There is a lot more nuance to this business than I ever gave it credit for. As I am sure you are well aware the better burger category has been exploding as of late. So far there have been two approaches to expanding the category: one is a more regional approach that radiates from the chain’s core market and leverages its local reputation / word-of-mouth to build a cult like following. I would argue this is the approach that In-N-Out Burger and Shake Shack have largely pursued. The other approach has been the land grab approach which is to expand as quickly as possible in order to gain a national footprint, brand awareness, and ultimately market (and mind) share, an approach that has been adopted by chains such as Five Guys and Smashburger.
I haven’t dug into the financials, but I am curious as to how much more productive the Shake Shack locations are in the Northeast, which I would consider its core market, vs. its locations on either the west coast or overseas. Moreover, it will be interesting to see over the next 5-10 years as Shake Shack continues to expand nationally whether they will be able to take market share away from Five Guys and Smashburger, who already have national market presence, and whether they will be able to maintain the same unit economics. It will also be interesting to see if they will have to increase their marketing budget / campaigns to build brand awareness in markets outside of their core region.
I think this is a really cool business. Last mile logistics has always been a tough problem to solve in a profitable manner. One question for you: do you think there is any risk of disintermediation by UPS or FedEx? In other words, do you think that FedEx or UPS might start offering a premium service to customers in which a customer could pay UPS or FedEx to deliver their package late at night or within a specific time window outside of normal delivery hours. Obviously both of these logistics businesses have the scale and operating model already set up to service these customers, and it seems like a fairly easy additional service that they could add to their core competencies in a much more profitable and easily scalable manner then Doorman. The other risk I worry about with this business is disruption from Amazon who is also starting to launch its own fulfillment business. Not sure how you think about these risks as Doorman continues to grow.
This is a really interest business, Matt. I agree that as the company is currently operating, there is no path to profitability, however, as the business grows, I wonder if there might be a way for the business to become profitable by either increasing the productivity or efficiency of Alfreds so that each individual Alfred can serve more customers, thus reducing headcount needs. I also wonder if over time, the Company could develop a tiered pricing strategy in which a customer could pay more than $99 / month for additional services or attention. In this case, the cost per Alfred should be the same, but the profit margin to corporate should expand. Finally, over time, the Company might be able to achieve some operating leverage on some of its corporate SG&A and R&D.
I suppose time will tell how the story will play out.