How Shake Shack cooked up its cheeseburger experience

Repeat Customer podcast, Season 2, Episode 4

Shake Shack's improbable rise from a hot-dog cart in a New York City park to international hamburger chain seems even more unlikely when you consider the guy who started it: Danny Meyer. He's a Michelin-starred restaurateur with a reputation for exceptional customer service. How do you translate that kind of customer experience into fast food?

Food journalist Daniela Galarza, Danny Klein of QSR magazine, and Bonnie Riggs, a restaurant industry analyst, describe how Shake Shack and Danny Meyer benefitted from the emergence of a new restaurant category called "fast-casual," while another NYC food writer, Chris Shott, explains what's between Shake Shack's buns.

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Transcript

[Andy Lomeli]
I would go to New York for work a lot...and never had a good time in New York.

[Mio Adilman]
For some people, like Andy Lomeli, New York can be overwhelming, even unfriendly, so a friend of his suggested, hey, next time you go, check out this great restaurant.

[Andy Lomeli]
One day where I had the evening to myself in New York, I decided to try it out. It was a bit of a line but I waited and I said oh my gosh, this is one of the best burgers I've ever had in my life and it completely changed my mind on New York and work travel in general.

[Mio Adilman]
That's got to be a really powerful burger that changed the way you feel about a whole city.

[Andy Lomeli]
It's one of those things where the cheese, it melts so perfectly on that meat and it's just so gooey. I'm also a really big fan of the bun with the fries and the shake. I love Shake Shack, obviously.

[Mio Adilman]
Oh, now I want Shake Shack. But first we got to do this.

Welcome to Repeat Customer, an original podcast from Zendesk about great customer experiences, how companies create them and why their super fans love them so much. Zendesk is a customer service and engagement platform and me? I'm Mio Adilman, sitting here jonesing for a burger and fries as I explore the emergence of a dining experience called "fast casual" through the rise of Shake Shack from a single hot dog cart in a New York park to international chain. CX was a bit part of their strategy and when I say CX, I mean the customer experience—but I also mean the cheeseburger experience.

Shake Shack was created by Danny Meyer.

[Daniela Galarza]
Danny Meyer is today one of the most prolific and respected restaurateurs of his generation.

[Mio Adilman]
But he comes from a totally different background than your typical fast-food executive. Before Shake Shack, Danny was best known for his fancier spots in Manhattan, like the upscale-casual Union Square Café, and the fine-dining Gramercy Tavern. Gramercy has a Michelin star, which should tell you all you need to know about Meyer's pedigree; I mean, I grew up reading about his restaurants in magazines and about Danny's singular attention to detail.

[Daniela Galarza]
He calls it enlightened hospitality.

[Mio Adilman]
But because I didn't grow up in New York eating at his restaurants, probably better if food journalist, Daniela Galarza, tells us more about this thing called enlightened hospitality.

[Daniela Galarza]
You don't tell the guests no, you find a way around things, you anticipate the guests' needs. Things that are pretty standard in Hospitality 101 but he really made a business out of it. I recently interviewed Ina Garten and she used to live near the original Union Square Café.

[Mio Adilman]
That's the really famous Food Network host, Ina Garten A.K.A. the Barefoot Contessa.

[Daniela Galarza]
She remembers the first time she walked in. First, she noticed everyone said hello. The server was able to answer all of their questions and so they went back the next week, and the staff remembered them.

[Mio Adilman]
This was a busy restaurant.

[Daniela Galarza]
She wasn't on TV at the time for them to remember that she really liked some particular dish, and so they brought it out for her even though it wasn't on the menu that night. Danny Meyer early on got that it's all in the details, and you have to remember the little things.

[Mio Adilman]
Treating your diners really well is kind of no kidding, right? I mean, it's no secret. But Danny's service was next-level. He thinks hospitality is the most important business strategy whatever your industry, so his places became very popular and he was able to open more restaurants; but then, he got a different kind of opportunity.

