Shake Shack COO Zachary Koff to step down

Bret Thorn | Aug 03, 2023

Shake Shack’s chief operating officer, Zachary Koff, is leaving the company as of Sept. 7, the fast-casual burger chain said Thursday, when it also announced results for 2nd quarter, ended June 28.

He is joining Daily Provisions, a four-unit casual concept by Union Square Hospitality Group, which also founded Shake Shack, as its president.

Related: Shake Shack sees growing potential in licensed restaurants

“Zach joined Shake Shack when we opened our fourth shack ever in Miami Beach, and he's been a key fixture in all we've done to build this special brand and culture,” CEO Randy Garutti said during the earnings call. “His heart, soul, and leadership sits at the foundation of Shake Shack, and so much of what we've accomplished as a team has been thanks to his contributions that will be greatly missed.”

Koff has been the New York City-based chain’s COO since January of 2017. He joined the company in February of 2010 as director of operations and was successively promoted to vice president and then senior vice president of operations before taking his latest position.

Related: Shake Shack reaches agreement with minority shareholder Engaged Capital, appoints former Domino’s Pizza CFO Jeffrey Lawrence to board of directors

A search for his successor will begin shortly, Garutti said.

It was a good quarter for the burger chain, with record sales of $426.3 million, up by 21.2% compared to the second quarter of 2022. Same-store sales were up by 3%, with restaurant-level margins of 21.2%, the first time margins were above 20% since 2019.

Net income turned positive to $7.2 million, or 16 cents per share.

In the previous quarter it reported a net loss of $1.5 million, or 4 cents per share.

Much of the success was due to the implementation of operational efficiencies and the continued rollout of kiosks in restaurants, which generate higher average checks and require less labor.

Additionally, traffic in the restaurants was up by 4.7%, while delivery traffic was down by 1.3% “as more guests are migrating to their in-person habits,” chief financial officer Katie Fogertey said.

Both Garutti and Fogertey said that encouraging customers to dine in and use kiosks was a priority, and rolling out the equipment has proceeded ahead of schedule: It’s expected to be nearly completed by the end of the quarter, a full quarter earlier than projected.

“Kiosks enhance guest convenience while driving a higher average check and, in turn, profitability,,” he said, adding that the company has only begun to explore the potential capabilities of kiosks, “such as upselling and connecting personalized marketing across channels.” He said that would be a priority for digital investment next year.

Kiosk sales are up by more than 100% year over year, Fogertey said.

In terms of labor, Garutti said turnover is currently the lowest it has been in years.

“Our team members are earning competitive wages, they’re staying longer, and all of this is contributing to our operational execution and profitability in the shacks,” he said.

Sales were also driven by the successful limited-time white truffle menu, which ended in April and the relaunch of its bourbon bacon burger in June.

The chain also introduced a new meatless burger and dairy-free custard, and Garutti said they received “a solid reception.”

The chain also introduced summertime shake LTOs and a caffeinated lemonade option.

Garutti said Shake Shack would bring back its hot chicken sandwich in September along with a new item, the Spicy Shackmeister Burger.

He said insights from guest data would help inform new menu items in 2024.

In terms of new restaurants, drive-thru locations would be a focus going forward. It currently has 18 such locations, with mixed performance — some above projections, some below, and some on target.

“We remain encouraged by the drive-thru opportunity, and we continue to refine, take down cost to build, and improve the model overall,” he said, adding that they plan to open 15 drive-thrus per year going forward.

As with the first quarter of 2023, Garutti said he was bullish on licensed locations, which as of the end of the quarter comprised 201 of the chain’s 471 locations.

“Our strong performance in the second quarter was primarily driven by outperformance in our licensed business domestically, which is one of our largest markets,” he said, including 18 restaurants in airports, 11 in stadiums, six at roadway travel plazas and one in a museum.

Fogertey credit the successful quarter in part to operational improvements, specifically using demand-generated labor scheduling, further increasing operating hours, and driving waste reduction among other initiatives.

“We are leveraging fresh weekly sales forecasts in our shacks to schedule labor, incorporating macro and micro drivers. This is helping us be more nimble in our expense management when sales tides turn or even just modestly shift at the Shack level in either direction,” she said.

Both food and labor costs were down for the quarter despite inflationary pressures, particularly in fries, for which cost is up by more than 20%

For the quarter, cost of good were 29%, down by one percentage point compared to last year, aided by reduced waste and lower packaging costs. Labor was down by 0.8 percentage points to 28.7%, largely because efficiencies had allowed the average restaurant to reduce labor by 50 hours per week compared to the 2nd quarter of 2022.

Business was robust in July, with same-store sales up by 4.5%, and for the full quarter Fogertey projected comp sales in the low- to mid-single digits, revenue of between $273.5 million and $278 million, and margins of around 20%.

For the year, she expected revenue to be up by 18%-21% to $1.07 billion to $1.08 billion, same-store sales in the low- to mid-single digits, and margins of 19.25%-20%.

Contact Bret Thorn at [email protected]

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