Shake Shack Inc. (SHAK) Earnings Call Transcript & Summary

Good morning, everyone. It's John Glass from Morgan Stanley, I'm the restaurant analyst here. Welcome back to our global consumer conference, virtual edition. A couple of housekeeping items before we get to our next fireside chat. First, those of you who are on the webcast, you can ask a question. There's an Ask a Question link, and if there is time after my series of questions with Shake Shack, I'd be happy to entertain those. So please enter them early and often, so we have a chance to assess them. Secondly, I do have to make the obligatory disclosure. For important disclosures, please see our website, morganstanley.com/researchdisclosures. And if you have any questions about that, feel free to reach out to your Morgan Stanley sales representative. Well, with that, it's my pleasure to introduce Shake Shack, a brand that I think nobody needs an introduction to. And with us today -- joining us today virtually are the company's Chief Executive Officer, Randy Garutti; as well as the company's President and Chief Financial Officer, Tara Comonte. And both of you welcome, and thank you for joining us this morning.

Hi, John, good to be here.

Yes. Well, thank you. Good to see you all. Randy, I wanted to talk -- and Tara as well, talk about the big picture, right? COVID's taught us a lot of things. So as you reflect on the last 9 months, can you talk about 2 things? One is, what has that taught you about your brand? Strengths, the weaknesses or the areas of improvement. And what has it sort of shown you about your organization? As you have gone through COVID, what are the organizational changes you've made in response to this that you think will set you up for the future?

Thanks, John. And Tara, I'll start, feel free to jump in. I think a moment like this, I could probably take the whole session on answering this question because there's been so much learning, so much opportunity to think about our strengths and who we want to be on the other side. And I'll start with a number of things. Our team, first, has been -- we've set a culture of putting our team first. We've had premium pay. We have quarterly bonuses for the holidays right now. Every team member is going to get between $250 and $400 in December for thanking them for being here this quarter. Our team has been incredibly resilient. It is hard work to go work in restaurants on any day. It's really hard work when you're going through a year like this. And we talk a lot about essential workers. We talk a lot about a lot of big companies and the things they're doing. And I've just been proud of our leadership and our team and how that's been dealt with because we have effectively remained open wherever possible for this entire time. And that's been part of the continued straight-line recovery. When we think about the big learnings, I would say, COVID amplifies and accelerates everything we had already wanted to do and has become more and more clear. That's 2 main categories: digital opportunity, which we have continued to invest in, and we'll talk a lot about that today, I'm sure; and second, our growth opportunity. We have, because of this moment, ended up with the strongest balance sheet we've ever had in the history of the company, including 6 years ago after our IPO. We have more opportunity, more cash available to us to capitalize on growth. And that opportunity, I would say, has only opened up because of COVID. So yes, it's been a hard year for Shake Shack. You've seen the financials. It's been tougher than we've wanted, but we've recovered to a significant degree as of the last quarter. And we expect, on the other side of this, we're really going to have the opportunity to continue to grow. We're going to look towards increasing the addressable market for Shake Shack, a bigger opportunity for where we can go when. And we're building the team and we're investing in the infrastructure to do that right now. And it's been hard. That's the biggest story. Every person has had their own journey. And our team just deserves massive thanks because it has been hard to operate to keep going. And I'll tell you what, I'm amazed sitting here in December now, where we stand and where we can go because of it.

The only thing I would add to that, agreeing wholeheartedly, with I think Randy has called out, particularly as it relates to the teams in the Shacks is just our ability, I think, now to execute against innovation. We're generally a pretty fast-moving company. We certainly try to be an innovative forward-thinking company. But I think what COVID has done, to Randy's point, around accelerating and amplifying some of those opportunities, not only have we identified them, but we've executed them really fast at scale, which as still a relatively young company, I find incredibly impressive. And I think it's a testament to many of the teams both in the corporate office and the tech teams, the development, the people resources for hiring, the marketing teams as well as the operators who've managed to kind of pivot really quickly in what has already been an incredibly challenging operating environment to now adapt to multiple new models because with new formats come new operating models. So I think that's just been super impressive to see across the board.