A community group that was beautifying Madison Square Park, which was near one of his spots, asked him to run a summertime hot-dog cart.

[Daniela Galarza]
Danny Meyer being from the Midwest, it was always going to have Chicago-style hot dogs. Chicago-style hot dogs are notoriously on poppyseed buns. I'm from Chicago, so this was an important detail for me.

[Mio Adilman]
Oh, so now I could totally go for a hot dog too. The hot-dog cart did really well and a couple years later, the same community group asked Danny to turn the cart into a takeout kiosk in the same park. So, he added burgers, fries, and shakes, which are the basis for the Shake Shack menu even today—but remember, Danny was also running what would later become a Michelin-starred restaurant. Quality of food and service was extremely important to his brand but the timing was right, because something was happening to people's appetites for a new burger experience.

[Speaker 4]
Two McDoubles, one McChicken. I see one McDouble, please and thank you.

[Danny Klein]
I remember when I was younger and we probably all have similar stories to this. My dad used to take me and my brother to McDonald's and we'd order a number two.

[Mio Adilman]
The guy having the combo number two is Danny Klein. He reports on the fast-food industry for QSR magazine. QSR stands for quick service restaurants.

[Danny Klein]
So if you remember what a number two used to be, it was two cheeseburgers, fries, and a drink and we each get a burger, my dad would eat the fries. When I kind of look at that back then, they were two tiny burgers, who knows what the quality was but they were, you know, about 50 cents a piece.

[Mio Adilman]
Around the time Danny Meyer opened his burger shack in Madison Square Park, the fast-food industry was starting to have problems.

[Daniela Galarza]
Yeah, in the late ‘90s, early 2000s, Americans were hearing all about the obesity crisis. There were a lot of conflicting reports about salts and fat so what we were seeing was people rejecting fast food, in particular fast-food burgers. It was in this time when McDonald's started struggling.

[Mio Adilman]
This changing view of fast food, and especially McDonald's, came to a head in 2004 with a documentary called Super Size Me, in which filmmaker Morgan Spurlock tries to live on only food from McDonald's for a month. The results are pretty gross; but you know, hamburgers, cheeseburgers are never going to be seen as health food, but there was now an appetite for a healthier burger. The timing couldn't be better for Shake Shack because that first takeout kiosk opened the same year as Super Size Me and if you were in New York at the time, you probably would have found yourself lining up for it in Madison Square Park.

What's the longest you've stood in that line for?

[Chris Shott]
Man, I would say, personally, it's got to have been 30, 40 minutes.

[Mio Adilman]
That seems like a crazy amount of time to stand in line for a hamburger in a city with as many great food options as New York. But that's what Chris Shott used to do when he worked in the area.

[Chris Shott]
I'm a food culture writer in Brooklyn, New York. The most memorable evening I had there maybe 10 people in front of us was the famed author and New Yorker writer, Malcolm Gladwell. I think it was maybe two or three people back from him was a big guy with this huge, I'm guessing it was a parrot, you know, with the wings spread and everything and Malcolm Gladwell turns around and looks at this bird and just goes bug eyed, and it was an amazing moment in line at Shake Shack.

[Mio Adilman]
And this was the ShackBurger, Chris, Malcolm Gladwell and the parrot were standing in line for.

[Chris Shott]
They had this specific beef blend that was made fresh every morning by a family-run butcher shop so immediately, it was this elevation of your normal fast-food burger.

[Mio Adilman]
Hormone-free, premium beef, freshly ground.

[Chris Shott]
Everything's very classic. The griddle patty on that really squishy potato bun which has that sort of backyard barbecue nostalgia to it, you've got the American cheese, you've got the mayo concoction secret sauce, whatever it is.

[Mio Adilman]
It's called Shack Sauce.

[Chris Shott]
You've got a very, very green slice of lettuce and red tomatoes.

