{"id":24616,"date":"2017-11-15T18:25:40","date_gmt":"2017-11-15T23:25:40","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/digitalization-shake-shacks-secret-sauce-for-growth\/"},"modified":"2017-11-15T18:25:40","modified_gmt":"2017-11-15T23:25:40","slug":"digitalization-shake-shacks-secret-sauce-for-growth","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/digitalization-shake-shacks-secret-sauce-for-growth\/","title":{"rendered":"Digitalization \u2013 Shake Shack\u2019s Secret Sauce for Growth"},"content":{"rendered":"

From Madison Square Park to conquer the world<\/strong><\/p>\n

Sprouted from Madison Square Park, the fast-casual burger restaurant Shake Shack has made it to the must-do list of New York City, winning the hearts of New Yorkers and tourists alike. As of June 2017, Shake Shack operated 135 restaurants, including 76 company-owned stores in the U.S. and 59 via joint-venture partners globally [1]. In its IPO filing in 2015, Shake Shack announced a growth plan of opening 450 stores domestically.<\/p>\n

\"\"
Figure 1: The first Shack at Madison Square Park, New York<\/figcaption><\/figure>\n

The expansion poses tremendous challenges on Shake Shack\u2019s current supply chain system. Unlike fast-food chain McDonald\u2019s, whose supply chain is built around heavily processed frozen food product, Shake Shake promises to provide fresh ingredients sourced from local farmers. Building around this promise, Shake Shack utilizes only five suppliers for its beef, with about 88% of the company\u2019s ground beef patties supplied by just one of those firms [2]. The current supplier system seems to be insufficient to accommodate Shake Shack\u2019s aggressive expansion going forward. As store numbers skyrocket, supplier sourcing, food spend management, and quality control become major questions.<\/p>\n

Digitalization \u2013 the Secret Sauce for Growth<\/strong><\/p>\n

Meanwhile, Shake Shack is experiencing two consecutive quarters of tumbling same-store sales. In Q1 2017, same store sales is down 2.5% from same period last year [3]. The long lines during peak dining times generated buzz but also created long wait times and inefficiencies, discounting the fast-casual dining experience as well as revenue performance.<\/p>\n

Besides driving growth in number of stores, what can Shake Shack to to improve its operational efficiency to serve more customers per store? What will help aid their growth while maintaining the core values of quality and trustworthy supply chain? Digitalization is Shake Shack\u2019s answer to both questions.<\/p>\n

\"\"
Figure 2: Ordering from the Shake Shack App<\/figcaption><\/figure>\n

Digitalizing Customer Demand<\/strong><\/p>\n

In March 2017, Shake Shack introduced their new mobile-ordering app, which enables its customers to order from phone and pick up at a chosen time and store. The smart app calculates back-end preparation times and order size to prevent an overload on kitchen staff. Phil Crawford, Vice President of Information Technology, said this app has increased both physical customers and average order sizes, driven by saving time. In addition, an average mobile spend via the app is 15 % higher than in store [4]. It also allows Shake Shack to collect data to understand its customer behavior and menu performance to make more accurate demand forecast.<\/p>\n

Managing Suppliers<\/strong><\/p>\n

Shake Shack\u2019s supply chain strategy has evolved from personal relationships with its few suppliers to digital solutions that allow more transparent analytics. In 2015, Jeffrey Amoscato, vice president of supply chain at Shake Shack, described Shake Shack\u2019s relationship with its suppliers \u201cone-to-one in person relationship\u201d[5], whereas supplier sourcing was based on face-to-face communication and screening. This personal approach is difficult to scale and manage as Shake Shack grows. Just two years later, Shake Shack is now integrating digital software, such as ArrowStream, a supply chain analytics company specialized in Food industry to help consolidate and manage food spending, inventory data and contract management with its suppliers [6]. Using data and analytics can help Shake Shack identify potential savings and reinforce its relationships with trustworthy local suppliers, an important part of Shake Shack\u2019s ecosystem and the center of its customer promise.<\/p>\n

\"\"
Figure 3: The in-store customer experience<\/figcaption><\/figure>\n

Going Forward<\/strong><\/p>\n

On the customer demand side, while the advantage of mobile ordering is clear, customer adoption of the APP still requires heavy marketing effort as currently mobile orders only account for 3% of Shake Shack\u2019s sales. Whereas Papa John\u2019s, another fast-food chain, announced over 55% of its total sales come digitally and 60% of those are from mobile [7].<\/p>\n

The combination of mobile ordering and supplier analytics enable potential vertical integration going forward. Shake Shack can even consider opportunities like implementing prescriptive analytics to provide decision support and to optimize with different resources. As Shake Shack continues to expand, prescriptive analytics will be able to simulate different scenarios and create learnings across the chain.<\/p>\n

In addition, Digitalization increases transparency in supply system and can potentially change industry norm. Steve News, Associate Professor in Operations Management at Sa\u00efd Business School, predicts an increasingly transparent supply chain as demanded by customers and regulators [8]. Especially for food products, provenance is an essential feature of what the customer buys, but a lot of the times it is difficult to verify. Shake Shack can potentially provide ingredient tracking information on its mobile ordering end, to further enrich its relationship with customers by clearly communicating its values of community and responsibility.<\/p>\n

How does digitalization affect customer experience?<\/strong><\/p>\n

While digitalization can be helpful, it also poses new questions. By moving towards mobile ordering, how can Shake Shack sustain its buzz and hype when there is no line in store? As in-store interaction with customers decreases, should Shake Shack reposition its value of customer service?<\/p>\n

(792 words)<\/p>\n

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[1] \u201cShake Shack Lands in China 2017\u201d, Global Retail News, 18, 188, p. 9, Business Source Complete, EBSCOhost, accessed November 2017.<\/p>\n

[2]\u201cWhy Shake Shack Will Never Be McDonald’s.\u201d http:\/\/fortune.com\/2015\/05\/14\/<\/a> shake-shack-mcdonalds\/<\/p>\n

[3] Shake Shack, 2017 Quarterly Earning Report<\/p>\n

[4] \u201cShake Shack Lands in China 2017\u201d, Global Retail News, 18, 188, p. 9, Business Source Complete, EBSCOhost, accessed November 2017.<\/p>\n

[5] Mariana Souza, \u201cShake Shack’s supply chain guru on sourcing better burgers.\u201d Greenbiz.com, https:\/\/www.greenbiz.com\/article\/shake-shacks-supply-chain-guru-sourcing-better-burgers<\/a>, accessed November 2017.<\/p>\n

[6] ArrowStream, \u201cNation’s Fastest-Growing Chain, Shake Shack, Implements ArrowStream to Help Power Its Supply Chain\u201d, https:\/\/globenewswire.com\/news-release\/2016\/09\/20\/899736\/0\/en\/Nation-s-Fastest-Growing-Chain-Shake-Shack-Implements-ArrowStream-to-Help-Power-Its-Supply-Chain.html?parent=899737<\/a>, accessed November 2017.<\/p>\n

[7] \u201cGood Food Is Not Enough: 3 Dining Trends For The Digital Age\u201d, Forbes.com, https:\/\/www.forbes.com\/sites\/michaeljones\/2016\/05\/18\/good-food-is-not-enough-mobile-diners\/#11460eb626b4<\/a>, accessed November 2017<\/p>\n

[8] Steve News, \u201cThe Transparent Supply Chain\u201d, Hbr.org, https:\/\/hbr.org\/2010\/10\/the-transparent-supply-chain<\/a>, accessed November 2017<\/p>\n","protected":false},"excerpt":{"rendered":"

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