Shake Shack Sizzles With IPO As McDonald's Fizzles : The Salt Shares of the burger chain shot up Friday, its first trading day. Shake Shack and other fast-casual joints are taking a bite out of McDonald's, which can't recast itself to fit the current trend.
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Shake Shack Sizzles With IPO As McDonald's Fizzles

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Shake Shack Sizzles With IPO As McDonald's Fizzles

Shake Shack Sizzles With IPO As McDonald's Fizzles

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MELISSA BLOCK, HOST:

It's a good time to be making trendy hamburgers. Shake Shack is a burger chain out of New York. Fifteen years ago, it was a single hot dog cart. Well, today it became a publicly traded company, and investors gobbled up its IPO. Shares started at $21 and closed at $45. NPR's Yuki Noguchi reports on what's behind the appetite for Shake Shack.

YUKI NOGUCHI, BYLINE: Aaron Allen, a consultant, says a revolution is taking place in the restaurant business. People want their food fast, but they don't want fast food. They want to see their made-to-order food put together right in front of them.

AARON ALLEN: If you take Red Lobster and Olive Garden, TGI Fridays, IHOP, Applebee's, Chili's - add them all together and their valuation is less than just Chipotle.

NOGUCHI: Allen says Shake Shack hopes to be the Chipotle of burgers. But there's already a lot of competition from chains such as Five Guys, In-N-Out and Habit Burger. But he says the so-called fast-casual movement has been very profitable and is expected to more than triple its sales within the next decade.

ALLEN: This sector is actually cannibalizing parts of the industry.

NOGUCHI: It's certainly taking a bite out of McDonald's, which, this week, announced its CEO would step down amid global sales problems. Allen says fast-casual has a leg up on traditional fast food. The assembly-line format requires both less space and fewer employees, a restaurants main expenses. And, he says, Shake Shack, Chipotle and others focus on fewer menu items with better, healthier ingredients. McDonald's, he says, cannot recast itself to fit the current trend.

ALLEN: Part of the reason that there hasn't been more innovation there is because the supply chain is built around heavily processed, frozen food product. And so, to change the product offering, you'd have to reengineer everything from the supply chain to the kitchen layouts to the training systems and more.

NOGUCHI: It's three o'clock, which is pretty late for lunch, but every single table here at Shake Shack in downtown D.C. is taken. The menu is fairly limited - five basic options for burgers, four for hot dogs and seven flavors of shakes. Shake Shack customer, Jason Cheever, is the restaurant industry's prize consumer. He dines out 8 to 10 times a week, often at salad and Mediterranean chains.

JASON CHEEVER: More healthy fast-casual, not necessarily fast food. I have a Sweetgreen right next to my house, I go there. I'll go to Roti, like, faster food places that, like, have quality ingredients.

NOGUCHI: Cheever, who is 29, says most of his peers feel the same way.

CHEEVER: They will rather pay a few dollars more to go somewhere that has better food and is healthier for you and they know that the people that are making it are preparing it in a sanitary environment.

NOGUCHI: Public investors will pressure Shake Shack to grow quickly from its current base of 63 stores, says Dean Small. Small is president and CEO of Synergy Restaurant Consultants.

DEAN SMALL: Growing strategically, finding the right locations, the right sites, will be one of the biggest challenges.

NOGUCHI: Especially with so many other restaurants with similar models nipping at their heels. Yuki Noguchi, NPR News, Washington.

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