That's very helpful. I want to now talk about unit development, your unit development-led brand and unit development-led business. First, I just want to talk about how the new stores have performed during 2020, right? I think you made a statement last year that they're outperforming the company average weekly sales, although those are down, obviously. But that's still a powerful statement, just historically, new stores committed a lower volume just because they were less known or whatever or newer stores. So how have the new stores performed during 2020? What have you learned from that? What are some of the defining characteristics if there are any from previous classes?

Well, so a few really good signals within some of the things that you just shared, John. First of all, we're going to get about half the glass that we intended to open open. That's pretty amazing. We had set out on a roughly 40 goal, and we'll get just about 20, depending on how the last few weeks here finish up. I think that's an incredible thing given that we effectively shut down all of those functions for a significant period of time during the hardest hit times of COVID as we look towards ramping up to next year and getting back to roughly 40 -- 35 to 40 Shacks domestically. And let's not forget international. We can talk about that later, but we've got a decent-sized class of Shacks open in tremendous areas. We just opened in Beijing with unbelievable starts. And the international story is an entirely different one. But I think when we look at the class, we have shared that one of the most encouraging signals of this time and the brand strength is that even during COVID, even during some openings where we literally didn't have a dining room, we have continued to perform. And restaurant -- new restaurants like in L.A., in Sacramento, in St. Louis, and throughout the portfolio of Shacks that we will get open this year. We've got a really exciting one coming in Cherry Creek in Colorado. We're about to open in Oakland this week in California. And we just opened another one in the Woodlands area of Houston, Texas, to a great start. All of those signs say to you, wow, even during COVID, people love this brand. They love to come out for it. They're willing to come out, sometimes stand in line. And that's been pretty cool. And I'm sure we'll get into this, but the details of how we're doing that. The addition of Shack Track windows at some of these, the addition of curbside pickup at many -- almost 70 of our existing Shacks and many of our new Shacks. And those digital tools, adding the opportunity for safety and convenience in the midst of this evolving time has been really, really cool to watch and very encouraging and gotten us back to saying, "Let's go, let's go." How do we look at next year, and there's so much opportunity. And I will say this, John, like we're -- people have all these conversations right now about -- especially, we've shared very clearly the story of the suburban performance, kind of close to being back, right, as we talked about to where we were. The urban performance of Shacks still very down, right, especially in the hardest hit places like Manhattan, in Midtown, Manhattan. But within all that, we see opportunity to grow. And we say, yes, you bet we're going to go for great urban locations for the next few years. There's going to be lots of them available in great sites with a rent that should be better than it was a year ago. We have great opportunity now in suburban places that we may or may not have even gone to before or will go differently with a drive up Shack Track window with a drive through opportunity, which we'll do our first towards the end of next year. And all of that for us is increasing the ways we can connect with our guests, the amount of places we believe we can go. And we'll get back. We've still got to rebuild this infrastructure. We're still in the depths of COVID impact right now. We all know it. We look out the window and you see it, and we're not through that yet. But we're looking past it as we think about investing and using that robust balance sheet to get going.

Can you -- Randy, you did mention Shack Tracks. And look, I think you're a brand that has had to rethink maybe some future development or at least the formats of the store-based on COVID, right, and increasing brand access. So maybe first, just help us understand for those who are not as close to, what is a Shack Track? It's got some iterations, right, some that may be more suitable to an urban market, the suburban. What does a Shack Track look like in your mind? Is there a cost at this point that you think is different from what a Shack -- traditional Shack would have been? Or is this really just the way Shacks are going to be, and it's really not different from an economic standpoint?

So when we talk about Shack Track, John, it's really going to encompass. It's a brand that will encompass all of the ways you can preorder and get your Shack without the friction of having to show up, order, wait online, pick up at the pickup counter. So Shack Track's going to encompass curbside ordering. Again, we have about 70 Shacks doing that. And we already know that a significant portion of people are already choosing that curbside option. So they can just stay in their car, and we'll bring it out to them. Then we're going to be adding restaurants like University Village in Seattle. This is one of the premier outdoor dining and retail destinations in the country. And we order -- we have a Shack Track pickup window. So many people are choosing that option already. And by the way, they pick up their food and then they often stay. Sometimes they go, and we continue to create the full Shack experience without the friction. In the next couple of weeks, we'll be doing -- showing our first conversion of a Shack in Vernon Hills, Illinois, that will have its first-ever drive-up window. So that will be an opportunity where you can, in the app, order, choose, pick it up at the window and just come by with your car, and we'll hand it to you out the window and you can roll out. And all of those other digital tools, which the next phase also in our app, we'll be testing delivery through our own app. We're really excited about this. This is coming in a handful of Shacks in the coming months. We'll test it. We'll see how it goes. We'll live and learn a little bit. And all of that is the encompassing Shack Track, which just takes away that friction and gets the -- you're basically your fast pass to Shack and encourages you, by the way, to stay, to experience Shake Shack for what it's always done or take it to go if that's what's easier for you.

