Shake Shack 2015 Annual Report Download - page 12

Table of Contents
Opportunistically Increasing Our Licensed Shacks Abroad
We will continue to grow our licensed portfolio by expanding further in the countries in which we currently have internationally licensed operations, as well as entering new
international markets. This strategy historically has been a low-cost, high-
return method of growing our brand awareness and providing an increasing source of cash flow. In December
2014, we entered into an exclusive licensing arrangement with a leading retail and food operator for the development of up to 10 new Shacks in Japan over the next five years. We
believe there are additional international markets that will embrace the Shake Shack concept. Given our position in New York and the success of our current licensed Shacks at home
and abroad, we continue to attract substantial interest from potential international licensees around the world and we believe we have significant opportunities to expand our licensing
footprint in existing and new international markets.
OPERATIONS
Sourcing and Supply Chain
Shake Shack has always been committed to seeking out and working with best-in-
class suppliers, artisanal purveyors and cattle ranchers. Our Stand For Something Good vision guides
us in how we source and develop our ingredients, always looking for the best ways to provide top quality food at an excellent value and accessible to all. All of our proteins are raised
without added hormones and we never use antibiotics.
We have a regional strategy for ground beef production to ensure that we are always serving freshly ground and never frozen beef. We have had the same butcher for the New York
City metropolitan area, Mid-
Atlantic and Northeast Shacks since opening our first Shack, which helped create our proprietary beef blend. We will continue to partner with and develop
regional suppliers in new markets as we grow.
We have a limited number of suppliers for our major products, including beef patties, potato buns, custard, Portobello mushrooms and cheese sauce. In fiscal 2014
, we purchased all of
our (i) ground beef patties from five suppliers, with approximately 88% of our ground beef patties supplied by one supplier, (ii) potato buns directly from one supplier, (iii) custard base
from
one supplier, (iv) 'Shroom Burgers from two suppliers, with approximately 50% of our 'Shroom Burgers supplied by each supplier and (v) ShackSauce from two suppliers, with
approximately 89% of our ShackSauce supplied by one supplier. We have developed a reliable supply chain and continue to focus on identifying alternative sources to avoid any
possible interruptions of service and product.
Distribution
We contract with one distributor, which we refer to as our "broadline" distributor, to provide virtually all of our food distribution services in the United States. As of
December 31,
2014
, approximately 88% of our core food and beverage ingredients and 100% of our paper goods and chemicals, collectively representing approximately 45% of our purchases, were
processed through our broadline distributor for distribution and delivery to each Shack. As of December 31, 2014, we were utilizing nine affiliated distribution centers to supply our
domestic company-operated Shacks.
We recognize that the safety and consistency of our products begins with our suppliers. Suppliers must meet certain criteria and strict quality
control standards in the production and delivery of our food and other products. We regularly evaluate our broadline distributor to ensure that the products we purchase conform to our
standards and that the prices they offer are competitive.
Food Safety and Quality Assurance
Our commitment to food safety is strengthened through the direct relationship between our Supply Chain, Culinary and Quality Assurance teams. All supplier and ingredient decisions
go through a review of the supplier's internal and external quality audits, insurance coverage, track record and physical site inspection. We have a Food Safety Site Inspection process
in place and a dedicated Quality Assurance team to ensure food safety across all domestic company-operated Shacks.
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