iStock.com/mizoula
December 27, 2024
Shake Shack, Five Guys Named Most Overpriced Fast-Food in America: But Do Customers Care?
While the price attached to a traditional fast-food combo has been the subject of much dinner table discussion over the past few years, a recent study has singled out two notable chains as being particularly overpriced.
According to FOX Business, Shake Shack was awarded the dubious honor of claiming the top spot on the list as far as large chains are concerned, while Five Guys came in close behind.
Preply Data Reveals Shake Shack, Five Guys, Sugar Factory Considered Overpriced by Customers
In order to compile the data, Preply analyzed over 57,000 Google Reviews for over 10,000 restaurants in the top 50 U.S. cities, looking for certain key search terms. Search terms considered included “expensive,” “pricey,” “overpriced,” and “not worth the money,” among others.
“If you’ve ever gone out to eat and found yourself thinking about all the things you could have bought with the money you spent rather than savoring your meal, you most likely have fallen victim to overpriced dining,” the survey authors wrote. “All too often, restaurants charge a premium for dishes that don’t always deliver. From overpriced basic burgers and tiny portion sizes to cocktails priced like they’re made out of gold, nothing is worse than paying a high price tag for a low-quality outcome.”
Out of all the analyzed chains, Preply found that Shack Shack was the most overpriced, followed by Five Guys and then Sugar Factory.
As Eat This, Not That! detailed, Shake Shack initiated two different price hikes across its menus this year — once by 3% in mid-March in order to counteract inflationary pressure, and again (this time by 1.5%) in October.
According to a separate FOX Business report, Five Guys went viral for all the wrong reasons in March. After a diner shared a receipt for $22 (or $24 with tip) following the order of a bacon cheeseburger, soda, and fries, social media mocked the chain for its current prices.
“I guess I was expecting about $12 to $15 per person for Five Guys,” X account Wall Street Silver said on the platform at the time, per FOX Business. “$22 (without tip) just seems to cross a line. What is the right amount these days?”
Despite Criticism, Shake Shack Reports Strong Earnings for Q3 2024
Despite having been named the most overpriced fast-food chain in America, Shake Shack doesn’t seem to be taking the news too hard.
During its most recent earnings report, as Fast Casual reported, revenue surged by 14.7% and same-store growth ticked upward by 4.4%. The chain also experienced a 28% jump in adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) and opened 17 new locations. However, as USA Today reported in August, Shake Shack announced plans to close nine underperforming locations in September.
“We are proud of the results our team members delivered this quarter, as we grew total revenue 14.7% with 4.4% same-Shack sales growth and positive traffic,” CEO Rob Lynch wrote in a letter to shareholders at the time. “We continue our strong momentum into October, as our marketing and operational initiatives continue to take hold.”
As Five Guys is a privately held company, it is not required to offer earnings reports to shareholders.
While fast-food customers remain frugal with their choices, will more upscale options in the space such as Five Guys and Shake Shack be able to escape the demands of a value-conscious consumer? It’s understood that both brands hold very loyal fanbases that espouse a quality-first perspective, perhaps not minding a higher bill in exchange for their favorite fast-food orders.
Discussion Questions
Will this survey, and the continued perception of Shake Shack and Five Guys as potentially overpriced, contribute to a significant sales barrier for the two fast-food chains?
What can upscale fast-food chains do to protect themselves from negative press coming in the form of these sorts of surveys (or social media shares)?
Are these survey results reflective of a deeper problem for Five Guys and Shake Shack, or can they essentially ignore the results and focus on brand loyalists (and a different demographic)?
Poll
Loading …BrainTrust
Richard J. George, Ph.D.
Professor of Food Marketing, Haub School of Business, Saint Joseph's University
Georganne Bender
Principal, KIZER & BENDER Speaking
Jeff Sward
Founding Partner, Merchandising Metrics
Recent Discussions
More Discussions
Would Recording In-Store Associates Help as a Training Tool?
Ethosphere is banking on AI-driven recordings of in-store associate practices as the next big thing in…Some Retailers Are Trimming Holiday Sales Discounts: Is This a Dangerous Play?
Some retailers are pulling back from deep discounts this holiday season. Is this a dangerous play?Has Kroger Discovered the Limits of Automated Warehouses?
Kroger is winding down its relationship with Ocado, citing cost overruns and a reorganization of its…
It makes no sense to say a successful business is overpriced…how can it be(?) : the “proper” price is what the market is willing to pay, and if the business is succeeding, then obviously the market is paying. There might be some theoretical argument profit would be (even) higher w/ lower prices, but that’s not something a random person could calculate.
