Danny Meyer’s Shake Shack, the upscale burger chain that has staked its success on the willingness of fast food consumers to spend a few dollars more for higher quality ingredients and better-compensated workers, has made good on its promise to hike prices in 2016, raising menu items anywhere from a couple of pennies to a quarter. The increases will help the billion dollar company continue its policy of paying staffers above local minimum wages, which are rising to $10 and beyond throughout the country, and which are pushing up food and beverage prices at restaurants everywhere.
The classic ShackBurger, according to new menus posted on the chain's website in December, has risen by 10 cents to $5.29, while the Shack-Cago dog, with spicy peppers, relish, celery salt and mustard, has jumped up by a quarter to $4.25. Fries went up by four cents to $2.99, and so did shakes, which will now cost $5.29, putting them at parity with the marquee burger. The vegetarian portobello patty, fried and stuffed with cheddar and muenster cheeses, will stay at $6.99, maintaining its status as the most expensive single-size sandwich on the menu. The New York City-based company announced its plans to raise prices during a quarterly earnings call in November.
These increases are modest by any standard, and the ShackBurger is still cheaper than some of its fast casual cousins (i.e. takeout spots that are more expensive than McDonald’s yet more affordable than sit-down restaurants). For example: The Five Guys cheeseburger, $7.99 in New York, is more than $2 pricier than its Shack counterpart, while Chipotle’s massive steak burrito, at $9.19 in NYC, is a over a dollar more than the double ShackBurger, at $8.09.
But any hike, even if it naturally produces higher sales, can end up causing some customer attrition at the margins, especially for those who might’ve been stretched – if not necessarily dissuaded – by Shake Shack’s previous hikes. This is the third time the chain has raised prices in a year and a half; the ShackBurger was $4.75 in mid-2014.
How consumers react to these cumulative hikes will help Shake Shack determine how much flexibility it has in raising prices to pay workers more. The company stated in its 2014 public offering that it "has historically provided a starting wage that is above the minimum wage in place for that particular state," a maxim that chief financial officer Jeff Uttz repeated in November. So in Washington, DC, where the minimum is $10.50 per hour, workers earn $12, while in Austin, where the minimum is $7.25, staffers earn at least $11 per hour.
Of Shake Shack's 49 domestic locations, 32 are located in cities or states that have increased their respective minimum wage within the past year, or that are scheduled to do so in the coming months. Of those 32 establishments, more than half are in New York, where a higher minimum wage for fast food restaurants went into effect at the year's end – $10.50 in the city and $9.75 in the rest of the state, with both of those rates set to reach $15 in the coming years. So as wages rise, the chain will need to continue paying its workers more if it hopes to maintain an edge on hiring. Accordingly, workers in New York now make anywhere from $12 to $13.50 per hour, Shake Shack tells Eater.
Also relevant: Even though 1 to 2 percent price increases are impressive in the wake of rising minimums, particularly the 20 percent wage hike for workers in New York, Shake Shack said last year that labor as a percentage of revenue would continue to increase going forward. Translation: The chain's price hikes aren't fully covering the costs of its rising pay scale.
The food service industry employs most of the country's minimum wage workers, according to the Bureau of Labor Statistics, and within that sector fast food jobs are typically among those that pay the lowest hourly rates. Fast food cooks in Texas make about $8.58 per hour – under $18,000 per year, while in New York they make $9.33, a number that will change with the new fast food minimum that went into effect on January 1.
*Note that Shake Shack prices will be higher at JFK, CitiField, National Park, and Saratoga Springs Racetrack. Prices for beer and wine are marginally higher in Las Vegas.