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Why a burger chain with only 68 restaurants is worth almost as much as Wendy's
(Christian Storm/Business Insider)
The newcomer burger chain Shake Shack is worth almost as much as Wendy's.
"Wendy's has 95 times as many units. It is 12 times Shake Shack's size in terms of revenue. Yet, in terms of market cap, they are relative equals," writes Jonathan Maze at Nation's Restaurant News.
Shake Shack's market capitalization is $3.4 billion, compared with the $4.18 billion of Wendy's.
A single Shake Shack location is worth nearly $50 million. That compares with about $10 million for a Chipotle location and $3 million for a McDonald's restaurant.
So why is Shake Shack's valuation so high?
Because investors believe it has huge growth potential.
"To be sure, investors are betting that Shake Shack will grow to become the size of a big chain some day — though the company itself says it plans to grow only to about 450 locations in the U.S., which will make it something of a destination fast-casual concept, rather than an everyday lunch place," Maze writes.
Shake Shack's high-quality, ethically sourced food and excellent customer service have drawn many comparisons to Chipotle, which has seen business explode in recent years.
While McDonald's and Wendy's are trying to emulate Shake Shack's strategy, they are a long way from being able to offer a similar experience.
(Burger Business ) Wendy's has tried to appeal to millennials, who are increasingly turning away from fast food.
Shake Shack's burgers are more elevated than the offerings at the typical fast-food burger chain, thanks to the 100% antibiotic-free Angus beef and buttered buns. Toppings include Applewood-smoked bacon and cherry peppers. This experience aligns with the values of modern consumers, who are demanding better food quality.
The New York Times calls Shake Shack the "anti-chain chain," saying that its dedication to quality and customer service bucked stereotypes of traditional fast food.
Shake Shack spends barely any money on marketing, focusing instead on the quality of food. This message has helped Shake Shack stay popular in an era when diners prefer Chipotle to McDonald's.
Shake Shack "disposed of the notion that fast food had to be precooked or even prepared quickly in favor of quality ingredients and customer experience," QSR Magazine writes.
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