[Mio Adilman]
Simple ingredients, but they were the same quality as what you would get at Danny's fine-dining restaurants.

[Chris Shott]
You just got this great crushable little burger and I think that the precision of it speaks to the culinary track record of the overseers. Just crush it, man.

[Mio Adilman]
Can you tell me what you mean by crush it?

[Chris Shott]
You know, crushable where you can just ... burgers are meant to be eaten in a sitting. You're not supposed to put it down. Crushable, you know?

[Mio Adilman]
I don't actually know what he's talking about but I tried imagining myself crushing a ShackBurger as my conversation with Chris turns to the old-school, crinkle-cut fries they serve. In the early days, they were the only thing frozen, not fresh on the menu.

[Chris Shott]
Let's take one. I have one right here.

[Mio Adilman]
You're eating a crinkle-cut fry right now?

[Chris Shott]
I ordered this almost an hour ago and let's see how it stands up.

[Mio Adilman]
I can't believe you're eating a crinkle-cut fry in front of me, that's crazy. This is now officially the hardest set of interviews I've ever had to do, having to deal with my growing hunger. And it only gets worse because when I think about New York, I think about the pizza, the Coney Island hot dog, a New York bagel, but not a burger. But all of a sudden, New York now had its own burger.

[Chris Shott]
It's very similar to how West Coasters feel about In-N-Out or maybe people in the D.C. metro region would look at Five Guys.

[Mio Adilman]
A burger made with fresh ingredients while you waited that costs much more than what you were paying for at McDonald's, but Daniela Galarza says people were willing to pay.

[Daniela Galarza]
It was immediately a success. There was always a line. They installed something called the Shack Cam so that you could open up a browser window and see if there was a line. It took off in this sort of cult way, where visitors from out of town had to go to Shake Shack.

[Mio Adilman]
So you know, burgers, a busy takeout stand, lots of buzz. Time to expand, right?

[Daniela Galarza]
In those early days, the first four years, Danny never thought about expanding at all.

[Mio Adilman]
And why is that?

[Daniela Galarza]
He's always been about hospitality and, really, you can't express that same level of hospitality in a quick-service restaurant. You can translate it but you can't do exactly the same sorts of things.

[Mio Adilman]
I totally get that. When I think of amazing customer service, I think about the ultimate dining experience. You might think about a great call center or a really responsive return counter at the store but for me, it's eating amazing food served by extremely dialed-in waiters. But it seems like an experience you have to pay for and the kind of thing where if you scale it, you start compromising on quality. But at the same time that that one Shake Shack location in the park was gaining serious buzz, something else was happening in the larger world of fast food.

[Bonnie Riggs]
The ‘90s was a period of unprecedented growth for the restaurant industry.

[Mio Adilman]
Bonnie Riggs is a restaurant industry analyst and she's talking about the heyday for restaurants. Casual dining restaurants, especially sit-down bar and grills like Applebee's and Chili’s, did really well in the ‘90s.

[Bonnie Riggs]
The need for convenience, especially for dinner and off-premise purchases largely supported industry growth at that time, and it was driven by more women entering the labor force.

[Mio Adilman]
But then something happened in the early 2000s.

[Bonnie Riggs]
We had back-to-back recessions, which were fairly shallow but still caused consumers to re-trench.

[Mio Adilman]
Restaurants like Applebee's and Chili’s took a hit. So did fast food, but another category, relatively new at the time called fast casual, still did OK.

[Bonnie Riggs]
Fast-casual restaurants were positioned as a fresh alternative to traditional fast food. There was a lot attention placed on food quality and service, freshly prepared food that you ordered from the counter.

[Mio Adilman]
Freshness and transparency around the preparation you got at places like Chipotle and Panera met the need for a slightly healthier experience, but those fast-casual places were charging more than your typical fast-food joint and Bonnie just mentioned, you know, the recessions.

