Chicken may not be the most exciting menu item of all time, but it could end up making Shake Shack's sales sizzle.
The burger joint began selling a new chicken sandwich nationwide on Thursday with grand claims from its CEO that "the introduction of chicken marks a new era of Shake Shack." At first glance, those words seem a bit ridiculous. After all, it's just a chicken sandwich.
But a look at competitors such as McDonald's and Chick-fil-A suggests chicken could really feed Shake Shack's growth as it looks to expand from 46 to 450 locations.
McDonald's, founded in 1955, began serving chicken nuggets and other chicken items in the 1980s to fend off competition from Burger King and Wendy's. Today, though it's known more for its burgers and fries, McDonald's sells more chicken than beef, according to Nomura analyst Mark Kalinowski.
Privately held Chick-fil-A, meanwhile, has added 800 locations since 2006 and now operates nearly 1,900 restaurants. Its nearly $6 billion in sales last year represented a 14.4 percent rise from the year before, according to food service industry consultant Technomic.
Much of the poultry growth has been fueled by increasingly health-conscious consumers, who are lately spending more money on chicken than beef, leading to a 10 percent rise in average U.S. household spending on poultry and an 11 percent drop in spending on beef over the past decade.
Shares of Shake Shack were up about 4 percent in afternoon trading. Much of the chicken news has been, um, baked into the stock price since executives tested the sandwich in certain locations last year.
Many investors fear Shake Shack can't squeeze the same kind of profits from locations outside of New York City as it expands across the U.S. And the stock is priced for growth, trading at a multiple of 67 times 2017 earnings, compared to a 24.3 multiple for Chipotle and a 19.4 multiple for McDonald's. None of the 11 analysts surveyed by Bloomberg rate Shake Shack a buy, even though consensus among the seven analysts that have issued targets calls for a roughly 33 percent rise in shares in the next 12 months.
And while Shake Shack's stock is up 59 percent from the company's IPO price nearly a year ago, shares have dropped 35 percent in the past six months. Maybe chicken will be the thing to revive investors' appetites.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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