Chipotle, But For Cheeseburgers? Shake Shack IPO Sets Expectations High

The “fine casual” burger chain will hold its initial public offering Friday, with the buzz swelling to the point of cultish fanfare. But how much will Shake Shack have to grow to live up to the hype?

Keith Bedford / Reuters

It’s easy to see why the buzz around the initial public offering of Shake Shack, the New York-based upscale burger chain, is reaching the point of frenzy. Burgers have remained the most popular item ordered across all classes of restaurant in the United States, and in the booming fast-casual dining space where Chipotle is king, Shake Shack is the first to hit the public markets.

“It seems to be that our desire for and our love affair with burgers doesn’t end,” said Bonnie Riggs, a restaurant industry analyst at consultancy NPD Group. “We’re ordering burgers at all types of restaurants for different reasons.”

What’s more, Shake Shack burgers are good. Really good. Just ask the analysts and prospective early investors who, according to sources, salivated over celebrated Manhattan chef Danny Meyer’s masterpieces when Shake Shack served them on its road show to drum up potential interest in the IPO.

The strategy appears to have worked in charming the financial forces controlling investment in the earliest available shares of Shake Shack, those up for grabs before the company even begins its first public trade on the New York Stock Exchange Friday. The expected price range for the IPO has already increased by 50% from $14 to $16 per share to a price of $21 per share Thursday evening.

“This is going to be an extraordinarily well-attended IPO,” said John Gordon, a restaurant industry analyst and founder of the Pacific Management Consulting Group. “Five Guys and Smash Brothers did not get an IPO done, so they beat the other burger chains. Shake Shack is the first real fast-casual burger operation to come to market.”

Shake Shack’s Manhattan beginnings have also worked in its favor, both to attract early investors, many of whom are familiar with its storied product, and to command a high average ticket per customer.

“They’re based in New York City, and sales numbers per store are extremely large in Manhattan,” Gordon said. “But there’s only one Manhattan, and as you get further out, there’s no way you can hit those numbers. Stores in other parts of the country aren’t going to hit those sales numbers.”

Kathleen Smith, an IPO expert and principal at ETF manager Renaissance Capital, agrees, adding that Shake Shack may not be able to cultivate the kind of following it has from New York investment industry types outside of the city.

“When Fairway went public, a lot of New Yorkers were familiar with it and it reached great heights, then it came back down to earth,” Smith said. “They have high margins in their New York locations; the question is how do you hold up those margins, because it’s a different kind of economy. New Yorkers will pay for it. [Another] question is, when do you add stores and what do the stores look like that you’re adding?”

Shake Shack is already considering the answer to this question, and its filings surrounding the IPO, the company said it plans to have 450 locations across the U.S. in the long term. There are currently just 30 Shake Shacks in America.

According to Smith, the 450 figure doesn’t seem too extravagant.

“We didn’t question that number,” she told BuzzFeed News. “It passed our sanity test.”

Justine Zwiebel / BuzzFeed

But in Gordon’s estimation, the average Shake Shack ticket is roughly $15 per person, higher than the $10 per person figure the company has ascribed to the average check. This, he said, will potentially make it difficult to find enough locations for Shake Shack to be able to scale its business and an IPO valuation of around $745 million.

“Generally what happens is every restaurant that IPOs says they can get to a certain number of units,” Gordon said. “Whether restaurants work or not, it’s a very complex situation of finding enough people, pricing appropriately, and finding the right locations, which has been difficult for a decade. The average ticket is about $15 per person, that is going to mean that it’s not going to work for everyone everywhere. It will have to be in densely populated urban areas with a higher income bracket.”

Another potential hurdle for Shake Shack is the issue of the fast-casual bubble. Call it the Chipotle effect: Fast-casual chains like Noodles & Company, The Habit, Potbelly, and others have boomed in recent years, experiencing huge pops on IPO day and then slowly but surely coming back down to earth in the following weeks and months as interest dies down.

“These IPOs have really gotten kind of out of hand,” Gordon said. “There almost needs to be an asterisk that the first years, the price to earnings multiple is always high, because investors continue to chase the next Chipotle. Everyone wants to get in on the next Chipotle, but the world has changed a lot.”

