Chief Future Officer: Katie Fogertey, Shake Shack

was an analyst covering our stock. The day that I knew I was looking for a new CFO, the day that I announced it, I went to our recruiter and I said, what about Katie foger I remember working with her? Do you think she might be interesting this? That same day, she had heard about it and went to her family and said, this is the job I want. Literally that same day. It was something that you know, I always wanted to take a more of a leadership role at

a company. We hit it off. Katie Fogerty spent the first part of her career asking hard questions about corporate strategy. Now she's responsible for answers. I think that there's a number of things that a cell side research analyst can lend to a company, especially to a company that is

in you know, high growth mode. One. It's just really a very firm, you know, ability to analyze strategic decisions, um to really get into the numbers, into the models, and to have a firm view of different scenarios out there. When those Wall Street executives move into the company seat, they bring an understanding, hopefully of the fundamentals company sector, but also what it means to be a stock. The total stakeholder perspective includes shareholders. How are we measuring the

incrementality of a great offer like this? Katie's skill set so uniquely is able to harvest in her mind so much data and information turn it quickly into tremendous insights that end up driving our strategic priorities. That is her sweet spot. I look at a CFO from Wall Street as someone who can bring a breath of fresh air to a business that often can become very in brid They're extremely grounded in data, They're curious about data, They're pushing the data. They know what to do with the

data and tie that into telling the story. There's a reality check that Katie brings to the business to say, you know, and I know, I think, I know you think this, but let me tell you what the data is really telling us here. She's still looking at data to predict the future. Only now she's taking it a

step further. Before it was a lot of kind of sitting almost in an armchair type basis and and and analyzing different and now, you know, pieces of information to see where I thought the best investment dollar would be allocated. Here it is actually driving a plan of how we

can best maximize shareholder returns. It is about leveraging data analytics, driving real insights through you know, not just your own guest data, but leveraging statistical models UM and and really kind of figuring out where the best strategic decisions will be made over time. This is an industry that really needs that type of analysis. That helped the Strategic vision UM now more than ever, and so it was incredibly exciting to start to apply that here at shake Shack.

Shake Shack began as a humble hot dog card in New York's Madison Square Park. It opened his first restaurant as a kiosk in that park in two thousand four. A decade later, there were more than sixty shake Shack restaurants around the world, and in early two thousand fifteen, the company went public. At the end of one shake Shack and its licensed partners operated nearly four hundred locations and sixteen countries. At least sixty more are expected to open by the end of We always feel like we're

just getting started at shake Shack somehow, you know. We kind of describe ourselves as a public startup. We have a huge footprint and white space out there that we can grow globally, and we're going to continue to do that. The pace of expansion is nothing new for this company, but maybe different is the shape. Shake Shack has thrived in high density urban locations, which provided revenues before the pandemic but returned to office patterns during COVID have been unpredictable,

hampering sales growth in cities. Now shake Shack is exploring new formats as it extends its footprint in suburbs. This is not just a reaction to COVID. This is the stuff that we've been working on before. What COVID did was accelerated the pace and excitement. Frankly, for some of the things that we've been planning before, drive through amongst them as the most important. We were right at a pivotal moment of thinking drive throughs were obsolete, and then

COVID hit and it was a saving grace. When you get out into the suburban areas, drive in becomes incredibly important because that's convenience and if a significant percentage of your businesses drive up, you need a smaller facility so the can be smaller. This is the first time the company has ever you know, put in and drive through. We opened up our first one in December of last year.

We have six open, very exciting stuff. Drive through lanes offer long term opportunities to build revenue and increase margins, but right now they carry a higher price tag. Overall, we've seen an you know, arise in our build costs. We talked about ten to fifteen percent higher build costs across the board. Things are just costing more um. It makes site selection ever more important. It makes all of the work that we do in real estate and that

whole process, you know, incredibly more important. Since Katie Fogerty became CFO of shake Shack in June, inflation has risen at a record rate, making her job that much harder. Everything that enters our business, commodities, foods, cost of building restaurants is getting more expensive. I don't see that ending anytime soon. How that We've got to continue to plan

for it. And if you look at the price of beef, if you look at the price of dairy eggs, of these core things in paper and packaging, it's just meaning that everything costs us more and more and more. And we're not alone. This is happening to the entire industry right now. The industry is also dealing with a sea change on the labor front. Hourly wages have soared and the Great resignation has hit restaurants hard. Labor costs aren't going down because of the training and turnover at the

