For the uninitiated, Chick-fil-A is a wildly popular Atlanta-based fast food chain, famous for its chicken sandwich and waffle fries. And finally, the Southern chain with a cult-like following is taking its show up north, to the Big Apple.
The Chick-fil-A NYC invasion has actually been years in the making — while it has operated a small store at New York University for more than a decade, it has never been able to find the perfect blockbuster location. But it has now.
And that’s bad news for hometown hero Shake Shack (SHAK).
Frankly, SHAK stock doesn’t need any more issues, as it already trades at a ridiculously bloated valuation: 154 times forward earnings, to be exact.
Now with the first major Chick-fil-A NYC location on the horizon, SHAK stock could face further competition as its loyal clientele tests a southern favorite.
Moment of Truth
In true New York City fashion, the first full Chick-fil-A NYC restaurant will be the privately held chain’s largest location when it opens on Saturday. Bloomberg reports that it’s a three-story, 5,000-square-foot spot in the Garment District of Manhattan, and it took years to scout out and secure the location.
“Hold on,” you might be thinking, “How exactly is a Chick-fil-A NYC location a threat to SHAK stock? They don’t even make the same type of food!”
Good point — sort of. Shake Shack is a burger joint with roots as a food cart in New York City. Chick-fil-A doesn’t even make burgers. But there is some overlap: Chick-fil-A does a mean shake of its own, both companies do breakfast foods, and SHAK recently decided to boldly try a chicken sandwich of its own.
In fact, when Shake Shack debuted its fried chicken sandwich last month, one investing website stuffed seven of its employees in a room and had them do a blind taste test to see how the two stacked up. Even in its home market, SHAK couldn’t hold a candle to the Chick-fil-A chicken sandwich, which was voted the superior product.
While SHAK stock won’t necessarily feel the pain from the perspective of burger sales, its potential growth is likely to be stifled at least modestly as Chick-fil-A heads north, and consumers realize that Shake Shack just doesn’t stack up on the chicken sandwich.
A Chick-fil-A NYC location was an inevitability, as the restaurant chain’s enormous success has even drawn the likes of McDonald’s (MCD) to launch their own underwhelming one-offs of the iconic southern delicacy.
While one NYC Chick-fil-A location might not doom SHAK stock in and of itself, investors baking in growth coming from Shake Shack’s ostensibly inferior chicken sandwich could be in for an ugly surprise.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.
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