Shake Shack To Open First West Coast Location Despite Struggling Stock

New York restaurant chain Shake Shack will be opening its first restaurant on the West Coast on Tuesday in West Hollywood, CA. The move is an interesting one to say the least, and could have a profound impact on the future of the company depending on its success.

“Los Angeles is one of the biggest tests for them,” said Aaron Allen, a restaurant consultant, who went on to say that there’s “a desire to disprove the notion that they won’t work outside of New York.”

The Los Angeles Times looks at the stiff competition for Shake Shack with McDonald’s, In-N-Out, the Habit, the Counter and Umami Burger as other burger chains that could create stiff competition for the East Coast-based burger joint.

For the executives of Shake Shack, they have to be hoping for huge success from the new location after some disappointing end-of-year results. Despite the fact that fourth quarter sales and profits surpassed expectations, Wall Street was expecting more from Shake Shack’s 2016 projections. With the company just going public last year, it’s dropped from $92.86 to $34.58 at end of business Friday.

In 2014, Shake Shack was one of the most successful burger chains as their domestic sales rose 42 percent, leaving them only behind three rivals. Despite the success, Shake Shack executives didn’t want to take the trip West before exploring other expansion opportunities. They’ve since opened locations in Miami, Chicago, Washington, Tokyo, Moscow and London and now feel better prepared to brave the Los Angeles scene.

“L.A. is the Broadway for burgers,” Shake Shack founder Danny Meyer said. “You want to have plenty of opportunities to play off Broadway” before opening on the big stage.”

In addition to the new restaurant on Santa Monica Boulevard, Shake Shack will be opening a location in Glendale later this year and one in downtown Los Angeles next year.

Shake Shack got its start in Madison Square Park in 2001 when an artist wanted a working hot dog stand as part of his piece. Meyer owned Eleven Madison Park, which was nearby, and offered to provide the food and services needed to keep that stand running. It was such a success that the cart returned for the next two years and made $7,300 in 2003.

The thing that set Shake Shack apart from the rest of the hot dog stands in New York City was their use of unusual ingredients in preparing them.

“There weren’t too many hot dog carts in New York City cooking hot dogs in beef bullion, and Rice Krispies treats made with homemade marshmallow,” Meyer said.

Shake Shack finds it important to use ingredients from the local area to give its restaurant a neighborhood feel. For example, the new West Coast Shake Shack location will have jam from Sqirl, brownies from the Larder Baking Co. and chocolate from Compartes in its frozen custards.

The idea behind this thinking is to create a local feeling instead of having the same things at every Shake Shack location in the country. Instead, each restaurant will have its own menu which makes each one unique despite being apart of a franchise.

“They want to emphasize that they are not just a chain by adding these local flavors and ingredients,” said Lauren Hallow, concepts analyst at Technomic.

Shake Shack’s goal is to use this method to grow from its current 88 locations to 450 when all is said and done.

As for the business side of Shake Shack, Allen blames media coverage for the explosion of the company’s stock from its initial $21 opening last year. He believes that many investors have begun to realize that Shake Shack’s stock was overvalued and have since backed off.

“The fundamentals of the stock versus the fame of the stock has created a gap,” said Allen.

If Shake Shack’s stock is going to reach astronomical heights again, it will be due to the success of its Los Angeles restaurants. If the locations out West fail, then it could signal a potential demise for the company. It’s a big roll of the dice for Meyer and Shake Shack as they continue to expand away from the East Coast.

[Photo By Scott Olson/Getty Images]