I want to come back to digital, Randy, in a bit, and in particular, this delivery option, but just thinking still about real estate. I know you mentioned that urban markets, there may be some good bargains, I can understand why. But when you think about the suburban market and real estate availability, right, I think it was a premise that COVID is going to create a lot of dislocation. Sites are going to be available. But on the other hand, like, there's a lot of brands like yourself that want a freestanding suburban location that has capability of a drive through. And maybe that real estate isn't as abundant. What's your current view on where you think the real estate market is for your brand as you think about '21, particularly in the suburbans?

Well, we've always been a beloved brand for developers and landlords alike, whether urban/suburban, people want us in their centers, they want us in their buildings, and we get to capitalize on that. I think you're absolutely right, John, though, that look, a great drive-up, drive-through site there’s a lot of people who want that, too. We're not the only ones right now. That's been a clear model that has worked through COVID, and there's a lot of people who are going to be going after those, us included. So the kind of sites that we go for, which are A sites, yes, they're not free. They're not on sale. When you want to go get one of those in a solid, high-traffic area. And the good news for us is we've continued to have such strong AUVs, such strong return metrics on all the things that we build and do, that we can continue to go get those A sites. We're not looking for C sites that are readily available in the suburbs. We can let somebody else have those that may be their business model, that's not ours today. And we'll be going for premier suburban sites. And yes, those are harder to find. But it's a big country out there. And you've got to remember, we have less than 200 company-operated Shacks in this country.

Yes. And Randy, you took a view, I think, last quarter, like the urban markets are not dead, right? There's obviously some displacement, but the urban markets come back. I think there's been a lot of discussion about whether it's not just within the popular press, but even within other restaurant brands, what they're willing to lean into urban markets or really lean away. What's your view on a practical basis, when you think about '21 and '22, are you going to be more cautious about those urban markets just because we don't know yet? Or do you look at this as chance of a lifetime, we think they're going to come back, and this is our moment to really exploit that opportunity?

We will -- there's a few things. Number one, we're born in New York City. There's been a handful of companies ever in our business that have been born in this city and radiated around the world as we have. There's a specialness to that. There's a reach for that, that people around the country have admired about Shake Shack, and that is the urbanicity of where we came from. I believe we'll be cautious in the near-term we're not going to rush openings in Midtown Manhattan, for instance, that part of our business is down right now and will be down for some time. However, over the long term, and as we look at future deals, we are bullish on urban. We are bullish. I absolutely believe that urban centers will come back. I think people will go back to their offices. Maybe it's different. I don't know. Every company is going to have their own thing, but I believe people need, have a fundamental human need to gather. The world has been urbanizing for a long time. That's not by accident, and COVID is not going to stop that from happening. And while there will be a shift, and there will be things that evolve and change and travel will change, I truly believe that when people can come back, they're coming back. And they're going to come back in force, they're going to come back and want to go to Broadway, and they're going to want to go to Midtown, and they're going to want to visit Rockefeller Center. And they're going to want to go see people, and we generally don't do that in the same way in the suburbs. Suburbs will be great. Looking forward to doing tons of Shacks there. But let's also not take our eye off of the huge urban opportunity that I believe will continue in this country.

That's very helpful. I want to shift to talking about some sales now. I want to get to digital, but I first want to sort of set the stage here and talking about kind of this bifurcation, right? Your same-store sales, I think, last quarter, down 32% versus down 49% in the second quarter. In October, there was improvement, but really, it's a tale of 2 markets, right? There was the suburban experience and the urban market. So can you maybe just remind us, either Randy or Tara, you can talk about where you are in those 2 respective markets, so investors can better understand the dynamics? And I appreciate you provided some of this in the most recent earnings call, but for a broader audience, just help us understand what's really happening underneath from a same store sales standpoint.