thirty sixty and ninety d mark. UM. If someone you know can even figure the job out, do they stay? And and that's still not under control whatsoever. UM. So, while maybe like the actual wage inflation can taper, turnover and training costs are still elevated. We've invested more than ten million dollars in our employees over the past year

and we're gonna continue to invest more. We're testing four day work weeks to help you, especially our working parents, kind of juggle that balance between childcare and your work. I know I deal with that all the time. This is really a people first company. UM. In the even an inflationary environment, you're going to see us contain you

to lead with our people. Do you worry at all of that a price wage spiral not just here but in the industry, in the economy, Yes, And I think that you know this is is something that you know many business leaders are focused on um and you know time will tell kind of how all of this lands. I think the wage probace spiral continues for quite some time, and I think we probably have been a lot less aggressive than we can be, and then many other companies

have been in terms of raising crisis. We've taken our time. If you look at a twenty year history of pricing in this company, we've taken about two percent a year on average. We've never taken what we could. We've always taken what we should. We have to pay people more.

We have been and we'll continue to do so. We'll take a little bit of a margin compression on that as we've had to, and I think that's the right thing so that for the long term, shake Chack continues to be what we're building, which is the next generations burger joint. Shake Jack margins have come down from pre pandemic levels at the same time, the companies can act. Position has improved during COVID. We actually took two opportunities to raise capital. We have a fortress balance sheet like

we've never had before. Good timing, good planning. So when we use that money, we're looking for a great return. The area with the highest potential return is right in

Katie Filgrity's wheelhouse, advancing Shake Shacks digital transformation. It's amazing to sit here and think that this is a company that had essentially hardly any digital sales prior to the pandemic um And when the pandemic hit, we went full force on digital with the app, web, with third party delivery um And here we are now with you know, of our sales still coming from digital channels, even as our in shack business has doesn't count the kiosks, right,

that does not count the kiosk When what kind of investment was that? Was it a home run? Is that something where you're like, Randy, this paid off big time? Well, it's something that we continue to invest in and we continue to see opportunities to improve our app, improve that guest experience, improve you know, the ways that we're incentive by using our guests to really lean into our digital channels.

If you simply, you know, kind of look at what the higher frequency we get from those digital guests, moving more and more of them into the channels, and continuing to invest to drive frequency of that base. It's a really good recipe for strong long term traffic growth. From its early days as a kiosk in Manhattan's Madison Square Park,

Shake Shack's brand has combined simplicity and style. The menu features classic items with a creative twist, while the ingredients and service are a significant step up from fast food. The concept was an instant success, but maintaining growth and staying relevant comes to the complex set of pressures. We've come out of the pandemic with a new world and where something that might have been an evolutionary change has

been a revolutionary change. We've made changes to the way we eat, We've made changes to the way we operate that might have taken years have been compressed into months and days. The role of CFO in a company like ours that's so dynamically growing, so constantly changing and focus on digital is critical. Katie plays such an amazing role there. She's not just moving numbers around, you know, this is

not your grandfather's CFO anymore. The digital infrastructure, the way we think about things now, is a monster that needs to be fed all day long, every day and is always hungry. And you could probably have a hundred and fifty digital priorities today that all our teams will fight about. Ops wants this, tech wants this, Marketing wants this, I

want this, Katie wants that. Katie's job is to take all that prioritization, think it through, understand which one is going to have the best return on capital and which ones have no return on capital, and you still got to do them anyway. That's the reality of the world we live in right now, and it's it's critical to lead that in the right way. I visited a Manhattan

