As part of practicing for writing a final thesis report, we, as students of IBL have to write a research report on one of the three available topics.
We have chosen to write a topic on “Shake Shack in Rotterdam”.
Shake Shack started as a hot dog stand that operated from Madison Square Park in New York and from there started to conquered the fast food world (Shake Shack).
Shake Shack is an example of the trend that is happening in the fast-food industry at the moment. This trend consists of a slight shift in the market that some even call a “Burger Revolution” and some consumers prefer going to what is called a “fast-casual restaurant” instead of going to a fast-food restaurant (Brunner, 2015). The difference is the quality of the service and the price of the products according to Brunner (2015).
This trend has increased over the past years as more and more people tend to chose to prefer fast-casual restaurant such as Shake Shack, over fast-food giant such as McDonalds (Team WallStreetSurvivor, 2015).
The Fast-food industry is growing in the Netherlands and opportunities are rising (Euromonitor, 2015).
By looking at this trend we asked ourselves the question whether it will continue in Europe and especially in the Netherlands. We came up with the following research question:
How attractive is it for Shake Shack to expand their business in the Netherlands by opening a location in Rotterdam?
This research question is accompanied by six sub questions:
1. How does Shake Shack do international business?
2. What does the Dutch Food Market look like?
3. Where lies Shake Shack’s success and how can they apply this success to the Dutch Market?
4. Who are Shake Shack’s competitors in Rotterdam?
5. how should Shake Shack approach their target Group in the Netherlands?
6. Would it be achievable for Shake Shack to open a new location in Rotterdam, how should they enter the Dutch Food Market and where should this location be at?
By writing this report we will answer the research question and provide information on how Shake Shack should approach this. We will a perform quantitative research on this topic and our methods of researching will be documentary analysis, based on country reports, reports on the Dutch Food Market and articles on the current and future food trends.
1. How does Shake Shack do international business?
What started as a hot dog cart in New York City at Madison Garden is now extensively grown with 51 locations domestically. Shake Shack became so successful that it is operating worldwide now (Shake, n.d.).
Recently, on the website you can find an outlet in total 85 locations around the world. There are 51 stores in the US and 34 stores international (Shake, n.d.). Before we take a look at the international locations let us take a look at how many Shake Shack’s are exactly located in every American state: Arizona (2), California (1), Connecticut (2), Florida (5), Georgia (1), Illinois (3), Maryland (1), Massachusetts (4), Nevada (2), New Jersey (3), New York (15) Pennsylvania (3), Texas (2), Virginia (1) and Washington, DC (4) (Shake, n.d.). Shake Shack has a 450 store goal in their home country, but it grows slow in own country with 12 outlets a year. The reason for this slow growth is that founder Danny Meyer and CEO Randy Garutti want to maintain a strategy to grow intentionally slow in order to give the necessary support to all the Shake hack locations to keep the high quality service and to keep their customer and employee satisfaction high (McGregor, 2015).
By looking at the number of outlet we can conclude that Shake Shack is expanding rapidly in the Middle East (Shake, n.d.). Recently, with 34 stores in different locations Middle East (23), Turkey (4), United Kingdom (3), Japan (1) and Russia (3). Shack is doing great business international (Shake, n.d.). Shake Shack has the most outlets in the Middle East with 23 locations. We can see that with 23 locations the Middle East is Shack’s greatest licensed partner.
In order to keep the same level of quality of the Shake Shack burger experience with great taste, high employee, and customer satisfaction as the domestic locations Shack’s operates via licensed agreement. Shake Shack does not offer franchising to its international business partners and prefer to grow slow. Shack’s select their partners with care and base on how they can help to achieve the company’s goal to deliver Shack’s quality service.