Yes. Absolutely happy to. Using October data, so as we continue to try and as we release, give you the most up-to-date picture of where we are, we saw urban sales -- urban comp-based sales down 33% and suburban, only down 4% at that point. So suburban moving much faster towards that recovery. And I think generally speaking, when you look at data, that data for us, and even when you look at it regionally, it's really mostly a reflection of how and where people are moving around the country today. Really to piggyback off the conversation and the question you've just had, people aren't aggregating and congregating back into cities yet to any meaningful degree or certainly, the cities where we have a significant base, we believe they will. But in terms of as we continue through this recovery, people look at us all here today, the majority of us are probably sitting at home. So that's really the dynamic. And I think we'll continue to shift -- to Randy's point, we firmly believe those sales will come back. We're bullish about them, both in terms of existing Shacks and new Shacks coming into the portfolio. But as we stay heads down, focused on what is still a very volatile environment generally, we think that pattern will continue, and the gap will gradually close as we all enter what will hopefully be some sort of return to normalcy.

And just drilling down, Tara, a little bit more on some of this regionality and urban versus suburban. And look, maybe there's nothing of this, but I think you commented like the Northeast was down like 18%. I think the Midwest was down more. I understand there's dynamics around restrictions, right? But does it say anything -- if you look at either by vintage of the market, does it say anything about brand awarenesses, or for example, stores that are in markets longer recover faster because there's a better awareness? Does it inform you in any way as you think about development and how brand awareness is sort of needed in this recovery? Or is that really -- that's really not a factor?

I think our brand -- you know how well we've historically opened Shacks. We typically have anywhere up to a 6-month run-up in terms of how we think about opening a Shack in a market, how we engage in the local community, how we partner with local culinary, local chefs and other local partners. So I think the brand for the most part, is very strong across the country, and we've seen that historically in our results. I think this is more to do with, as I said, just where people are right now and how people are moving across the country and with those respective regional differences, it's primarily to do with the proportion of urban/suburban in terms of how those are made up.

That's exactly right. And it's just -- this is, again, the law of numbers when you study Shake Shack, John, you know this from trying to figure us out for the 6 years we've known each other. I mean you could have one monster Shack up or down. Tweak everything about one of those regions that you just named, right? And you could have 3 suburban strong ones where everybody is hanging out in home, and they're really up from last year balanced out by somebody who's really far down. And it's just a really -- we just have such small numbers, especially in the comp base, 100 -- less than 100 Shacks or whatever, the number is around 100 that's the funky thing about it. But when we look out, I think what's important to say about that is, when we look out and we say, why is a Shack or a region up or down? And do we feel good about those reasons? The answer is yes. We may not feel good about the sales. But when I tell you the Theater District and 44th Street, one of our biggest Shacks in the world is down, I don't feel good about it, but I certainly understand why. What we see generally is very understandable, explainable reasons why certain Shacks are up or down. They make sense. And that's just kind of where we're at. And we feel -- because of that signal, we feel good about how the recovery eventually does happen and has happened over the course of this year.

Can you talk a little bit about things that are in your control to help sales improve at a swifter rate? So one is urban markets, right? We get -- we understand the dynamic. What are the tools you have to help in the suburban markets, what are the tools to help and specifically curbside, I think you said 70 Shacks, maybe that's one of the key enablers. But what are you doing to enable consumers before you get into Shack Tracks because they’re sort of still on the come to help expedite this recovery?

