The way people eat out has changed due to the Covid pandemic.
Some of those changes came about because workplaces adopted a hybrid schedule. If people only go to the office two or three times a week when they used to go every day, the restaurants near their offices will suffer.
Many coffee shops, fast food restaurants and casual sit-down restaurants have had to close their doors because their customers have disappeared. In addition, residential populations have changed, forcing more establishments to close.
Related: Another struggling food brand files for Chapter 11 bankruptcy
Not all restaurant failures can be blamed on population shifts, however. In some cases, chains and franchise operators have been hurt by additional debt incurred during the pandemic and rising labor and food costs.
That's a combination that has led to hundreds of Burger King locations closing, while major chains like Red Lobster have filed for Chapter 11 bankruptcy. It's a tough operating climate as consumers demand value while costs continue to rise.
This is a situation that has forced companies to re-evaluate their portfolios and make difficult decisions. Closing branches is not something that only happens in the case of bankrupt or failing companies, but it is also something that successful brands have been forced to do in order to maintain the health of the company as a whole.
Image source: Shake Shack
Shake Shack has expanded very slowly
Major chains, including Starbucks, typically close a small number of locations each year. In the case of the coffee giant, it typically closes cafes due to population changes or because it sees an opportunity to open in a better, but nearby, location.
Smaller chains don't usually have to do this as often because they move more slowly and are very careful when choosing locations. Shake Shack (SHAKE) Overall, it has been very deliberate in its expansion efforts.
The popular burger chain has fewer than 350 locations and has expanded very slowly. Part of that is an effort to keep the brand special. Shake Shack clearly has unmet demand, but rapid expansion could undermine some of the mystery of the burger, chicken sandwich and milkshake brand.
Shake Shack has also tried to maintain its reputation as a company that does more than just make money.
“When Shake Shack began as a hot dog stand in New York City's Madison Square Park, our mission was simple: raise funds for a public art project,” it shared on its website. “As we grew into a global company, our mission to Stand for Something Good expanded to include caring for our team, sourcing premium ingredients from partners with the same dedication to quality, responsibly designing our stands, supporting our communities through donations, events, and volunteering, and so much more.”
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Shake Shack closes several locations
Shake Shack filed a document with the SEC on August 27 detailing its plan to close some locations.
“Shack Inc. periodically evaluates its portfolio of company-owned and operated Shack restaurants (“Shacks”). As a result, it has identified locations that are underperforming Shacks in part due to changes in trade area and, in some cases, are negatively impacting other Shacks within their proximity by cannibalizing sales,” the company shared in the filing.
This led the company to make a difficult decision.
“These Shacks are not expected to provide acceptable returns in the near future. As a result of this evaluation, the Company has decided to close nine Shacks it owns and operates in California, Ohio and Texas,” he continued. “These closures are expected to optimize the Company's presence in these states and maximize profitable growth going forward, and are not expected to impact the Company's plans to open additional Shacks in these states.”
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Shake Shack added that it does not expect to open any more locations “in the near future.” It also plans to find new positions for the affected workers.
“Managers at these Shacks will be offered positions at neighboring Shacks and hourly team members will be eligible for rehire at other Shacks, with hourly team members (and any managers who do not agree to a transfer) receiving up to 60 days of pay. This Shack closure plan was communicated to affected employees on August 27, 2024 and is expected to be completed by September 25, 2024, subject to finalization of third-party agreements and other contingencies,” the company shared in the filing.