Gordon adds that there remains a general shortage of publicly traded restaurants, as many were delisted or bought out by private equity from 2008 to 2011, and the industry is struggling to recover.

“So there is demand and interest for restaurant IPOs,” Gordon said, “but historically they IPO and then they cool off.”

Smith remembers this very theory manifesting itself in the form of Potbelly and Noodles & Company, shares of which are currently down 37% and 27% from their respective IPOs in the last two years. She believes Shake Shack could be setting investors up for a similar disappointing return once the IPO hysteria dies down.

“It’s going to be a hot deal on day one,” Smith said of Shake Shack. “It’s a bit of a cult stock. You could get a 50 times earnings multiple, which is a stress on the name. It’s starting to defy fundamental logic. They have some things working in their favor, like a high ticket value, [but] what they’re targeting is a huge jump from their current base.”

Still, other industry experts believe as long as Shake Shack is serving burgers — the kind that are so good they’re unlike anything else in this burger-loving nation — then it should be able to thrive.

“What fascinates me about Shake Shack is that when I started doing this 37 years ago, the most popular thing people ordered in a restaurant was a hamburger,” said Harry Balzer, chief food industry analyst and vice president at NPD Group. “And the most popular item people ordered yesterday was a hamburger. It can’t lose! As a consumer, we all have this desire to try new things we already know. In this case, I don’t have to go far to find people saying I’ll try a new hamburger.”

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As Denny’s franchisee preps Obamacare surcharge, liberals promise boycott!/tracilaw/status/268876879086362626

If you’re in Florida and planning to join in on the Papa John’s “buycott” scheduled for this Friday, you might want to save some room for dessert and hit Denny’s afterward. A West Palm Beach restaurant owner is the latest target of a boycott campaign after floating the idea of adding a 5 percent “Obamacare surcharge” to customer checks starting in 2014.

You wanted Obamacare? You got it -> Denny’s And Hurricane Grill & Wings Imposes Surcharge For Obamacare

— Jessica (@Miami_Jess) November 15, 2012

Franchisor John Metz told the Huffington Post that “although it may sound terrible that I’m doing this, it’s the only alternative. I’ve got to pass the cost on to the consumer.” In August, Papa John’s CEO John Schnatter was among the first to come under fire for suggesting that implementing Obamacare would entail costs that would have to be passed on to customers.

Applebee’s has also been targeted for a boycott, although the company was quick to point out via a Twitter post that comments about a possible hiring freeze were made by an independent franchisee. Do little details like that matter, though, when Obamacare is insulted? Is Denny’s in for a boycott nationwide?

“@huffingtonpost: Denny’s franchisee to add Obamacare surcharge to customer checks these naysayers!

— Donna Brazile (@donnabrazile) November 15, 2012

Obamacare “naysayers”? Are they the new “climate change deniers”?

@donnabrazile These links that you’re posting are truly eye-opening. Boycott is not even strong enough of a word to describe what comes next

— ROS (@SuperstarDJROS) November 15, 2012

Okey dokey…Another one to BOYCOTT RT @huffpostpolDenny’s franchisee to add Obamacare surcharge to customer checks

— Cos2mwiz2 (@Cos2mwiz2) November 14, 2012

A Denny’s franchisee is adding a Obamacare surcharge to customers, even though the law is proven to saveemployers $.

— Nate FromUsa (@NatefromUSA) November 14, 2012

Do you hear that? Obamacare have been proved to save employers money. False alarm, business owners nationwide.

They are TRIPPIN’! RT @huffingtonpost: Denny’s franchisee to add Obamacare surcharge to customer checks

— Freedom (@FreedomReeves) November 15, 2012

Wow!I won’t be eating there! “@huffingtonpost: Denny’s franchisee to add Obamacare surcharge to customer checks

— Ricky Appleseed (@RickyAppleseed) November 15, 2012

RT @huffingtonpost “Denny’s franchisee to add Obamacare surcharge to customer checks” Complete and utter douchebag.

— Chris J. Shadrick (@shadrackmang) November 15, 2012

Boycott Dennys! This dickhead is charging you more or he’ll take it out of servers tips, because Obama won.

— eeksta1 (@eeksta1) November 15, 2012

Glitch closing, Macy’s defending Trump, Denny’s instituting an “Obamacare surcharge”…what’s wrong with everything today?!

