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Diving letter:
- Shake Shack is returning all of the $ 10 million it received from its Paycheck Protection Program loan after landing from outside funding on Friday. according to a letter Founder Danny Meyer and CEO Randy Garutti posted on LinkedIn on Sunday evening. “Our people would benefit from $ 10 million [Paycheck Protection Program] Loans, but we’re fortunate to have access to capital now that others don’t.” it says in the letter. “Until every restaurant in need of help has had an equal opportunity to get help, we’re giving ours back.”
- Shake Shack applied for PPP because, despite its 189 branches, it was eligible for state aid and didn’t expect the program to run out of money in just two weeks. The credits can be applied to any restaurant location with no more than 500 employees, and each Shake Shack restaurant has about 45 employees on the payroll, wrote Meyer and Garutti.
- Meyer and Garutti added that the PPP “came with no instructions for use and it was extremely confusing,” urging Congress to improve funding, assign a local bank to each applicant, and post the state or credit date to six months in June Changing the city of a restaurant has authorized restaurants to reopen in full.
Dive Insight:
Shake Shack’s decision to repay its $ 10 million federal aid follows the outcry that so many big chains, including Potbelly and Ruth’s Chris Steakhouse, were receiving funds during the mom and pop restaurants for which the program was designed , left to dry. As reported by Bloomberg, more than a dozen public corporations with sales of more than $ 100 million received these aid loans designed to help small businesses.
Although the industry was upset that PPP funding expired in just two weeks, the terms of the program threw out a wide web of funding capabilities in the restaurant market. As Garutti and Meyer emphasized in their letter, “Few, if any, restaurants in America employ more than 500 people per location.” The New York Times reports that up to 75% of independent restaurants may not survive the crisis.
Of the major restaurant brands to have received a PPP safety net, Shake Shack is the first to give up their loan. The move could inspire other chains to do the same if they are lucky enough to receive additional funding, especially given the fact that The critic who followed their information on financing.
Shake Shack didn’t reveal what it would use its Friday funding for, though the bulk will likely go to payroll like the loan. Last week, the company announced that it had laid off our 1,000+ employees on leave due to the impact of the novel coronavirus crisis, and Preliminary results for the first quarter show sales in the same store decreased 12.8% in the first quarter, including a 28.5% decrease in March. Company employees and management teams received a reduced salary for an indefinite period of time. However, Shake Shack is committed to paying general managers full pay regardless of whether their restaurant remains open. Shake Shack also pays out PTO and covers 100% of medical benefits for all company executives and employees on leave until July 1. according to a press release from the company.
In the meantime, the chain’s sales declines have eased somewhat in recent weeks. CEO Randy Garutti said in the press release that Shake Shack has seen “strong sequential sales increases on a weekly basis since the last week of March”. This improvement is driven by the shift in the chain to focus on digital sales and delivery. That includes expanding beyond an exclusive delivery partnership with Grubhub to also include DoorDash, Uber Eats, Caviar and Postmates, he said.
With those pivot points – and the company’s improved brand positioning after it paid off its PPP funding – Shake Shack could very well have past its deepest sales declines and the parts it has built in could better position the chain once that crisis is over is over. Shake Shack said that its own channels, for example, account for the largest share of current sales, which is a positive sign as there are no third-party commission fees and the company can retain that customer data.
It seems likely that Shake Shack will be able to maintain its progressive halo after that PPP dust, especially as Meyer and Garutti seek changes that will better support independents. On the other hand, critics may complain that the chain’s solidarity with small restaurants follows an injection of money that can replace their PPP benefits.
“It is inexcusable to skip restaurants because no one told them to queue until funding runs out,” the letter said. “With adequate funding and some tweaking necessary, the PPP program can provide the economic boost the entire industry needs to get back into business.”
Correction: In an earlier version of this article, the Cheesecake Factory PPP loan status was incorrectly identified. The chain has not received any PPP funding.
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