Yes. I think you mentioned one of them, right? So even to the suburban/urban discussion we've just had, curbside is much heavier weighted towards suburban Shacks, as you would expect, because you need to be able to drive up, you need to really be able to park while a member of our team comes out. So they're not primarily targeted at urban Shacks. But I think the 2 -- kind of keep coming back to the sort of underlying premise of everything that we're doing, which is to expand the access and the convenience of Shake Shack. And those 2 things in an environment like a COVID environment if they were important before, they're critical now, combined with safety, of course. So I think the more that we can focus on the access, making it quick, making it easy, making it digital, allowing you to be in and out, I think, all help that sales opportunity. And I'm sure we'll go into more specificity around some of these formats. And then we haven't talked about this yet. But for example, menu innovation beginning to come back. That's something that really we hit pause on through COVID, but for obvious reasons, but with Hot Chicken having been such a great success, and it's really beginning to lean back into menu innovation as we come through the end of this quarter and into next. All of those things go to driving sales, and they obviously are as relevant in urban as they are in suburban. But I think while we're in the depths of the pandemic, making guests feel safe and making the Shake Shack easy, convenient, quick, continuing to be a high-quality experience within that, but meeting those needs really are sort of top of the product list in terms of how to best grab sales in the current moment. And to Randy's point, bringing delivery into our own system is another piece of because right now, if you want your food delivered, which a lot of people do in an environment like this one, you have to go to a channel that isn't ours.

Yes. Before we get there, just on making it easier for the brand access. I mean I thought curbside would be one of those unlocks. What's the experience been so far? Are those curbside stores outperforming others? And what is the gating factor for you to, say, roll it out to the broad system? Or where are you in that test and learn process?

Yes. They -- we haven't broken down specifics in terms of financials with curbside or not curbside, but what we have shared, and we continue to share is that we're extremely pleased with the uptake. So this is very limited marketing at this point around curbside capability. It was something that we launched in a matter of weeks. And I think we've shared that about 1/3 of our existing eligible orders, so half orders in those Shacks already selecting curbside. So with really no promotion around it at all. So the uptake is encouraging, similar to Shack Track. We've got Shack Track. We've got walkup window or curbside as part of Shack Track, but walkup window is just beginning to kind of come into their own with some retrofits that we've done and really encouraging uptake there, too. So I think what we're seeing is that as and when we launch these expanded access or digitally integrated capabilities because what we're really talking about here is the digital experience now integrating with the physical experience, the physical design of the Shacks. It's the first time we've really done that. What we're seeing is that as we do that, we get a very positive reaction from our guests.

And John, you're probably taking the numbers aside, which are too early to share, as Tara said, you're probably in Boston today, I assume, right? And so like Boston Seaport, perfect example, right? Hard hit urban Shack requires lots of people to be in their offices and lots of visitors and tourists to be in that area, obviously, hard hit. We've added a Shack Track window there. And that was a small Shack. It's a typical urban Shack footprint and now imagine all those delivery drivers no longer inside huddling at the counter, right? So many people who opt to just pick up and go can now stay outside, you got a window, you open it and you roll out. It's such an improvement for everybody, for everybody involved. And those are -- that increases guest experience, it increases our opportunity to please people and have them come back. And ultimately, we hope will drive sales, and that's always going to be the goal.

That's super. And maybe this is a good time to pivot to a digital discussion more broadly. And first is at a high level, what are the customer-facing changes you made to digital experience this year, right? And how have those integrated, maybe some real examples of how the digital experience is now integrated better into the store than it was, say, 6 months ago? What are some of the things a consumer might see differently?

Well, obviously, through the app and the app experience, that's just continuing to get better, whether it's through small things, through large things through our ability to upsell a little bit and say, "Hey, you forgot your lemonade" or small things like that, but generally a better user experience on the digital tool itself. When you come to the Shack, the pickup experience is really what matters most. In some Shacks, we've been testing a new screen that has your name and says, "Okay, Uber delivery, John Smith, pick up over here. John Glass, you ordered on the app. We got you right here, your name." Because the hardest part about all digital ordering is where do I stand, right? Like, is my order ready? Is it on the shelf? I don't really know how do I know? Do I take the right order, the wrong order? These are the new challenges of operating in any restaurant. So the guest experience of pickup is continuing to improve, continuing to show new and less friction ways to just grab your food and do your thing. And we acknowledge that one of the beauties of Shake Shack is how busy we are. And one of the challenges of Shake Shack is how busy we are. And that's certainly a challenge now. Nobody wants to walk into a really packed environment anywhere. And this helps kind of spread people out, literally, and spread you out on the digital opportunity of how you order.

Can you talk about what are the richnesses of having a digital customer base is knowing who they are, right, so digital users. And that can -- the CRM benefits, over time loyalty is an option. But I think you said you've added 1.4 million first-time digital users since March. What's the base here we're talking about? And how well are you now using some of that early data to help increase the frequency cycle of a customer, whatever you're doing with it? Maybe give us a sense of how advanced you are from that digital new or existing customer base?