— Ancalime (@ancalime) November 15, 2012

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Dan Savage says DCCC fundraising emails flooding his sex advice inbox!/joeltropolis/status/524310039880691713

Is anyone else out there starting to become nostalgic for the good old days when the big campaign issues on the table were Big Bird, bayonets and binders full of women? As Twitchy reported today, the Wendy Davis gubernatorial campaign has now introduced dildos into the political discourse for 2014.

As long as we’re going there, it might be time to check on “Savage Love” sex advice columnist and no friend of Republicans Dan Savage. It turns out those increasingly creepy and desperate fundraising mails from the Democrats are getting on his followers’ nerves too.

We can relate.

One problem we’ve heard before: breaking up with the DCCC is hard to do.

However, we can do our best to put them out of business.

* * *


Desperate: TPM editor calls DCCC ‘your new borderline personality boyfriend/girlfriend’

Eww: This OFA email subject line makes Obama sound ‘just creepy’

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President Obama records campaign spot for rapper Jay-Z!/Ted_Newton/status/257879294049665024

Before you rush to correct us on our headline, you might want to take a minute and watch the video, which was released today.

The campaign spot prominently features a video message from President Obama delivered during Jay-Z’s set at September’s Made in America festival. (Yes, the busy president found time to do that.) Of course you remember Obama’s famous revelation in July that “if you’ve been successful, you didn’t get there on your own.” Jay-Z, however, apparently did build that. Says Obama:

To me the idea of America is that no matter who you are, what you look like or where you come from, you can make it if you try. Jay-Z did. He didn’t come from power or privilege; he got ahead because he worked hard, learned from his mistakes, and just plain refused to quit. That’s the promise of this country.

Inspiring words — it’s too bad the president reserved them for Jay-Z and not those small business owners who thought they got where they did by working hard. Who built the road so that Jay-Z could get to the studio and record “Big Pimpin,’” anyway?

It’s a good ad. I like Jay-Z. I only wish Obama also celebrated the success of entrepreneurs outside the entertainment industry. @arimelber

— Avik S. A. Roy (@aviksaroy) October 15, 2012

For his part, Jay-Z says that “for so long, there was this voice that was silenced out there as far as exercising your right to vote. I think it was a voice that was silent because people had lost hope.” Huh? People who chose not to vote were “silenced”?

The people of America have way more than 99 problems, but finding celebrity endorsements for the president isn’t one of them. Jay-Z has the president’s back.

Jay-Z has the President’s back in this election. RT this video if you do, too: OFA.BO/S5qZRQ

— Barack Obama (@BarackObama) October 16, 2012

Hey @barackobama, if you think that Jay-Z is going to get people’s minds off of Benghazi, then you are sadly mistaken. Try again.

— Demetrius Minor (@dminor85) October 16, 2012

Does Jay-Z or you for that matter care about Brian Terry? MT @barackobama: Jay-Z has the President’s back in this election.

— Skeetz (@maryclimer) October 16, 2012

Who had Christopher Stevens’? #Benghazi RT @barackobama: Jay-Z has the President’s back in this election.

— Jason B. Whitman (@JasonBWhitman) October 16, 2012

The Dumb. It hurts. Stop. “@barackobama: Jay-Z has the President’s back in this election. RT this video if you do, too:OFA.BO/S5qZRQ

— Adrienne(@adrienne_jensen) October 16, 2012

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If You Live Near Green Bay And You’re Afraid Of Clowns…Don’t Say We Didn’t Warn You

Have you ever wondered how it is that clowns became associated with all that is horrible and terrifying in the world? I wonder this from time to time for about five minutes before it becomes too creepy.

While clowns used to be restricted to the circus and occasionally TV, they seem to be becoming a more frequent sight in various cities around the world. The latest sighting? Green Bay, Wisconsin…

Here is the nightmare in question spotted walking the streets of Green Bay earlier this week. One local has dubbed him (or her?) Gags the clown.

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This brave local resident had the fortitude to take a few pictures of the clown walking mysteriously into the night with handful of black balloons. They even created a Facebook page where locals can share their encounters with Gags.

While there is no clear origin of Gags, some speculate that he might be part of a horror movie that’s shooting in town.

