Shake Shack is closing nine underperforming locations, with six in California, marking the first time the chain has shuttered restaurants for non-construction-related reasons. This decision follows California's recent $20 minimum wage increase, which has pressured several fast-food chains to adjust their operations and pricing strategies.
The closures include five restaurants in the Los Angeles area and one in Oakland, reducing the chain’s presence in California to 37 locations. Shake Shack stated that these closures result from a periodic evaluation of its portfolio, indicating that these units were not projected to provide acceptable returns. The company also cited changes in trade areas as a contributing factor.
In addition to the six California closures, Shake Shack will shut down two locations in Texas and one in Ohio.
Shake Shack’s decision reflects broader challenges faced by fast-food chains in California due to the new minimum wage law, which has led some companies, including McDonald's and In-N-Out Burger, to raise prices or explore automation to manage increased labor costs.
Rubio’s California Grill, for example, closed 48 locations and filed for bankruptcy, citing the rising cost of doing business in the state.
The company’s new CEO, Rob Lynch, who took the position in May, aims to shift Shake Shack’s image from a premium urban eatery to a more family-friendly option, including expanding drive-thru locations to cater to a wider audience. Despite the closures, Shake Shack plans to continue its growth, with the closures not affecting its future store openings in those areas.
Shake Shack currently operates 330 locations in the US and over 180 internationally. The chain has seen a 4% increase in same-store sales for the second quarter, driven mainly by higher prices, while traffic has decreased slightly.