Yes. And I think we're at the very early stages of that. So when we talk about some of the work that we've had going on behind the scenes, it's not just the customer-facing digital work some of the examples that Randy gave, but it's also behind the scenes. Data is only worth something if you can extract some insights and do something with it. Otherwise, it's just taking up room on your servers. So behind the scenes, we've been building out our guest data insights and infrastructure, to your point, so that we can start to weave together the customer behavior, guest behavior across all these different channels. So generally speaking, we believe a digital guest will be stickier. We're obviously very pleased at an aggregate level with the data that we've shared with our 90% plus retention of digital sales in October versus May as in check has continued to recover. And that mix will continue to come down a little bit as in-store dining really comes back. But we don't think it will go back to where we were pre-COVID. Digital is here to stay. Once you've experienced that speed and convenience, it doesn't mean you're not going to want to come back to the Shack and hang out on a Saturday afternoon, but on a Tuesday lunchtime you may prefer to just order ahead and use the pickup window. So I think it allows greater opportunity for frequency. And to your point, as we now start to aggregate this data, start to segment this data, start to test and learn in terms of some direct and targeted messaging, it will allow us to incentivize you to come back more often. It may allow us to incentivize you to refer bring a friend or to refer us to someone. All the different types of characteristics that you see really being the main objectives within a loyalty program. So we're not building a loyalty program right now. We are very early in this game, but we absolutely are focused on the types of goals that a loyalty program has. So a bit of customer acquisition, yes, but more so using the existing data around those existing users once we've got them and how to drive frequency and upsell.

We talk about delivery. A number of brands have been very specific now about younger brands, whether it's Wingstop or Chipotle, where delivery is a percentage of their sales. And it's landed -- I'm talking about third-party delivery, about 1/4 of their sales. How do you think about -- is that roughly where Shack is? Maybe you could share some context, either qualitative or quantitatively around that? You talked about delivery, I'm assuming you mean in-app delivery, I'm assuming you mean like a white label situation where I would order through the Shack or app and a third party would fulfill it, you're not necessarily thinking about maybe in urban markets, actually fulfilling your own delivery, but maybe expand on where you are in that piece of the -- of delivering food.

Yes. For sure. No, you're right, we're not contemplating doing the delivery ourselves right now. So we're talking about a white label, you select delivery within the app. And then someone else will deliver it for you. We never say never. And obviously, with the digital -- with the delivery world still changing as quickly as it is, we remain extremely open-minded in terms of what delivery may look like for Shake Shack on a long-term basis. But for now, we're very focused on a multitude of other things that beat delivering our own food in terms of prioritization. So the delivery capability coming into the app, as Randy mentioned, is something that we will be testing before the end of this year, which we're very excited about. When we go back to that conversation we just had around sort of building that holistic picture of a guest to understand you, to communicate with you on a more relevant basis to incentivize you to exhibit certain behaviors when it comes to your purchasing intent, we're missing the delivery piece right now because we can't talk to you. We don't own that transaction. We own the sale, but we don't own the transaction. So that capability coming into our own digital ecosystem is a really important piece of the puzzle for us. Not necessarily as some light switch that changes anything overnight, but to complete that opportunity when it comes to building against some of those loyalty centric sort of goals that I mentioned.

And just one more on delivery. Is it your view that delivery is an incremental sale or not? It's unclear looking at your history on this. And obviously, COVID may have changed it. What is your -- I think really you have to have it. My question is, do you think it's incremental?

I think it's really, really hard to answer that question. And you've heard, I think, both of us say this to you before. When we hear other brands be as categoric on that answer, I think it's highly nuanced. I think it's even more nuanced in a moment like this because you're not comparing to any sort of normalized steady state at any point through COVID. So the way we think about delivery, John, and the way we think about digital more broadly, as you know, is we are all about growth right, we're all about physical expansion, both domestically and internationally, and we are about sales expansion within those units. One of the ways to do that is by expansion of access and convenience using digital channels. One of those is delivery. And so we are heads down on building a set of experiences that you can move fluidly across as a guest that you couldn't before. You had limited opportunity. You can move fluidly across a set of experiences as a guest that work for you in the moment. And we actually don't want to prioritize one over the other, which is why actually I don't think it's helpful when companies break down some of these channels in terms of their financial reporting. Because as we become more sophisticated, we will want to be incentivizing you in and out of different channels at different points in time, different points in the day, different -- depending on what the weather is, different points of the holidays, building it is one and engaging with your guests is one, with delivery being that final piece is really how we believe we'll deliver incremental growth as opposed to incremental growth by channel.

