, sandwiches, shakes, and beverages. Wahlburgers is considered a leading competitor to Shake Shack which makes these businesses very similar.

Wahlburgers Franchise Fee

The initial franchise fee would be around $40,000-$45,000. Wahlburgers’ initial investment is $40,000 which would be a similar amount to Shake Shack.

Estimated Initial Franchise Costs

The initial investment of Shake Shack would be around $1.5 million to $2.7 million which is Wahlburgers investment. This is quite costly but there are many costs for these burger franchises such as construction/leasehold improvements, travel/living expenses when training, and furniture and equipment.

The construction/leasehold improvements are always the largest expense for the initial investment. They can cost from $900,000 to $1.8 million. This is because building a restaurant is very expensive which all depends on the size, condition, and location of the restaurant.

Shake Shack like Wahlburgers may also require specific fixtures and construction materials which will make it a fixed cost. And there is also furniture and equipment which may cost anywhere from $350,000 to $450,000. The furniture and equipment are a one-time fee which usually is determined by the franchise. This can also include some marketing materials such as a sign for the franchise.

Additional Costs

There are also ongoing costs such as royalty, brand fund contributions, and additional training costs. With all franchises, there is a royalty fee which for Shake Shack would cost around 5-6% of gross sales. Wahlburgers is 6% which is quite typical for food franchises. Brand fund contribution is also a percentage which would be around 1% to 2% of gross sales.

The brand fund contribution typically goes to the company to advertise nationally for the business as a whole.

This is important because it advertises for your business which ultimately leads to your business making more profits than it would have. Wahlburgers brand fund contribution is 1% of their gross sales but it can go up to 4%.

Lastly, there are additional training costs that don’t have a specific cost but if you want to train additional employees after the initial training it will cost a significant amount. This is a common cost among franchises and this all depends on how many additional employees you plan to train which can add up quite quickly.

These ongoing costs will not leave you, so making sure you have enough profits to cover these is crucial for staying afloat.

Shake Shack’s Expansion Plan

Shake Shack is planning on opening 45 to 50 more stores in 2022 in the U.S. This is the largest expansion for Shake Shack yet and 25% of those will have drive-thrus. The drive-thrus will be located in the suburban areas.

Shack Shack is not a franchise but continues to offer licensed stores in the U.S. and abroad.

Shake Shack’s Financials

In 2021, Shake Shack’s revenue was $739.9 million. That is a 41.5% YoY (year-on-year) growth. This came at the same time when YoY System-wide sales increased 44.2% to $1.1 billion. This growth is reflected in operating profit and EBITDA with operating profit growing 66.9% to $119.2 million and EBITDA growing a staggering 146.4% to $56 million.

Shake Shack is seeing a good recovery after COVID with Average Weekly sales (AWS) growing 22.4% in 2021 versus 2020.

Same-store sales grew 24.2% in 2021 when compared to 2020. This can be divided into urban markets growing 26.1% in SSS figures, with suburban markets growing around 9%. Digital orders account for a lot of sales with digital orders growing by 300%. Over 45% of Shake Shack’s sales came through digital channels, which is much higher than their 15% digital mix in 2019. In Shacks with kiosks, the company generated more than 75% sales through digital and kiosk channels.

The graph below depicts Shake Shack’s class A common stock performance between 2016 and 2021 the Standard and Poor’s 500 Index (S&P 500) and the Standard and Poor’s 600 Restaurant Index. While Shake Shack could not beat the S&P 500 in overall returns, it performed much better than the Restaurant Index. This is a good sign for the company as it is outpacing the restaurants’ markets by almost twice.

Alternatives

Five Guys

Five Guys is a burger franchise that sells burgers, fries, shakes, and more. This franchise was founded in 2017 in Lorton. Five Guys’ initial franchise fee is $25,000. The initial investment is $306,200 to $641,250 and this is due to the development fee, leasehold improvements, and equipment. In the next three years, there is a 1% growth rate which is a good sign that Five Guys is growing in the future.

Arby’s

Arby’s is headquartered in Sandy Springs, Georgia, and operates restaurants that cater to customers with sandwiches and desserts along with side items. A chain with more than 3300 restaurants, and considered one of the longest chains in the sandwich pie with the third position in terms of revenue.

Arby’s is owned by Inspire Brands and was renamed Arby’s Restaurant Group, Inc. (ARG). In 2018, ARG took over the ownership of Buffalo Wild Wings. It serves classic Roast Beef and Beef ‘n Cheddar sandwiches, a deli-style Market Fresh line of sandwiches, Greek gyros, Curly Fries, and Jamocha Shakes. In 2019, there were 3,472 restaurants with locations in Canada, Mexico, Turkey, Egypt, South Korea, and Yemen in addition to the US.

The estimated total investment necessary to begin the operation of an Arby’s Franchise ranges from $637,950 to $2,306,000. The initial Arby’s Development Fee is between $6,250 to $12,500 paid at the time of the signing of the Development Agreement. A further $0 to $37,500 License Fee is paid upon commencement of construction. You have to pay these upfront fees when opening an Arby’s franchise.

Over the last three years, the company has increased its outlet presence from 3327 in 2019 to 3407 in 2021, which is a significant indicator of growth during the pandemic period. Both franchising units and company-operated stores have increased. This indicates a growing presence of Arby’s.

Smashburger

Smashburger is a regional burger chain founded in 2007 in Denver. The estimated cost to open a Smashburger franchise is in the range of $604,260 to $1,962,100, of which a significant portion of it comes from leasehold improvements. Of this, a significant portion of it comes from leasehold improvements. The average Smashburger store is between 1,600 and 2,200 square feet and seats 40 to 70 customers.

Conclusion

Shake Shack is not a franchise but it could become one, one day. Keep your eye out for Shake Shack if it ever becomes a franchise in the future and note these prices to start saving now. But don’t be too disappointed if Shake Shack never becomes a franchise; there are still plenty of burger franchises such as Five Guys, Arby’s, and Smashburger.

Are you thinking about investing in a franchise, or interested in exploring more options? Make sure to check out Vetted Biz’s website for listings of other similar franchises in the Food and Beverage industry.