[Bonnie Riggs]
Consumers felt that the prices were too high for the value they received from fast food, traditional fast food, but fast casual were perceived to be a better value even though consumers were paying seven, eight dollars at lunch at that time.

[Mio Adilman]
And Daniela Galarza says this was the opening for Danny Meyer and Shake Shack, a chance for new customer experience.

[Daniela Galarza]
I think Danny thought, well, what if I do that but for burgers?

[Mio Adilman]
After six years, six years in a park, Shake Shack slowly started to expand. But what does a team of fine-dining restaurateurs know about starting a burger chain?

[Daniela Galarza]
Well, and he was the first to say: nothing. He didn't have this background.

[Speaker 8]
These folks are not playing any games when it comes to Shake Shack. This line has been forming all morning. I want to say—

[Mio Adilman]
In 2010, Shake Shack opened standalone restaurant locations, not shacks. In Midtown Manhattan, the Upper East Side and in South Beach, Miami. The challenge was, how do you translate some of Danny Meyer's enlightened hospitality to a chain concept?

[Daniela Galarza]
For a lot of big food and fast food, the C-suite level people sort of play musical chairs. CEO of Wendy's is going to be the COO of McDonald's and so they all bring the same skillset to each of these jobs, and this creates this massive groupthink and here's somebody that comes in and says, "I've never done fast food and neither have any of my lieutenants and that's not going to stop us."

[Mio Adilman]
Danny's team, at least for the first many years, had all come from his fine-dining restaurants.

[Danny Klein]
They came in there and they said, "We're not going to make it that cheesy red, yellow, green sort of look of a fast-food burger joint."

[Mio Adilman]
That's Danny Klein from QSR magazine again.

[Danny Klein]
We're going to make it hip and modern and appealing. They were in that early wave of understanding that you can actually sit down in a fast-casual setting and not want to leave in 10 minutes.

[Mio Adilman]
They also rearranged the traditional layout.

[Danny Klein]
So what better way as an operator in Shake Shack's perspective to say OK, we're going to open the kitchen and put it right in front of the guests and you're going to perform like it's a restaurant. You're going to talk to each other and make it an environment that people want to be in. People are going to be able to smell the food coming out of the kitchen.

[Mio Adilman]
The design of the restaurants was a key differentiator. Modern, comfortable, inviting and low friction despite the long lineups.

[Daniela Galarza]
It's a really small menu compared to other fast-food restaurants. It's really easy to see what you want, you order at the counter and you get a little buzzer.

[Mio Adilman]
And Danny Meyer somehow managed to achieve a pretty high level of service.

[Daniela Galarza]
He likes to hire people who come in positive and who are just happy people. There was always someone at the door saying hello to you; this is how he was translating his brand of hospitality to quick service. The cashiers seemed genuinely happy to be there, genuinely excited. You can hire for that sort of demeanor and then you can train them on how to sell wine or how to talk about food or how to cook, and you can't do the reverse, right?

[Mio Adilman]
It also helped that frontline staff was being paid above minimum wage.

[Danny Klein]
They've given equity awards of $10,000 to every GM in the entire system this year, and I've never heard of pretty much anybody doing that and that's one of those things where they're saying, OK; we're going to reward and keep and retain employees so that we can guard that customer experience, and one thing that they do—it's totally unique, too—is that a lot of their employees come internally hired. They promoted upward of 1,100 employees just this past year, which is pretty remarkable for a chain that size.

[Mio Adilman]
The other thing Shake Shack did was not franchise domestically, at least which gave them a lot more control over the store, and each store retained a certain level of autonomy. While they're very clearly Shake Shacks, locations have a few exclusive items.