Super helpful. Got about 10 minutes left. I’ve got 3 big topics or 3 main topics I want to talk about. So I'm just going to try to gauge it and they're somewhat unrelated, Randy, I first just want to go back to product development. How do you think about -- so you talked about chicken, and I think it was a Hot Chicken product, forgive me if I got that wrong, but how do you think about the cadence of promotional? Is this more important than ever to have product news? How do you think about rekindling that or accelerating the product pipeline for Shack and proteins that you haven't historically had, for example, on the menus or entrées, how do you think just about -- should we think about this in 2021 for a product development cycle?

Yes. A few major categories there. And Tara touched on this a little bit. We've gone with Hot Chicken for this quarter. We continue to sell more and more chicken at Shake Shack. And we think it's a great opportunity as a platform for us for chicken sandwiches and chicken bites. Next year, we'll transition out of hot chicken as that LTO, where the first one we'll move into is a Spicy Korean style fried chicken, which we're really excited about. It's a great product. That will start next year. And we will have various chicken LTOs likely through next year. The second category is going to be continuing to evolve or vegetarian options. And we've been in and out, testing various Veggie Shack combinations over the last couple of years. We've got a new one that we are now testing at about 30 Shacks as of last week. We've got a lot to learn, and it is a real vegetable product. It is not alternative meat. It is vegetables. And 13 different vegetables, grains and herbs topped with fresh avocado, fresh roasted tomatoes and a new bun that we've created. So we're really excited to see where that goes and to meet the need of our guests who want to eat more vegetables. And then third will be kind of adding to the previous categories, doing more with beverage, doing more with lemonades, cold beverages, those things and doing more with shakes and frozen custard. So those are the main categories. We remain a burger joint and the Shack Burger rules, as always, the SmokeShack and our other burgers continue to be our biggest part of our business and will continue to do so. And we like adding in other categories for the moment while trying to keep this menu tight. We're not just adding and adding and adding. We add, we take off, we add, we take off. And we think that's good strategy into next year. So I would call it as important as ever menu innovation.

So Randy, keeping -- totally different, keeping on you, but a very different topic. I want to talk about international. And there's a lot of pieces of international. You've been in that international brand for several years in a number of important markets. Where do you think -- where do you prioritize the highest potential market? That's a leading question. I think we're going to be talking about China, but maybe how you think about most important international markets from a development standpoint for Shack over the next the couple of years and where you are in that development process of this?

I think the international story is one of the most important and biggest opportunities we have. It's an asset-light business that we love. We learn from it. It has just been one of the key factors of the massive global brand that we have even at our small-scale for our company. And we're going to continue to do that. You mentioned China, we are all in on China right now. We are super excited. We had just opened in Beijing to a tremendous start. We've got 5 Shacks doing well in Shanghai. And we're going to open in all -- more in all those regions as well as expand to the south. We'll be opening in Shenzhen next year and looking towards Guangzhou, Chengdu and other places in the South, and West and other major cities throughout China. We're really, really excited about that. We have a great partner, and we believe -- look, it's going to take some time with all of this happening. It's going to take some time, but we're going to get back to growth in China. Korea, we've continued to grow. We just opened the fourth largest city, Daejeon, and we'll be -- that has been a great start last week, and we'll be continuing to grow throughout Korea. Japan has been hit harder, right? And then you get to the countries that have been hit harder and haven't dealt with COVID as well. The Middle East remains the biggest part of our business. And we've got a large business there that's fairly mature. And then the U.K. has been pretty hard hit as well. Just like Manhattan, Central London has been hit quite a bit, but we believe we'll get back to growth there, too. Then we're starting to look beyond, look beyond. Where else could there be opportunities? We've gone -- we now have 5 Shacks open in Singapore, incredible growth there, and they've dealt with the virus pretty well. Philippines, Mexico and where else we can expand from there. So we've got a robust international business as it is, and we're going to continue to grow there and go deeper in the regions that we think we can. So I am super excited about the international piece. And the other piece, when we talk international, sometimes we forget to name that in the domestic license business, we have a significant business, and it is among the hardest hit business in our portfolio today. Airports, which we opened quite a few in the last 2 years are either shut down, still about half of them are shut and the Shacks that are open are obviously not doing the sales they need to be doing. And that's going to take some time to come back. That will be a weight on us for a while, and we hope we can get back, we hope travel gets back. And then stadium, same thing. We didn't have anything happen in our entire stadium business, which we have 9 Shacks this year. And we're looking forward, I hope, towards next year and getting some level of business back in those businesses.

