{"id":24590,"date":"2017-11-15T18:24:50","date_gmt":"2017-11-15T23:24:50","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/shake-shack-is-enlightened-hospitality-becoming-digitalized\/"},"modified":"2017-11-15T18:24:50","modified_gmt":"2017-11-15T23:24:50","slug":"shake-shack-is-enlightened-hospitality-becoming-digitalized","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/shake-shack-is-enlightened-hospitality-becoming-digitalized\/","title":{"rendered":"SHAKE SHACK: IS \u2018ENLIGHTENED HOSPITALITY\u2019 BECOMING DIGITALIZED?"},"content":{"rendered":"

DIGITALIZATION SCORCHES FAST CASUAL <\/strong><\/p>\n

The growth of the fast-casual dining industry has plateaued. \u00a0A slew of start-ups have expanded rapidly across the United States with hopes of becoming the \u201cChipotle of X,\u201d and quick service restaurants (QSRs) have seasoned their menus and d\u00e9cor with fashionable flavors to turn up the competitive heat.[1]<\/a>\u00a0 Increasing digitalization has affected customers\u2019 preferences, with the fast-casual target customer \u2013 the tech-savvy millennial \u2013 increasingly demanding good meal value without compromising on food quality, consistent speedy service, the option to interface via an app, and on-demand delivery options at a faster clip than the industry anticipated.[2]<\/a> \u00a0Investment firm Cowen expects the U.S. meal delivery market to grow 12% annually over the next five years.[3]<\/a><\/p>\n

Concurrently, minimum wage increases are taking effect in many U.S. states, and surging labor costs are biting into fast casual restaurants\u2019 margins, leaving the industry\u2019s fate in flux.<\/p>\n

Shake Shack, a global fast casual chain recognized for its made-to-order ShackBurgers and enlightened hospitality \u2013 emphasizing the happiness of its customers and employees \u2013 aims to capitalize on digitalization to achieve its goal of unprecedented unit growth in 2018 despite industry headwinds.\u00a0 Shake Shack has embraced digitalization as its key operational ingredient to accelerate year-over-year store growth by nearly 40% in 2018 while delivering quality service and food.[4]<\/a><\/p>\n

SHAKING UP THE SUPPLY CHAIN <\/strong><\/p>\n

Preparing for additional growth, this year Shake Shack moved away from managing disjointed relationships with multiple suppliers to partnering with ArrowStream, a supply chain management firm, to migrate all of Shack Shack\u2019s food spending, inventory, supplier and distributor tracking, and quality assurance to a single dashboard.\u00a0 Shake Shack’s management now accesses \u201cat your fingertips\u201d insights in order to make real-time supplier decisions for the chain, which is particularly complex given seasonal menu changes, new items, and a laser-focus on food quality.[5]<\/a><\/p>\n

Bon APP<\/em><\/strong>\u00e9tit <\/em><\/strong><\/p>\n

Shake Shack is also investing in technology to enable new ordering methods that satisfy customers.\u00a0 Shake Shack has a devout followership, but its target millennial customer overall does not like to wait.[6]<\/a>\u00a0 In October 2016, Shake Shack launched its mobile app in select locations and now promotes it nationally, allowing customers to order ahead and specify pick-up times.\u00a0 Shake Shack integrated the app into its in-house point-of-sale ordering system so that its kitchens can seamlessly accommodate app-originated made-to-order purchases without modifying their operations.[7]<\/a>\u00a0 In the short-term, Shake Shack is also testing partnerships with various food-delivery companies including DoorDash, Caviar, and Amazon via the delivery service Olo.[8]<\/a><\/p>\n

 <\/p>\n

<\/a>\"\"<\/a>[9]<\/a><\/p>\n

Enlightened Hospitality or Endangered Hospitality?<\/em><\/strong><\/p>\n

Last month, Shake Shack replaced counter staff with kiosks at its Astor Place location with the stated objective to serve more customers during peak times.\u00a0 Customers place orders on touchscreens, pay via card, and receive text notifications when orders are ready.\u00a0 The kiosk mimics Shake Shack\u2019s in-house ordering system, and the tech-savvy split kitchen has been redesigned to enable greater output.\u00a0 For now, Shake Shack has maintained its staff, known as \u201cHospitality Champs\u201d who are available to answer questions regarding kiosk ordering.\u00a0 While early signs show that kiosks have decreased customer order wait times, kitchen order fulfillment bottlenecks exist.[10]<\/a><\/p>\n