In order to achieve this goal Shake Shack licensed stores offer the same quality burger experience with great tasting food and the classic menu with 100% all-natural Angus beef with no hormones and no antibiotics (Shack, 2016). It is offering premium fast food a great burger, a great value and great hospitality at their international locations with their natural ingredients, excellent taste, customer satisfaction, employee satisfaction and community gathering locations in order to make the burger experience an unforgettable one. Generous serving is very important by given the employees and customers a generous treatment Shack is building relationships. With globalization Shack needs to adapt their company policy to the needs of the international locations. Some countries have their own regulations like for example Turkey have their own meat regulation and Shack is adapting the beef to this (Rainey, 2013). Recently, on Shack’s website you can find the international menus that Shake Shack offer to its international locations the delicious burgers, fries, hot dogs, frozen custard, shakes, both alcoholic, and non-alcoholic beverages (Shake, n.d.). The menus on the website can differ from locations this is because Shack adapt their international menus to the local needs (Shake, n.d.). All the locations of the Shake Shack stores are carefully chosen and customizable designed in each country and are based on the community-gathered places an experience of coming together for Shake Shack customers.
2. What does the food industry look like?
In order to enter the fast food sector in the Netherlands it is important for Shake Shack to have an impression and overview about the market. Fast food sectors within the Netherlands are Burgers, Chicken, Sandwiches, Pizza and Asian food there are also other consumer foodservice sectors like 100% home delivery/ takeaway, cafés/bars, full-service restaurants, self- service cafeterias, street stalls/ kiosks, pizza consumer consumer foodservices (see table 3 below Consumer Foodservice by independent vs Chained: Units/ Outlets 2014) (Euromonitor, Fast Food in the Netherlands, 2015).
According to USDA Foreign Agriculture Service, U.S. products are very popular among the Dutch community (Pincakaers, 2013). The amount of U.S. fast food chains in the Netherlands shows this McDonalds (241 outlets), Subway (161 outlets) and Domino Pizza (160 outlets) (Euromonitor, Fast Food in the Netherlands, 2015). The fast-food sectors have as well international and national key players like McDonalds, KFC, Burger King, Subway, Domino’s Pizza, New York Pizza & Febo (Euromonitor, 2015). Febo is a national fast food chain where customers can buy Dutch products like frikandel, kroket, burgers and fries (Febo, 2016). You can find all these famous fast food outlet in almost every hotspot, city centre and railway stations. According to Euromonitor (2015), McDonald’s stays the leading brand in fast food in the Netherlands with its 241 outlets (Euromonitor, Fast Food in the Netherlands, 2015). This means that McDonald’s will be Shack’s biggest competitor in the Netherlands.
The Dutch consumer is curious and like to try new things this creates opportunities for Shack to introduce their business in the Dutch fast food market (Pincakaers, 2013). Shack has an advantage that they also offer alcoholic beverages in their menus. The margins on alcoholic beverages including wine and beer would have high sales potential in the Netherlands (Pincakaers, 2013). Beer and wine are the most popular drinks in the Netherlands (Euromonitor, Fast Food in the Netherlands, 2015). There is a legalisation, which prohibits sales of alcoholic beverages to consumers until the age of 18. According to this alcohol policy Shake Shack needs to apply for an alcohol licence (STAP, 2009). With this offer Shack would distinguish itself from the other fast food chains like McDonalds.
Fast food chains in the Netherlands operate with franchising concept (Euromonitor, Fast Food in the Netherlands, 2015). It is a growing concept in the Netherlands. Shake Shack policy is that it does not franchise international (Shake, n.d.). In order to expand in the Netherlands it needs to find a licensed partner who can operate the Shake Shack.
3. Where lies Shake Shack’s success and how can they apply this success to the Dutch Market?
Since its foundation in 2000 and its license to open a permanent kiosk in Madison Square Park, Shake Shack has been growing exponentially (Hayes, 2015). The company started expanding its business and operations in 2010 by opening up locations throughout New York City. This featured new Shake Shack restaurants in the Upper East Side, the Theater District and in Chelsea. After this, locations where opened up outside of New York City, starting in Miami in 2010. At this moment Shake Shack holds 85 locations throughout the country and around the world. These locations include New York, Washington DC, London, Dubai, Istanbul, Moscow and Tokyo among many others (Hayes, 2015).