Growth in any business should be adjusted for inflation whenever we discuss year-to-year growth during an inflationary period. Therefore, I believe it is possible that the revenue increase of 14.7% and the same-store growth of 4.4% are due to higher prices.
Even so, it is ironic to label a restaurant as “overpriced” if it is doing well, or even better than last year.
A restaurant’s success can also be measured by other metrics, such as customer satisfaction, repeat patronage, and online reviews. In addition, measuring the efficiency of operations and employee satisfaction can provide insight into the sustainability of its growth. In combination with financial performance, these factors can help determine whether a restaurant business is overpriced or not.
Two things. Semantics. And what the market will bear. I don’t buy anything ‘overpriced’. I do occasionally treat myself to ‘expensive’ items. And yes, Five Guys is expensive, and worth it. I could get a free pass to McDonald’s, Wendy’s or Burger King and probably drive by all of them for the privilege of paying for a burger and fries at Five Guys. Jalapeno pepper being a key differentiator. Onions my way being a key differentiator. And bacon, of course. Differentiation, quality and the resultant value are in the eyes of the customer. Five Guys manages that equation at the limits of my tolerance.
Starbucks coffee is overpriced, and I don’t buy it any more unless there is simply no other option. But there almost always is. Thank you Dunkin’ Donuts and your sourdough egg sandwich + coffee for breakfast. Distinction of both product and price compared to both MacDonald’s and Starbucks.
At ‘expensive’ I can still say I am treating myself and enjoy the meal. At ‘overpriced’ I am aggravated there wasn’t an option and sitting there vowing not to overpay again.
“Overpriced” compared to what? A $5 value meal at Burger King? I suppose so, but value (not price) is in the eye of the consumer willing to pay the higher price. No different than any other segment of retail.
Two key words: overpriced & value. It is difficult to describe these two chains as overpriced if customers continue to patronize them. Value is not the old definition of quality divided by price. Instead it is benefits received divided by burdens endured. In this case, tasty burgers, delicious milk shakes, hot French fries, friendly service, etc. are some of the unique benefits enjoyed with the slight burden of a higher price.
While Shake Shack and Five Guys may be labeled as ‘overpriced,’ and both underperformed leaders in the space for same-store-growth (e.g. Chipotle reported ~11%), I believe these brands are actually well-positioned to benefit from both ends of the market: leveraging their strong brand assets to retail core customers who prioritize quality over price, while also capturing ‘trade-down’ traffic from higher-end casual dining customers seeking more affordable luxury experiences. Brands with strong value propositions – even at higher price points – can thrive by delivering on their quality promise and maintaining their premium positioning in the market.
Overpriced? All fast food is overpriced, but if that’s what you want, or it’s all that’s available, it’s what you’re going to get. Who hasn’t overpaid for something at a hotel gift shop or a store at an airport? It’s all relative.
“Overpriced” is in the eye of the beholder and is meaningful for a specific target customer base as opposed to everyone, everywhere. If sales are up for Shake Shack and Five Guys and they’ve captured enough of their target market who love their quality-value ratio proposition, then they are succeeding. They aren’t trying to convince everyone who eats fast food, only the customers who want a better quality burger.
As many of the other comments accurately state, pricing is subjective to perceived value. To build on that, ‘upscale burgers’ like Five Guys and Shake Shack occupy a niche between fast food and sit-down restaurants, and thus appear to be priced appropriately relative to competition. As a Five Guys fan, I’m willing to pay a premium to fast food for higher quality – both the burger itself, as well as the multitude of toppings.
Value is in the mind of the beholder. So whether Shake Shack is poor value or not will depend upon individual perception. Collectively, however, the company continues to grow its sales and volumes at a fairly rapid clip (+12.8% system-wide sales in the latest quarter) – which suggests that it’s pricing isn’t too detrimental.
At the core of marketing strategy is attracting and influencing the target audience to pay the highest price for a product or service. Clearly, in the mind’s eye of Shake Shack and Five Guys core consumer, the current price tag for a meal is not only appealing but also worth it. If it wasn’t, we’d see net new store openings in the negative column (vs +8) and less than stellar EBITDA numbers. Further, we’d see a change in menu mix, pricing and host of other promotional activities. “Overpriced” is a relative term and needs to be used in context. For example, I could say that a LMVH bag is overpriced, but there a lot of people in this world who own those luxury bags and would tell me that I have no idea what I’m talking about.
Overpriced? Sure. Losing share because of the menu prices? I don’t see it, and the reason is the average Shake Shack customer is a different demographic in general than the average Burger King or McDonalds customer.
This is a non story story.