I don’t purport to understand the inner-workings of Wall Street I.P.O.’s and certainly I never opened or managed a restaurant. That being stated, doesn’t the public offering of Shake Shack reek of something beyond just tasty hamburgers and fries?
In the publishing business, an old trick was to fill the newsstands with your magazine — front and center — but to give special focus to the ones just outside the offices of advertising agencies leading the accounts you needed for sponsorship. Shake Shack clearly did something similar, opening its restaurants in Dubai, London, Istanbul, Las Vegas, and its original home, New York. I’d have to guess that there were regulatory issues with introducing stores in Asia; otherwise, the valuation might be over $2 Billion.
The online menu boasts: 100% all-natural Angus beef. No hormones and no antibiotics ever. Our proprietary Shack blend is freshly ground. All burgers are cooked medium unless otherwise requested. Add lettuce, tomato, pickle or onion – your choice!
Really? That’s the secret sauce? That’s the magic formula that was enough to raise $1.6 billion at $47 per share? As reported in The New York Times, this valuation is more than double the initial public offering price that had already exceeded expectations.
With only 36 restaurants in the U.S., and 27 abroad, the formula for success being sold to cash-laden, giddy investors is. . . (drum roll). . . a better hamburger. Don’t get me wrong — I like crunchy fries as much as the next person, but is there really anything new or disruptive going on here? The business model seems fairly basic, and yet investors are seeing opportunity in funding Mr. Meyer’s venues to the tune of about $100 million — each? Keep in mind — that kind of backing is for a small, traditional brick-and-mortar enterprise that earns on average about $5 million each year. That’s one very shabby-chic shake shack.
McDonald’s, by contrast, has 36,000 restaurants and an established global brand and name recognition that alone is worth the entire market capitalization of Shake Shack. It’s worth a mention that the company has very little debt and also cranks out cash like a McFlurry-dispenser in overdrive.
Obviously, the people coming out sweetly are the dealmakers. The net take in profits earned in any I.P.O. has very little to do with performance of the ongoing brand, or how well it truly competes in the market place. By the time the special sauce trickles down and mesmerizes a few bedazzled, misguided managers and individual investors, the underwriters and original backers will be sipping champagne and snacking on hors-d’oeuvre in their Hamptons get-away — all sans any of the delicious fare served at a Shake Shack.
My assumption is that this will go like so many initial public offerings that leave a select few with an enviable payout, and many star-struck investors holding a bag at the end, wondering, “where’s the beef?”