The Story Behind Shake Shack's Success

It's a classic American success story. A humble hot dog stand operating out of Madison Square Park in New York City grows to become a gourmet casual food powerhouse. With a seemingly unscalable idea, Shake Shack (SHAK) went public via an IPO in early 2015 and now commands a market capitalization of $1.9 billion, employing nearly 5,000 workers at more than 168 locations around the globe. Just how did this company arrive at its meteoric success?

The Manhattan stand was not just your ordinary city hot dog cart. Celebrity chef Danny Meyer opened Shake Shack in 2000 in conjunction with an effort by the city to revitalize Madison Square Park, which had fallen into relative disrepair. The location was ideal, situated near investment bank Credit Suisse's (CS) New York headquarters, and one block from the iconic Flatiron building.

Soon after the original cart opened, people would line up daily during lunch time. CEO Randall Garutti told an interviewer that nobody was thinking about expanding beyond the hot dog cart at this point, but the city was looking to put a permanent fixture in the park as part of its revitalization efforts and actively solicited bids for potential projects.

In July 2004, Meyer and Garutti won the bid and were able to convert the hot dog cart into a permanent, kiosk-style fast food restaurant, serving gourmet hamburgers, hot dogs, crinkle cut french fries and, of course, milkshakes under the auspices of the Union Square Hospitality Group, operator of a number of the city's best upscale restaurants including the nearby Eleven Madison Park. This original Shack was specifically designed by the architecture firm SITE Environmental Design to be harmonious with the nature of the park as well as its urban surroundings. Modeled after a classic roadside burger stand, this modern incarnation saw immediate success as the people line up to order would often stretch around the park and take up to two or even three hours to reach the counter.

Before long, Shake Shack had earned a cult-like following. People from all over the world, as well as locals would take advantage of its unique location. A web cam was installed, known as the "shack cam", allowing people to check on the length of the line before deciding whether or not to join it. In June, 2014, a promotion, in which five celebrity chefs each contributed a limited edition burger recipe, drew the longest line ever recorded at the original Shake Shack. 

In 2010, Shake Shack expanded its operations, opening up locations throughout New York City, including the Theater District, Upper East Side, and Chelsea neighborhoods. It also opened a location in Miami's South Beach, its first location outside of New York City. In 2011, the expansion continued within New York as Shake Shack inked deals for prime locations inside Grand Central Terminal, at JFK airport, and at Citi Field, home of the New York Mets. By 2015, Shake Shack had 63 locations throughout the country and around the world. In the U.S., there are Shake Shack restaurants in New York, New Jersey, Florida, Georgia, Illinois, Nevada, Connecticut, Maryland, and Washington, D.C. Internationally, there are locations in London, Moscow, Beirut, Dubai, Istanbul, Abu Dhabi, Doha and Kuwait City.

Despite this rapid expansion, for most of chain's existence, the ethos was to maintain a community vibe and make Shake Shack part of New York. As a result of that way of thinking, each new location in each city has been designed specifically for its location to and keep that unique, community feel. One of the mottos that Garutti lives by is “The bigger we get, the smaller we need to act.” This means that as the company continues to expand, it will also need to work harder and harder to preserve its commitment to quality and community. 

With so many success stories in technology it is interesting to see a company that started out as a small hot dog cart turn itself into a multi-billion dollar international restaurant chain. It was because of Shake Shack's modest beginnings that it was able to build a sense of community and a cult following that it has since capitalized on. Now, Shake Shack feeds gourmet burgers, crinkle fries, and milk shakes to people around the world.

(See also: Fast Food Versus Fast Casual.)