The company opened up more restaurants in 2015 than it had initially planned (Munarriz, 2016).
Shake Shack’s prospectus states that the culture of their team is single most important factor in their success (Taulli, 2015). Their aim is to recruit and create a team that has what they call a “personality to please”, something that cannot be taught (Taulli).
When describing the required skills that employees need for the job, the company uses the term “51%”, with which they are saying that they need slightly more emotional skills than technical skills and are essential for the atmosphere (Taulli, 2015).
Randy Garutti, CEO of Shake Shack, has envisioned one motto for the company: “The bigger we get, the smaller we need to act” (Hayes, The Story Behind Shake Shack's Success, 2015). Meaning that when expanding, Shake Shack has to work had to preserve its commitment to quality and community.
Each new restaurant in each city has been designed uniquely for that location in order to keep that unique community feel. Given that Shake Shack really adapts well to their environment and sees the importance of integrating in other cultures, it is inevitable that they do so well in other cities and countries (Taulli, 2015).
Shake Shack should continue their business plans, when doing business in the Netherlands, by integrating the Dutch culture in their new restaurants. While the trend of consumers shying away from traditional fast food outlets continues, this is a convenient time to enter this market (Nath, 2015).
4. Who are Shack Shack’s competitors in Rotterdam?
There are many competitors in Rotterdam which makes the competition fierce. The fast food market is diverse: Asian, chicken, Latin American, Middle Eastern, pizza and burger fast food. Shake Shack’s core products are burgers, therefore burger fast food outlets should be considered as direct competitors, and other fast food outlets as indirect competitors.
In 2014, McDonald was the leading player in the fast food market with a value share of 23%, according to Euromonitor. McDonald’s had a total of 241 outlets in 2014. McDonalds offers value for money deals and in the morning they offer breakfast which attracts more customers (Euromonitor, 2015).
Euromonitor also states that there were 56 Burger King outlets in the Netherlands in 2014. Burger King is known for their American burgers and value for money deals.
Chained outlets cover a large area in Rotterdam because of the many outlets and the strategic location. The chained outlets are basically dominating the burgers market. Independent outlets are standing their ground, despite the fierce competition. They distinguish themselves from chained outlets through organic ingredients, prepared with more attention, and high quality. Independent outlets are located at crowded places, such as Witte de Withstraat and Markthal, as part of their strategy. The independent outlets in Rotterdam are: Restaurant Hamburg, Ter Marsch & Co, and Firma Pickles.
Other players in the market, such as Subway, Domini’s Pizza and KFC are indirect competitors. They do not offer burgers, but they do offer their own specialty which is also categorize as fast food. In 2014, there were 161 Subway outlets in the Netherlands, followed by Domino’s Pizza with 160 outlets, KFC had only 45 outlets (Euromonitor, 2015). The high number of outlets shows the high coverage per area. Subway and Domino’s Pizza are offering delivery, which is convenient for people who would prefer to order food from their homes
The table below shows an overview of competitors and their outlets in Rotterdam. All
competitors have multiple outlets in Rotterdam except the independent burger outlets. In order to compete with the competitors, Shake Shack need to have different outlets located at strategic places in Rotterdam and offer an extra service, such as delivery.
5. How should Shake Shack approach their target group in the Netherlands?
The target group of Shake Shack is broad due to the majority of people taking a preference for burgers. In order to approach their target group efficiently and effectively, the target group has to be narrowed down. Shake Shack promotes their burgers as “100% all-natural Angus beef” without hormones or antibiotics (ShackShake, n.d.). The target group can be defined as adults in the age range 18-40 years old, who want real, high quality burgers, and are willing to pay a higher price for it.
According to CBS (Centraal Bureau voor de Statistiek), seven in ten users are active on social media. The Netherlands is listed in the top three of social media users in Europe (Akkermans, 2013). Among social media, Facebook is the most popular social network. According to Statista, there are around 10.2 million Facebook users in the Netherlands. The Netherlands has a population of 17 million inhabitants (CBS, 2016), of which more than the half the population are Facebook users. Social media is a suitable tool to approach the target group, because it can reach many people in a short time period. However, not all Facebook users are in the age range of 18-40.
