Shake Shack: 2014's Hottest Restaurant IPO?

Shake Shack is more than America's latest gourmet burger sweetheart. It could be the hottest restaurant IPO of 2014. After all, nobody wants to miss out on the next Chipotle. The Denver-based burrito dynamo started out at $42 per share in 2006 and trades at $684 today, even as they continue to raise their menu prices. Following in the cause-oriented, fast-casual footsteps of savvy restaurants like Chipotle and Starbucks, Shake Shack stands a chance at greater fame and fortune by continuing to appeal to millennials but also by opening up to investors.

While Shake Shack may not catapult to the same height of restaurant stardom as Chipotle, the burger chain is definitely due for a big pay day. That would be a well-deserved win for majority owner Danny Meyer of Union Square of Hospitality when the restaurant goes public.

So here's what Shake Shack has going for it:

Shake Shack has a lot of momentum due in part to its story. In 2001, Shake Shack originated as a sweet little hot dog cart in Manhattan's Madison Square Park, the culinary wingman to the park conservancy's first art installation. Obviously it didn't end there. In 2004, the cart became a permanent kiosk in the park, expanding its offerings to include burgers, frozen custard, shakes, and even beer and wine. Right now gourmet burgers are hot, especially on the fast-casual scene. Five Guys is currently the largest out there, with 1,000 active restaurants and 1,100 in development. Yet Shake Shack has four times the annualized unit volume (AUV) of Five Guys. It even has twice the AUV of the ol' Golden Arches, McDonald's.

Shake Shack has also garnered attention because of its anti-chain-chain feel. Their menu is small and focused, with just 14 items versus the average chain's 90 items. With $4 million AUV, that's $285,000 per menu item versus the $2 million AUV and $22,000 per menu item earned by the average chain. That's some nice math. Here's Shake Shack's intriguing challenge: The bigger they get, the smaller they need to act. Why? The emerging consumer sentiment is that small rules and chains drool.

The traditional chain's strength—size—has become part of its weakness; they've become too large, impersonal, and disconnected from their communities. In the case of Shake Shack, each of their 25 locations tries to mimic its surroundings. Menus are tailored to each place, meaning that eating at a Shake Shack in Washington, D.C. is not the same at eating at a Shake Shack in Dubai. You won't get that experience at Applebee's or Red Lobster.

On that note of building a sense of place: Shake Shack has also been smart about targeting non-traditional locations with high-density foot traffic, like parks and airports, much like Starbucks. Shake Shacks are not your typical street-side restaurants. That's good because, with better public transportation and our reliance on cell phones, consumers are more mobile than they've ever been before. That's especially true in the major markets where you'll actually find Shake Shacks: NYC, D.C., Philly, New Jersey, Southern Florida, London, etc. Also like Starbucks, Shake Shack subscribes to the notion of a “third place.” It's not home, it's not work, but it's this intermediate where consumers can hang out and, if they choose, get work done without the fear of getting kicked out.

Shake Shack's locations are major media markets, too—and that's really no accident. Like Chipotle and Starbucks, Shake Shack started with high-profile locations to take advantage of earned media attention (PR) versus paid media attention (advertising.) Succeed where the biggest media outlets are and you'll get national ink and screen time without spending a dime. As far as consumers are concerned, that's promotion that's come by more honestly than paid advertising.

Contrast that, again, to full-service casual dining chains. TGI Friday's has, perhaps fatally, relied heavily on advertised promotions like Endless Appetizers. Shake Shack, meanwhile, aims for integrity. Millennials go for that, which is a darn good thing because they spend a higher percentage of their discretionary income on restaurants than any other age bracket. In fact, millennials will even switch brands if it means putting their money toward a perceived “good cause.” Shake Shack's emphasis on integrity is another nod to the ways of Chipotle and Starbucks. These cause-driven restaurants tout their fair trade practices and encourage charitable contributions.

Here's how Shake Shack describes their commitment to good things on their Stand for Something Good blog:

“We stand for something good in everything we do, which also means thoughtful and sustainable design of every Shack, community support through donations and programming, and hand-picked music played in each Shack (because a burger tastes a little better with good tunes).”

TGI Friday's paid media format evidences a lack of innovation. Shake Shack opts for modern-day PR, and that's to its boon.

Shake Shack may be the hottest IPO of the year because, like Chipotle and Starbucks, it's reshaping the restaurant industry landscape. That's getting a thumbs up from consumers. And the chain's pluses could have investors lining up to buy stock in much the same way customers now line up to buy burgers. Don't believe me? Check out the Shack Cam to see who's queuing up. Soon Shake Shack will be buzzing on Wall Street, too.

Also read: Casual Dining Is Dying - TGI Friday's On Life-Support

Aaron Allen is a third generation restaurateur and founder/CEO of Aaron Allen & Associates, a global restaurant consultancy that has represented more than 15,000 foodservice locations spanning 6-continents and 100+ countries.