A recent post by Daniel Gross at Strategy+Business caught our attention. It chronicled the rise of Shake Shack, a fast-growing casual restaurant chain that combines a basic menu — hot dog, burger, fries, and the like — with exceptional attention to all of the stakeholders in its value chain. This combination has created legions of fans. I know that I frequently see lines to get into the two outlets near me in the Boston area. What creates what Gross calls “Shake Shack’s shimmy? Here’s how he described it:
The difference lies in the design of the business—it simply does things a little better than people expect, given how much they are paying. That has been Danny Meyer’s stock-in-trade since he launched the Union Square Café in the 1980s. Meyer’s expanding empire of restaurants—Gramercy Tavern, Blue Smoke, Maialino—are never at the top of the market, in price or unctuous service. But they dish out excellent meals made with fresh ingredients at a fair price. And all in an environment where customers are treated with a greater sense of hospitality than is absolutely necessary. The business proposition rests less on gastronomic or financial engineering than on an appreciation of human emotion. Meyer’s memoir, Setting the Table, paints an image of the restaurateur as a mensch, not a slick player. “Our team is trained to understand and practice the values of Enlightened Hospitality: caring for each other, caring for our guests, caring for our community, caring for our suppliers and caring for our investors,” as Shake Shack’s prospectus notes.
We certainly appreciate a good burger here at the Center for Higher Ambition Leadership. What we’re more interested in, however, is how businesses create both financial and social value. Meyer’s construct of Enlightened Hospitality certainly hits the sweet spot. It is a multi-stakeholder approach that acknowledges that many constituencies have a stake in creating excellence and enjoying its rewards.
Fast food workers have been in the news frequently over the past year or so. There have been numerous actions aimed at raising wages and improving working conditions.While the impact of a higher minimum wage is still hotly debated, some such as Meyer have been proactive in recognizing the value of a well-paid, engaged workforce to overall enterprise success. As Gross writes:
The business model also extends to the treatment and pay of its workers. Fast food and quick-service restaurants are a famously—and often, controversially—low-paying service industry. The largest players in it have for a very long time built their business around the minimum wages, or low wages. Viewing labor as an input like any other input (paper, beef, potatoes), they work fiercely to keep a lid on its cost.
Here, however, Shake Shack takes a different approach. It chooses to pay more than it is legally required, and probably more than the slack labor market requires it to do. Workers start at $10 an hour in New York (where the minimum wage is $8.75), and $9.50 an hour in other locations, as ThinkProgress.org reported. There’s more: Full-time workers get health benefits (the company picks up 70 percent of premiums), paid time off, and 401(k) matching contributions. Through a program called “Shack Bucks,” employees receive a sliver of total sales—not profits.
Shake Shack went public earlier this year and its stock has seen both ups and downs. We believe it is as important to look at long-term value creation as it is the returns in any given quarter. We’ll have our eyes (and appetites) on Shake Shack to see how it fares going forward. In the meantime, we encourage you to read Gross’ full post. And read our other posts on the minimum wage debate.