Another way to approach the target group is via digital television. According to CBS, seven in ten Dutch households have digital television, and televisions with internet access is increasing every year (Sleijpen, 2013). Advertising during commercials of certain programs would be a suitable way to send the right message across. However, broadcasting can be expensive depending on which timeslot you want to air the commercial, and during which program.
In 2011, morning rush hour had an average of 2.4 million motorists, the evening rush hour had nearly 2.8 million motorists, which make it busier than the morning rush hour, according to CBS (Korvorst & Bouhuijs, 2012). On 1 Januari 2014 there were 7.9 million passenger cars registered in the Netherlands (Leenders & Ewalds, 2014). Broadcasting on the radio in the evening could be a good tool to reach many people. Especially since the age of the target group are active motorists, and they frequently listen to radio channels for news and information regarding traffic on the roads. The radio is not only meant to target motorists, but also people who are studying or working and want to listen to music. However, people have their own music preference, and there are other ways to listen to music, Spotify and Youtube being prime examples.
6. Would it be achievable for Shake Shack to open a new location in Rotterdam, how should they enter the Dutch Food Market and where should this location be at?
According to Hayes (2015), Shake Shack is a well-established, rapidly expanding fast-food company with success in the markets it is operating in. The company was above Wall Street’s profit margins while just starting as a limited liability company and raised profit faster than what was forecasted (Munarriz, 2016). Shake Shack is currently operating in the United States, Japan, the Middle East, Russia, Turkey & the United Kingdom (Hayes, The Story Behind Shake Shack's Success, 2015). Entering the mainland of Europe is something the firm has not done thus far; the Netherlands could be an excellent opportunity to start expanding to the rest of Europe.
The Dutch Food Market is quite busy, it is often being entered by renowned companies that are active in multiple markets around the world, and in the past years, Dutch consumers were more willing to eat out according to Euromonitor (2015a).
Fast food is still the most lucrative fast food category in the Netherlands (Euromonitor, Fast food in the Netherlands, 2015a). However, there is a group of people looking for something else to eat; which could be very useful for Shake Shack (WALL STREET SURVIVOR, 2015).
If Shake Shack decides to enter the Dutch Food Market they should be aware of its established (direct and indirect) competitors: McDonalds, Burger King, Independent burger outlets, Subway, Domino’s and KFC to name a few (Euromonitor, 2015b).
Euromonitor (2015a) states that McDonalds is currently still the leading fast food company in the Netherlands with a total number of outlets was 241 in 2014 which is still increasing till this day. Subway also has a rising market share in the Dutch Food Market (Euromonitor, 2015a)
Most other companies, such as MacDonald’s and Subway have chosen for entering the market by franchising, this method of entering has proven often to be more secure than the others (Euromonitor, Fast food in the Netherlands, 2015a). Shake Shack does not use this business model yet, instead, all current locations are licensed (Shake Shack, n.d.). By using this method, Shake Shack is able to expand with less risk of failure and without having to invest in distribution networks and new locations.
According to (Lonely Planet, 2016) Rotterdam is currently the #5 city to visit in 2016, this could give a boost to the number of tourist that visit the city.
The established competitors can be found in and around the city center (Euromonitor, 2015a).
Having a license partner that is located in the centre is convenient, but because Shake Shack wants to integrate in the culture of their location, instead of placing a restaurants on places where they think there will be growth, they could start to use geographic information to pick the precise location of their license partner and new restaurant (Ungerleider, 2014).
It would be achievable for Shake Shack to open a new location in Rotterdam because there is enough demand for fast food restaurants (Euromonitor, Fast food in the Netherlands, 2015a).
Because the trend of going too fast casual restaurants instead of fast food places is ongoing we think that consumers will likely visit Shake Shack (Nath, 2015).