One example is their frozen custard flavors. In some areas, they also struck agreements with local food providers to maintain things like freshness of ground beef. This really reminds me of an episode we did last year on Trader Joe's, a small- to medium-size national chain that retained its local store feel by offering a lower amount of products, hiring and training super friendly and helpful staff, and allowing individual stores to reflect and interact with their surrounding communities. If you haven't heard that one, check it out and let us know what you think of the comparison by leaving a review here or posting something at zendesk.com/repeat customer, where you can also get tips on how to up your company’s customer service game.

OK, until now we've been looking at a pretty rosy rise from hot dog cart to international chain of about 200-plus locations. A growth aided by a laser focus on customer experience, but that focus has also helped them when things didn't exactly go the way they planned.

The first story has to do with those crinkle-cut fries Chris Shott was eating in front of my face. In 2011, a food reviewer gave those frozen fries a thumbs down, so Danny Klein tells me Shake Shack decided to switch it up.

[Danny Klein]
And they were coming from a good place where they said, let's replace these crinkle-cut fries with hand-cut fries because we're an elevated fast-casual restaurant, and people are going to go crazy for it and the exact opposite happened.

[Mio Adilman]
People did go crazy, as in if you don't reinstate the crinkle cuts, I'm going to go nuts.

[Danny Klein]
Which is one of those things you see all the time where you have to know your customer, and if you change their behavior, they tend to kick back on you saying, ‘Bring back the originals,’ so that's what they did.

[Daniela Galarza]
Danny Meyer is good at admitting mistakes.

[Mio Adilman]
Daniela Galarza brings it back to his neighborhood restaurant background.

[Daniela Galarza]
You know, if you're a casual neighborhood restaurant and you serve gnocchi with tomato sauce every night and somebody comes in every week and has the gnocchi with tomato sauce, you're not going to take that off the menu without some explanation, without some background or you're going to say it's always going to be available to this one guy who comes in every week, we have to take it off the menu to leave room for other things.

[Mio Adilman]
So now when Shake Shack makes larger changes, they test it out on a smaller scale.

[Daniela Galarza]
When they launched their fried chicken sandwich, they did it only at one location at first and for a limited time, and then they did at only a handful of locations. They made sure that they could all handle it and then they ramped it up and then they launched it fully.

[Mio Adilman]
This is totally different from the full-scale new product launches you see at big fast food chains. It's a more methodical approach so they can maintain a pleasant customer experience and not take heavy losses on special equipment, which totally saved their butts in this next challenge.

[Daniela Galarza]
In a location near New York University, Astor Place, they tried kiosks only where you could only order from a kiosk and you can only order with your credit card.

[Mio Adilman]
The idea here was that the mainly young office workers in the area wanted something super quick and easy and didn't really carry cash anyway, but there were a whole bunch of other people who did.

[Daniela Galarza]
And this was a real sticking point because if enlightened hospitality is you anticipate a guest's needs and you were there for the guest in any way that they need you to be, then you accept all forms of payment.

[Mio Adilman]
So now when you go to the Astor Place location in New York, you can order through a kiosk with credit or at the counter, but again, think about what could have happened if they bought a bunch of cashless kiosks and placed them in multiple stores. Nightmare. But controversy aside, this experimentation with tech was vital because as successful as fast-casual restaurants have been, a new challenge has cropped up for Shake Shack and the overall industry.

[Bonnie Riggs]
Fast casual came on the scene in the early 2000s. At that time, they only had a one percent share of total industry traffic. Today, they have a share of six percent which doesn't seem like much, but six percent of 62 billion visits is a lot of visits.

[Mio Adilman]
That's Bonnie Riggs again, the restaurant industry analyst with some good news/bad news, because that six percent of the pie for fast casual is great but the pie itself is shrinking. Why is that happening?

[Bonnie Riggs]
We have more restaurants than we have bodies to fill them. There are 647,288 restaurants in the U.S.—that's a lot of restaurants.

[Mio Adilman]
And the people who are still eating at those restaurants want to do it differently.

[Bonnie Riggs]
It's changing consumer lifestyles that are having a major impact on the restaurant industry. You have to have a strong digital platform, consumers want to be able to order, pay, and then go pick it up if you don't have delivery.