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Of course, Gags could simply be a prank orchestrated by a local radio station or store to drum up business.

Whether Gags is real or fake, I know that I’m glad he’s stalking the streets of a town other than mine.

(via Unexplained Mysteries)

Personally, I would put my money on Gags being a prank of some kind. At any rate, he’s a terrifying presence that I hope is soon brought to justice.

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Hillary Clinton flip-flops, now says that entrepreneurs create jobs!/jtLOL/status/526834415914057728

How is “businesses don’t create jobs” shorthand for “businesses create jobs”? We hate to say it, but it’s probably time to re-familiarize ourselves with “Clinton-speak” — for example, what the meaning of “is” is.

As Twitchy reported, Hillary Clinton told an audience in Massachusetts last week, “Don’t let anybody tell you that, you know, it’s corporations and businesses that create jobs.” Today, though, Clinton admitted she had “short handed” the point and asked for an opportunity to make her point “absolutely clear.”

According to BuzzFeed’s Ruby Cramer, this is what Clinton said today at a campaign event for New York Rep. Sean Maloney: “Our economy grows when businesses and entrepreneurs create good-paying jobs here in America and workers and families are empowered to build from the bottom up and the middle out — not when we hand out tax breaks for corporations that outsource jobs or stash their profits overseas.”

Yeah, that’s pretty much the same thing.




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When Her Favorite Human Returned From A Business Trip, She Was The Happiest Dog Ever

If you’re at all skeptical that our pets have feelings and memories, just watch this video.

When Sarah’s dad returned after being away because of work for two months, she decided to give him the fuzziest, happiest welcome home hug. I’m going to go out on a limb and say that she missed him a little bit…

Looks like this guy better check his luggage next time he goes away on business, otherwise, he might find himself a slobbery stowaway.

Who wouldn’t mind getting greeted like this every time they came home from work? I know I wouldn’t!

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FBN’s Charles Payne on ‘euro-snob’ Nobel Peace Prize committee: ‘They suck’!/WBlance/status/388681398388674560

Charles Payne of Fox Business Network isn’t thrilled with this year’s choice for Nobel Peace Prize, considering the worthy competition:!/cvpayne/status/388679940838662144

From CNN:

The Nobel Peace Prize has turned the global spotlight back on the conflict in Syria.

The prize committee in Oslo, Norway, awarded it Friday to the Organisation for the Prohibition of Chemical Weapons, the international chemical weapons watchdog helping to eliminate the Syrian army’s stockpiles of poison gas.

Its inspectors have just begun working in the active war zone, and the Norwegian Nobel Committee said it hopes the award offers “strong support” to them as they face arduous and life-threatening tasks.

Enough time hasn’t even elapsed to know whether the OPCW’s efforts in Syria can be considered a success, but results never seem to be among the Nobel committee’s criteria.!/cvpayne/status/388682189275033601

Malala would have been an inspiring pick:

It was almost exactly one year ago — Oct. 9, 2012 — when two men flagged down a bus then 15-year-old Malala rode home from school in the Swat region of Pakistan and one of them shot her in the head and neck.

Now, more outspoken than ever about the necessity for opportunities for girls and women, and with several awards already received, Malala is a nominee for the Nobel Peace Prize.

Make that was a nominee.!/TinPotDickTator/status/388682163849138176

Maybe if Malala would have instead become a global warming activist or made empty promises of world peace she would have received more serious consideration.

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But Thats None Of My Business

But Thats None Of My Business

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‘Mitt Happens': The classy billboard Kenneth Cole planned to post if Obama lost!/KennethCole/status/266544645859835905

Yesterday, Kenneth Cole had a billboard put up in New York City to congratulate President Obama for the whopping “two jobs saved” by his reelection. (That would be Obama’s job and Big Bird’s.)

Today the classless designer flaunted his ignorance by sharing the billboard he would have posted had the election gone the other way.

Condolences to Big Bird and family? “Sesame Street” generated $200 million in revenue from product sales between 2003 and 2006. How would the Sesame gang possibly have survived on those meager crumbs?

Obama’s reelection is already forcing small business owners to kill off much-needed jobs. Evidently the “Romney wants to kill Big Bird” meme is one of the few things that just won’t die.

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