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Shake Shack's Canada offering 'kind of cute' in crowded fast-food market

CHICAGO, IL - JANUARY 28:  In this photo illustration a cheeseburger and drink is served up at a Shake Shack restaurant on January 28, 2015 in Chicago, Illinois. The burger chain, with currently has 63 locations, is expected to go public this week with an IPO priced between $17 to $19 a share. The company will trade on the New York Stock Exchange under the ticker symbol SHAK.  (Photo Illustration by Scott Olson/Getty Images)
Tuesday's announcement confirmed the flagship restaurant's location at the corner of Yonge and Dundas Sts in Toronto. (Photo Illustration by Scott Olson/Getty Images) (Scott Olson via Getty Images)

Shake Shack’s confirmation Tuesday that it will open its first Canadian store this summer at a busy downtown Toronto location is a big deal for devoted fans of the chain, but probably not for other fast-food giants in the country.

A tweet last year from Shake Shack announcing its move into Canada implied that no other country has clamoured so loudly for an outpost of the New York City-originated burger joint. But experts say the modest plans for 35 restaurants by 2035 won’t exactly fill Canada’s crowded quick-serve restaurant (QSR) industry with dread.

“This is just another offering that's kind of cute for some segment of the population,” said Mark Satov, a strategy consultant. “I don't think anybody cares. There's lots of room.”

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Shake Shack first announced its Canada plans in March 2023. Tuesday's announcement confirmed the flagship restaurant's location at the corner of Yonge and Dundas in Toronto, and announced a "Toronto-exclusive" shake (maple salted pretzel, of course), but the exact opening date has still not been set.

Global expansion is one of Shake Shack’s growth strategies. Its domestic U.S. outlets are a mix of licensed and company-owned operations, but all of its non-U.S. outlets are run by licensed partners. At the end of 2023, Shake Shack had 223 licensed restaurants, 184 of them international.

Partnering with local investors willing to pay for the cachet of the brand means Shake Shack takes on little risk and gains access to people who understand the landscape intimately, Satov said. “They have access to landlords, they know the spots, they know the retail game and they know labour. They know how to work it in Canada.”

In Canada, Shake Shack’s partners are Osmington, a Toronto-based private commercial real estate and investment company owned and controlled by media magnate David Thomson, and Harlo Entertainment, a division of Harlo Group that operates and invests in hospitality properties.

Shake Shack makes money through a percentage of sales at the licensed partners’ restaurants, and through territory fees, “payment for the exclusive right to develop Shacks in a specific geographic area.”

In 2023, the company’s licensing revenue rose 30.4 per cent to US$40.7 million from US$31.2 million the previous year.

The Canadian fast-food sector is crowded, but restaurants can differentiate by what they offer, what they charge, the time of day they target and where they're located, Satov said. The industry is also fairly "recession proof," he noted. Someone might not buy a luxury sweater because of money concerns, but "they're still gonna get their coffee every day on the way to work."

There’s a lot of segmentation in the burger market, and Shake Shack is likely targeting a premium niche with a handful of outlets in very strategic locations in Canada’s major cities, retail analyst Bruce Winder told Yahoo Finance Canada.

“They're not trying to get growth at all costs,” he said. “They're trying to grow in a nice profitable way where they can keep a nice premium price point, and not sort of get down and dirty with the other quick-serve restaurants on price.”

Interest in premium burgers has grown in recent years, Winder says, and younger consumers “seem willing to pay more for … something that's different than McDonald's or Burger King.”

It would take a lot more to catch the interest of those QSR giants than Shake Shack’s plans to reach 35 outlets in Canada over a decade, Satov said. “If a food retailer came in and said ‘We're opening 1,000 locations and 700 of them are going to be within 500 feet of a Tim Hortons,’ that would be interesting.”

But the “hyper-local” nature of QSRs means a Shake Shack could theoretically have an impact on an existing restaurant within a block or two, but not much beyond that, Satov says. “The draw radius for QSR is not the same as it is for a movie theatre. It's not the same as it is for an apparel retailer. It's not the same as it is even for a large mass retail at Walmart or Canadian Tire.”

John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.

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