Shack with Katie Fogerty. Our first stop inside the restaurant was an order in Kiosk, and on the burger side, you can see the option here for the bourbon bacon jam burger with shallots on top, the avocado bacon burger, as well our beloved smoke Shack. The Kiosks are an investment in engagement. We just see a guess kind of sit with the menu and really appreciate and understand how they can customize their order or the different add ons

um that they have. So we really do believe that this provides them with an even better experience than going to the cash register. What's the payoff, I mean the cost to put one of these in compared to how much more a customer spends on the kiosk. We do see a very nice lift off of the kiosk um And actually this is not even uh, you know, very fancy kiosk technology. It's an iPad, what has more investment tied to it. It's just the constant innovasions that we've

had to make the kiosk functionality better and better. And you know, we're driving towards kind of a parody situation where the key us and the cash register have exactly the same functionality, and we want the kiosks to be able to identify who you are and what you like to order when you come into the shack. Improvements like these take resources shake shacks. General and administrative expenses have risen as the companies put capital behind digital initiatives and

the changes ripple out from there. As our digital evolution has been underway, we've had to make a number of adjustments to the layout of our current existing shack base and really rethink the flow of the shacks that we're building in order to really capitalize and enable and let our digital business thrive. And many shacks we've taken out cash registers, We've moved them around. A lot of times it's two or three cash registers that are just taken

down to one. We've had to really rethink the way that the flow of our guest journey is in our shack. So one perfect example of it is we put in pickup shells here UM at most of our restaurants. Guests who are looking for that to go experience can come in and pick up the work her to go and they don't have to sit there and wait with everybody else who is who is waiting for their UM, you know,

food ready to be made. We are constantly monitoring UM and identifying ways to be better in the kitchen UM and it also goes down to the products and the types of offerings that we have. You know, we never want to have something that is going to overly complicate our team member's journey. UM. We don't want to have

something that's going to slow us down operationally. So you'll see a lot of our l t O is just really be building for menu ingredients and allowing our teams to kind of do a little bit, you know, different with what we already have LTO stands for limited time offer. It might be a special shake flavor, or partnerships like a recent venture with distiller Maker's Mark. But Shakeshac's core offering is the burger, and it's not just any burger.

The company pledges the source premium meat that's ethically raised and cost more even when inflation is not at historic levels. I've heard a lot about the importance of the quality to you guys in terms of ingredients. Doesn't that get expensive, especially right now? Quality beef must be uh, you know, in rising rising in terms of price. I mean, we've always used premium ingredients, and those premium ingredients they come

at a higher price. We always have an eye on the margin um, but we know also at the end of the day, you're running a very dangerous game. If you're trying to reverse engineer into something that you know you want from a p m L standpoint, the guests might not like it. J Chack standing firm on quality. It's also practicing transparency. Announcing plans to raise menu prices by five to seven percent in the fourth quarter of shake Shack is the best example the definition of a

fantastic value proposition. However, not all customers across this country have you know, that change in their pocket to pay for that average to get at lunch or dinner. And I think they're very comfortable with that, and I think it's very interesting and very different than what others are doing. I mean, it is who they are. They're not trying to escape it. They're not trying to be something they're not.

And the fact of the matter is if they picked a different path, and it's fine, it would be hard to pivot back. We are serving fresh home muscle hormone antibiotic free beef. That is a totally different thing than you're going to eat at nearly all other restaurants, certainly traditional fast food, and you've got to pay more for that,

and you should want to. And when you see things like ten for dollar or two for five dollars, we can't do that because our ingredients cost more than that to bring it to you, and you should want to pay more for that. And frankly, who am I to argue from still crunchy to big until crunchy. I like that, it's delicious. I might finish this. Nearly of Shakeshack locations in the US, our company operated around the world. It's a different story. The business has grown internationally by working

with licensed partners to operate restaurants. That's a trend they intend to keep going. Today we have shake Jacks in sixteen countries everywhere from China to Singapore, to the Philippines to London and beyond. We see it. There's a huge white space opportunity for US. Many restaurant brands struggle to move outside of their own core market in the United States. Perhaps it's something that's very New England, and when they try to move outside of the New England area, guest

reception is just not there. Or it's a West Coast brand that takes fifty years to bleed across the country. The thing about shake Shack and the magic about it is this is a company that can sit here with only two hundred restaurants in the US today, open up one in a Tier two city in China and the guest reception for that restaurant is mind blowing. These are some of the largest opens that we've ever had. We have big plans for our licensed business. It's a really

asset light ashecretive business for us. We love it and we love it when our partners overseas make a ton of money because they're gonna build more restaurants. We're gonna all continue to grow. I mean, there's so many opportunities for us to add to our licensed business. And certainly I get so many text messages from people traveling the world if there is a shake Shack there, guess which one this one is? And if there's not one, why

