Shake Shack Inc. SWOT and PESTLE Analysis

Strength

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Weakness

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Opportunity

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Threat

1. Limited suppliers and distributors increasing risk of supply shortage: Shake Shack's procurement portfolio is poorly diversified for most of its raw materials. During FY20 the company purchased more than 40% of raw material from just 5 suppliers. In addition, the biggest supplier of the company’s “ShackSauce” accounted for more than 75% of purchases of the sauce. Similarly, on the distribution front, the company has a single "broadline" distributor in the US providing all distribution services. In FY20, this distributor alone was responsible for processing 84% of raw materials which make up 45% of the total purchases for the company. As the suppliers and distributors of the company are so concentrated, the company faces heavy risks in case of even a single supplier canceling orders. The limited number of suppliers and reliance on a single national distribution company expose Shake Shack to significant risks of supply shortages and increased costs. In fiscal 2022, the concentration of suppliers for major ingredients, including beef patties, chicken, potato buns, custard, mushrooms, cheese sauce, and others, creates vulnerability. Approximately 42% of ground beef patties come from one supplier, and the cancellation or disruption of supply arrangements with any key supplier could adversely impact operations. Additionally, reliance on a single "broadline" distributor for 95% of food and beverage ingredients in the US, with 20 affiliated distribution centers, introduces risks. Catastrophic events like a fire at a distribution center could lead to immediate product shortages, especially in critical regions like New York and northern New Jersey, significantly affecting sales. The limited availability of alternative supply and distribution sources further heightens the risk of encountering shortages and incurring higher costs, posing potential material adverse effects on Shake Shack's results of operations.

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Political

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Economic

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Social

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Technological

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Legal

1. Tip pooling rule in the US affects net profits for restaurants: Restaurants across the US are bound by the Labor's tip-pooling rule, which states that waitstaff is not required to share the tips received from customers with employees in the backstaff. This rule directly affects the net profits earned by restaurants, because they cannot show this money on their books. In addition, the backstaff has no incentive to put extra effort into their work. Therefore, restaurants have tried to offset this inequality by adding a fixed percentage "service charge" in the bills, as a mandatory fee to be paid by customers which would get translated into the backstaff's salary and employee benefits.

Environmental

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