Shake Shack 2016 Annual Report Download - page 15

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Table of Contents
promote our brand through word-of-mouth. We believe that this outsized brand awareness will continue to fuel our growth in existing and new markets.
Growing Same-Shack Sales
Given the significant awareness of our brand and the excitement we have been able to generate for our market launches, our Shacks have generally opened with
higher volumes and operating profits relative to their second year, following the strong initial honeymoon period. In year three, our Shacks generally mature and
continue to grow from the second year base and then retain these higher volumes over time. We expect our Shacks to deliver low same-Shack sales growth for the
foreseeable future as the number of new Shack openings relative to our comparable Shack base remains our primary driver of growth. We do, however, continually
focus on improving our same-Shack sales performance by providing an engaging and differentiated guest experience that includes new seasonal and Shack-specific
offerings, unique and thoughtful integration with local communities and high standards of excellence and hospitality. We will continue to innovate around our core
menu to keep our offerings fresh, while remaining focused on our signature items.
Opportunistically Increasing Our Licensed Shacks
We will continue to grow our licensed portfolio by expanding further domestically, 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 opened our first Shack in Tokyo, Japan in November 2015 in the renowned Meiji-Jingu Park. This
opening was a true demonstration of the strength of the Shake Shack brand outside of our core international markets, as guests were camped out overnight, with
over 400 people on line when the doors opened. In December 2015, we announced plans to enter South Korea with a new licensed partner for the development of
25 Shacks over the next 10 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 as our team, development
opportunities and supply chain matures.
OPERATIONS
Sourcing and Supply Chain
Shake Shack has always been committed to 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.
We pride ourselves on sourcing premium ingredients from like-minded producers—all natural proteins, vegetarian fed, humanely raised and source verified, with
no hormones or 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 ingredients, including beef patties, potato buns, custard, Portobello mushrooms and cheese sauce. In fiscal
2015 , we purchased all of our (i) ground beef patties from five suppliers, with approximately 76% 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 67% of our 'Shroom Burgers
supplied by one supplier and (v) ShackSauce from two suppliers, with approximately 92% 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.
13 | Shake Shack Inc. Form 10-K