Investors relish US debut for Shake Shack

Shake Shack originated from a hot-dog cart in Madison Square Park

Fast-food connoisseurs are demanding higher quality these days and it seems Shake Shack’s Angus beef burgers and frozen custard milkshakes are hitting the spot – because the chain was valued at nearly $2bn (£1.3bn) in its market debut yesterday.

Shares in the “fast casual” restaurant rocketed 150 per cent to $52.49 in the first few minutes of trading on the New York Stock Exchange, before falling back to $48.

In its initial public offering, Shake Shack, which originated from a hot-dog cart in Manhattan’s Madison Square Park, raised $105m after it sold five million shares at $21 apiece.

Demand from investors had raised the figure above an expected price range of $17 to $19 per share – and way above the $14 to $16 originally set by the underwriters, JP Morgan and Morgan Stanley.

Founded by Daniel Meyer in 2001, Shake Shack opened its first permanent kiosk in 2004 and can now be found in 63 locations around the world, including Moscow, Qatar and London’s Covent Garden. It has said it plans to open 10 company-operated restaurants in the US each year.

Mr Meyer’s 21 per cent stake in the company was worth about $390m at the highest point on Friday. The 56-year-old also owns the New York restaurants Blue Smoke, Gramercy Tavern and Union Square Cafe.

Shake Shack’s success on the IPO market mirrors that of other fast casual restaurants, including Chipotle Mexican Grill. Chipotle’s shares, which were listed at $22 in 2006, now trade at around $711.

Described as a “cult”, Shake Shack is evidence of the trend for customers to choose more expensive chains over the likes of the struggling fast-food giant McDonald’s.

Sales at premium chains including Five Guys and Smashburger rose 9 per cent in 2013, according to the restaurant consultancy Technomic, while overall sales at all burger chains, including McDonald’s, fell 1 per cent.