[Mio Adilman]
So as Shake Shack grew, they had to rethink the way they interacted with their customers, but again, this is not something you really have to think about in fine dining.

[Danny Klein]
If you go only back two years, they didn't have delivery. They didn't have a mobile app, they didn't have mobile ordering.

[Mio Adilman]
Whoa, that seems really late to be getting into digital.

[Danny Klein]
They introduced ASAP ordering, which is something you see in pretty much any fast food restaurant order now where you order and then you get to go skip the line so they introduced that in early 2017 and it now accounts for 70 percent of all orders placed through their app.

[Mio Adilman]
So Shake Shack was playing a bit of catch up, but once they did, they noticed something.

[Danny Klein]
What happened was, though, was they kind of realized the app experience itself was subpar and the main thing that they wanted to do was make it easier to checkout.

[Mio Adilman]
Basically, they realized restaurant tech needed to catch up to their enlightened hospitality.

[Danny Klein]
So they redesigned it with a series of sprint-based designs to reduce the number of taps it takes to purchase by roughly 50 percent.

[Mio Adilman]
Wow.

[Danny Klein]
Every retail company is trying to get you to the checkout quicker, but you don't hear about that in food too much, but in Shake Shacks, they actually think about stuff like that. So another thing is they added...guests can now favorite past orders and quickly reorder; Subway does that too. Another thing was that they really wanted it to become a personalized experience which again, is very different than your typical sort of restaurant app. App-exclusive menu items, special offers, local deals where they can one to one market with you. You're looking at an app for a restaurant that treats you like they're curating to your behavior. The changes they made with their app this past year were perfect, kind of wrap up what they do and how they think about customer experience.

[Mio Adilman]
So I'm in New York City, I'm standing right outside the Shake Shack at Astor Place and I'm just about to go, and I've never been to a Shake Shack before.

[Speaker 9]
Welcome to Shake Shack.

[Mio Adilman]
So after talking about burgers for what seemed like forever, I had to go check one out, and my hands were shaking, I was so hungry as I walked into the Shake Shack. I was welcomed right away by people who did seem happy to see me, and I ordered from a kiosk, which is something they also have at the McDonald's near my house but this kiosk sent me a text message saying it had my order, and it texted me again when the food was ready.

[Speaker 10]
Mio. Hi, Mio.

[Mio Adilman]
Hi.

[Speaker 10]
I have a double burger and a black-and-white shake. Thank you, Mio, have a good day.

[Mio Adilman]
You, too, thanks.

[Speaker 10]
Three up.

[Mio Adilman]
On one hand, all of this seems like a pretty mundane purchase but it's also incredibly smooth which is probably the point. A hassle-free, frictionless experience, but the very not-mundane part is this double ShackBurger with Shack Sauce, lettuce, tomato, American cheese, and I freestyled some bacon it. It was totally crushable. I looked around wanting to share this experience with someone but the guy next to me was in his own little happy trance. He dipped a crinkle-cut fry into a cup of extra Shack Sauce, then he put the fry in his burger before taking a big bite. I looked back at my burger and thought about the kind of incredible amount of CX that had gone into it. I mean, Shake Shack definitely benefited from some good timing and favorable market conditions, but so many lessons here.

Invest in your staff to maintain quality, stay as local as possible, don't grow too fast. Not every fast-casual chain has survived by scaling too quickly. Look to adjacent customer experiences to inform your own—in this case, they actually translated some fine-dining principles and, really interesting, offer your customers not just value, but the value they want. This last point, or at least an element of it, also relates to this dating app I've been following called Hinge which a couple years ago, realized its members were willing to do a bit more work in order to trade quick hookups for lasting relationships, so it got rid of swipes and totally redesigned the app user experience.

So the customer experience of dating apps is what we'll look at next time. Until then, thanks for listening.