<\/a>\"\"<\/a>[11]<\/a><\/p>\n

In the medium-term, Shake Shack will continue to roll out its mobile app and more kiosk-enabled stores depending on how its Astor Place location performs.\u00a0 Management has indicated that labor expenses are Shake Shack\u2019s most significant near-term headwind but has not signaled that it plans to reduce in-store labor.[12]<\/a> \u00a0CEO Randy Garutti indicated that the new location is \u201cour way of seeing how we are going to do that.\u201d[13]<\/a>\u00a0 Shake Shack also plans to eventually test other innovations around packaging methods and delivery speeds.<\/p>\n

MOVING FORWARD <\/strong><\/p>\n

In the short-term, Shake Shack should continue to promote its mobile app, analyze kiosk testing results, and focus on increasing app personalization options such as tracking customer order preferences, past orders, and locations in order to increase customers\u2019 app engagement.\u00a0 Shake Shack should also integrate more closely with an exclusive delivery partner or consider bringing delivery in-house in order to gain control over the end-to-end customer experience.<\/p>\n

In the medium-term, regardless of whether Shake Shack pursues the kiosk model, Shake Shack should redesign split-kitchens in delivery-heavy areas to accommodate the growing home-delivery market demand.\u00a0 Shake Shack should expand its kiosk model if overall order throughput times decrease and customer satisfaction and quality levels remain high.<\/p>\n

While digitalization aids Shake Shack\u2019s growth from an operational standpoint, time will tell whether Shake Shack\u2019s embrace of digitalization will enable it to deliver on its enlightened hospitality values and its priority to continue to make a darn good burger.<\/p>\n

Is Shake Shack over-indexing on apps and kiosks?\u00a0 Does its move toward digitalization inhibit its ability to provide comprehensive quality service to customers?<\/p>\n

Does Shake Shack have an obligation to retain its customer-facing labor? What implications will increased automation have on labor as minimum wage increases come into effect?<\/p>\n

[794 words]<\/p>\n

[1]<\/a> Kostyo, Mike. \u201cWhat\u2019s next for fast casuals?\u201d SmartBrief Publications, September 13, 2017. https:\/\/www.smartbrief.com\/original\/2017\/09\/what%E2%80%99s-next-fast-casuals<\/a>, accessed November 2017.<\/p>\n

[2]<\/a> Red Robin. 2017 Q3 Earnings Report. http:\/\/www.businesswire.com\/news\/home\/20171106006297\/en\/, accessed November 2017; Perowne, Roger. \u201c10 marketing lessons from how millennials are changing the way we eat.\u201d Campaign, November 13, 2017. https:\/\/www.campaignlive.co.uk\/article\/10-marketing-lessons-millennials-changing-eat\/1449985<\/a>, accessed November 2017.<\/p>\n

[3]<\/a> Frank, Thomas. \u201cHome food delivery is surging thanks to ease of online ordering, new study shows.\u201d CNBC.com, July 12, 2017. https:\/\/www.cnbc.com\/2017\/07\/12\/home-food-delivery-is-surging-thanks-to-ease-of-online-ordering-new-study-shows.html<\/a>, accessed November 2017.<\/p>\n

[4]<\/a> Shake Shack. 2017 Q3 Earnings Report. http:\/\/www.businesswire.com\/news\/home\/20171101006661\/en\/<\/a>, accessed November 2017.<\/p>\n

[5]<\/a> \u201cNation\u2019s Fastest-Growing Chain, Shake Shack, Implements ArrowStream to Help Power Its Supply Chain.\u201d ArrowStream press release. September 20, 2016, on Dow Jones Newswire, file:\/\/\/Users\/colbyfarber\/Downloads\/Factiva-20171114-1338.pdf<\/a>. Thorn, Bret. \u201cTaking Small Bites Out of Big Data.\u201d Go-Wine via Factiva, May 19, 2017. https:\/\/www.go-wine.com\/restaurant-article-326-taking-small-bites-of-big-data.html<\/a>; accessed November 2017.<\/p>\n