don't you have one here? The first shake Shack in mainland China open in two thousand nineteen, and there are now more than twenty. Although the government zero COVID policy has weighed on revenues, the company is committed to expanding its presence. China is a fascinating business for us. It's it's one of the most exciting, biggest opportunity to Shapshack has over the initial a couple of years of the pandemic, they fared much better than we did here and much

better than most places around the world. Today. It has been erratic, it's been lockdowns, it's been closures. But here's what's Here's what's amazing. The resiliency of the Chinese people. Our team over there is unlike anything I've witness. It is one of the toughest places to do business in the world. But our brand seems to be really resoning with people over there right now, and I see it as one of the biggest areas of growth. We have

a shape chair. Restaurants haven't been resonating with Wall Street recently. The sector has underperformed the SMP five for much of twenty two, but the industry is historically resilient. Restaurants are undervalued right now. As a person who has been following restaurants since I had hair, I think restaurants are probably the most flexible and most creative of businesses that we have. The routine and the social engagement happens at restaurants and

that's not changing. Just because we may or may not go into the recession, it just isn't going to change, and so the restaurant stocks will rebound. This industry is the third largest employer, you know, all the population of workers in this country. This is like the fabric of the economy and the economy will rebound and restaurant stocks will go up. If you want to trade in and out of shake Shack, you know you you just may

not be the time for you. If you are a believer in the brand of shake Shack for the long term, like we are and have been, We're going to create tremendous value for our shareholders over time. We've done that. Shareholders should measure us on are we building things for the long term? And from me here for the long term, my senses, shake Shacks will be good bet. One of shake Shack's long term assets is a bright new CFO, Katie Fogerty, now has a year of experience under her belt.

I wanted to know what she sees when she looks ahead. What's the opportunity for shake Shack in the next ten years that excites you the most? I have to say it is in watching our people grow and develop. Um I see a very strong growth roadmap here for the company in terms of units and and sales potential. But what that really means at the end of the day is that our hourly team members are able to grow a career with us in a way that it's unique to shake Chack and cannot be found at many other

restaurant brands. We have a number of people who started off as hourly team members and are now making six figures and have equity because they've grown up through this the system and they're paying it forward by training other people to allow them to have such a great career path as well. What's the challenge over the next ten years that keeps you up at night? It also goes with people. UM. It has been a very challenging staffing

environment for the restaurant industry as a whole. UM. It's been well telegraphed that you know, some people have just left the industry altogether. UM. And so you know, we know when we have high turnover, we're not operating at our best UM. And so I do think that there's an amazing opportunity that once kind of the world stabilizes and returns you back to normal UM, that we have people considering the restaurant industry as more of an exciting

long term career. In terms of your role as CFO, how do you see that or your role with this company changing and developing over the next ten years. I think that you know, it becomes ever more important to have a great grasp on the insights that are driving business, on the factors that are driving your business UM, and you know that's very important for CFO to do, but also to collaborate with other business leaders within the company UM to help, you know, kind of cross pollinate strategies.

You know, whatever I do in a vacuum is not going to be nearly as impactful as our entire executive leadership team coming together and acting on something. And I think that that is ever more apparent sitting on this side of the table than it was on the other side as a well street analyst. Speaking of that, what skill or what area of knowledge do you think has helped you the most in your first year of CFO m hm. I would say just a lot of grit.

This has been a very challenging industry for sure. UM. I never thought it was going to be easy, and it's proved to be quite the learning opportunity coming in every day, just excited to learn something new, UM and make a difference wherever you can, knowing that I'm sitting here with a team of people growing a company that will potentially have an impact on a number of people's lives going forward. So what advice would you give someone else then, who maybe is watching and gets promoted to CFO.

What advice would you give to a future CFO. What advice would I give to a future CFO? UM? I guess it would just get into the details, super super deep UM and really kind of understand and ask a lot of questions. Peel the onion. UM. I think a lot of people just don't go deep enough and don't ask the questions so that you actually cannot you know, if you if you're not versed on what's going on, you can't find root cause and you can't dry change UM. So you know, I would say, get into the details,

have an open mind. It's an incredibly fun job for sure, working with people who are coming you know, everybody's aligned here to drive the future of shake Shack, but everybody comes at it from a different angle. So it's very exciting to work with an amazing team of people. I'm Matt Miller, this is Bloomberg stopt