That's super helpful. In maybe the 5 or 6 minutes remaining, I want to just focus on some longer-term targets, particularly around margins and understanding the overall or the long-term profitability business. Randy, I think Shack has always made the point that you're a young company, you need to invest in order to grow. But how can investors think about -- or what's the best way for investors to start to think about over a long-term, medium and long-term Shack-level margins? Is there some insights from COVID that you think there is a greater level of profitability that could be achieved when sales normalized? Then maybe, Tara, can you just talk about the enterprise investments you've made in G&A and also kind of the investments over the near to intermediate term that are going to impact how investors think about the margins and profitability of this business?

Yes. Happy to talk to that. I mean I think certainly around G&A and investing in our growth, you should hear and investors should hear how bullish we are in investing behind that growth. We were very vocal to that pre-COVID. We have really reintroduced the majority of those investments as we've come through this year with Q4 G&A spend likely to be back up close to 2019 Q4, and you should expect us to continue to invest from here. Everything we've talked about today in terms of all the different opportunities that we are now doubling down on every single thing today, really that we've touched on, we're at the beginning of. So we're excited about that, and you should expect us to continue to spend against it because we believe in the returns. And so that's not changing. In terms of Shack-level margin, we're focused on getting back to where we were pre-COVID. We haven't made any long-term statements around changing our target margins or the target profile of those Shacks, and we're not about to do so. But again, when we think about what we've just spoken about for the last 45 minutes, in terms of the opportunities as we see them to continue to expand our addressable market, whether it be through new formats that we drive or we don't even have one yet. All of these different capabilities that we've added, being at the beginning of the digital journey and the guest data sort of segmentation and sort of loyalty-light-type capabilities, expanding our sales and addressable market is the fastest way to drive continued high level margins. So that's -- we're really focused on that. We're not focused on kind of cost-cutting our way to margin enhancement when we started off at such a high level -- highly profitable business before we even entered this. Now in the immediate term, of course, there are some costs that are hitting the P&L. Things like Randy mentioned, some of them premium paper, our teams looking after our teams, PPE, all of these different things. And they're not going anywhere anytime soon, while we're still in such an extreme environment. But they'll come off at some point when we reenter a sort of normal operating environment. We'll continue to face labor inflation sort of mid- to single digit. That hasn't gone away, and we don't think it will go away, but as a young company, we're very focused on continuing to, to your point, investing in technology, streamlining process so that we can optimize that labor line as best as we can. And over the long term we'll have some economies of scale as we just actually reach some critical mass in some of these markets. We're still at a -- you could count on one hand the number of Shacks that we have in certain markets around the country, so there's an opportunity there over the long term. So big step back. I think we're very focused on it. Sales is the fastest way to get there, expanding those sales is the fastest way to enhance it. And in the meantime, we're really pleased with the progress to date with the just shy of a 15% operating margin at a Shack level in Q3, with comps down over 30%.

Fantastic. We're just about at the top of the -- or at the end of this session. I did get one question, I'll just ask it because I think there's some of you who are [ selfish ]. When are you going to Dublin, Ireland? Anytime soon?

Last good trip I had before all this was in Ireland, and we had our sights on that market. I love that market. There could be a few Shacks in Dublin. We'll see. We'll see. My wife's got an Irish passport. So that will make it easier for me to go there.

Good to hear. Randy and Tara, thank you so much for your time today. Be well, be safe. Wonderful holidays to all of you, and thank you for everyone for joining us today.

Likewise. Thank you, John.

Take care.