[6]<\/a> Taylor, Kate. \u201cMillennials are killing chains like Buffalo Wild Wings and Applebees.\u201d June 3, 2017. http:\/\/www.businessinsider.com\/millennials-endanger-casual-dining-restaurants-2017-5<\/a>, accessed November 2017.<\/p>\n

[7]<\/a>\u201cA New Way to Shack: Shake Shack Introduces a New Guest Experience with a Test Launch of its First iOS Mobile Ordering Shack App.\u201d Shake Shack press release. October 17, 2016, https:\/\/global-factiva-com.prd1.ezproxy-prod.hbs.edu\/ha\/default.aspx#.\/!?&_suid=151078355351405618411558318017<\/a>; PYMNTS. \u201cShake Shack Shakes Up Ordering, One Step At A Time.\u201d August 25, 2017. https:\/\/www.pymnts.com\/mobile-order-ahead\/2017\/shake-shack-mobile-rollout\/<\/a>, accessed November 2017.<\/p>\n

[8]<\/a> Zetlin, Minda. \u201cAmazon May Soon Bring You a Shake Shack Burger in Under an Hour.\u201d Inc. September 22, 2017. https:\/\/www.inc.com\/minda-zetlin\/amazon-may-soon-bring-you-a-shake-shack-burger-in-under-an-hour.html<\/a>, accessed November 2017; Judkis, Maura. \u201cThe next time you order food, this cute robot might roll up to deliver it.\u201d March 9, 2017. https:\/\/www.washingtonpost.com\/news\/food\/wp\/2017\/03\/09\/the-next-time-you-order-food-this-cute-robot-might-roll-up-to-deliver-it\/?utm_term=.ae85b5af7d2c<\/a>, accessed November 2017.<\/p>\n

[9]<\/a> Houck, Brenna. \u201cShake Shack Detroit\u2019s Opening Line Snakes Around the Corner.\u201d February 23, 2017, https:\/\/detroit.eater.com\/2017\/2\/23\/14715980\/shake-shack-detroit-opening-line-wait-times<\/a>, accessed November 2017.<\/p>\n

[10]<\/a> Sietsema, Robert. \u201cShake Shack\u2019s New Cashier-Free Location Really Does Reduce Wait, So Far.\u201d October 10, 2017. https:\/\/ny.eater.com\/2017\/10\/10\/16454838\/shake-shacks-no-cashier-nyc-astor-place<\/a>, accessed November 2017.<\/p>\n

[11]<\/a> Ibid.<\/p>\n

[12]<\/a> Shake Shack. 2017 Q3 Earnings Report. \u00a0http:\/\/www.businesswire.com\/news\/home\/20171101006661\/en\/<\/a>, accessed November 2017.<\/p>\n

[13]<\/a> \u201cDanny Meyer on How Automation Won\u2019t Hurt Shake Shack Hospitality.\u201d National Real Estate Investor via Bloomberg. October 10, 2017. file:\/\/\/Users\/colbyfarber\/Downloads\/Factiva-20171114-1346.pdf<\/a>, accessed November 2017.<\/p>\n","protected":false},"excerpt":{"rendered":"

Digitalization is exposing that fast-casual chains are becoming too slow. Will Shake Shack\u2019s embrace of digitalization enable it to buck this trend, or are its plans for growth fried?<\/p>\n","protected":false},"author":9713,"featured_media":24591,"comment_status":"open","ping_status":"closed","template":"","categories":[2123,20,733],"class_list":["post-24590","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-digitalization","category-food-delivery","category-shake-shack","hck-taxonomy-organization-shake-shack","hck-taxonomy-industry-service","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\nSHAKE SHACK: IS \u2018ENLIGHTENED HOSPITALITY\u2019 BECOMING DIGITALIZED? - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/shake-shack-is-enlightened-hospitality-becoming-digitalized\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"SHAKE SHACK: IS \u2018ENLIGHTENED HOSPITALITY\u2019 BECOMING DIGITALIZED? - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"Digitalization is exposing that fast-casual chains are becoming too slow. 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