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Breakfast Could Be Next on the Menu for Shake Shack

Shake Shack's new Fulton Center location. Image source: Author.

Shake Shack Inc. (NYSE: SHAK) is best known for its gourmet burgers, but the fast-casual chain could soon be making breakfast a staple of its fare.

With the national rollout earlier this year of the Chick'n Shack chicken sandwich, its first poultry item, the company has signaled an interest in expanding the menu. It's now offering breakfast for the first time outside of a transportation hub like an airport or train station at its new Fulton Center location in downtown Manhattan, which opened last week.

The new restaurant occupies a building connected to eight subway lines, but its second-floor location seems to indicate that its customers will primarily be office workers from the surrounding area, rather than commuters. Currently, Shake Shack offers breakfast at five other locations: Grand Central Terminal; its two Shacks in JFK Airport in New York; Union Station in Washington, D.C.; and the Dubai International Airport.

Rise and shine

The Fulton Center location is offering breakfast from 7 a.m. to 10:30 a.m. Like the regular menu, the breakfast menu focuses on quality over quantity, offering three sandwiches: Egg N' Cheese; Sausage, Egg N' Cheese; and Bacon, Egg N' Cheese. Customers have the choice of one or two eggs. At the Fulton Center location, the Egg N' Cheese goes for $3.79 with meat $1 extra. The eggs are fresh-griddled and cage-free, and the bacon and sausage are all-natural.

To drink, the company offers its own Stumptown Coffee blend of drip coffee as well as bottled cold brew by Stumptown. Fair-trade tea, fresh-squeezed orange juice, and organic apple juice are also available.

Shake Shack has a history of moving incrementally, starting out with a hot dog stand in Madison Square Park, before opening its original kiosk; it then waited four more years to open a second location.

The breakfast expansion seems to be following a similar plot. The company introduced it at its first JFK airport location in 2013, added a second airport location in 2014, then brought it to Grand Central, Dubai, and Union Station over the following months. At its location near the finish line of the Boston Marathon, the company also opened for breakfast on the day of the race. So far, management has been mum on any potential national rollout of the breakfast menu, though success at the Fulton Center could encourage the company to add more locations.

The most important meal of the day

Breakfast has become the latest battlefield in fast food. McDonald's (NYSE: MCD) decision last fall to offer breakfast all day, answering a long-standing customer plea, helped drive same-store sales up more than 5% and grabbed market share from a range of competitors. Breakfast now makes up more than 25% of Mickey D's revenue and is regarded by many as its tastiest meal.

Yum! Brands(NYSE: YUM) Taco Bell also jumped in on the breakfast wars, launching a morning menu nationally in 2014, which prompted its own streak of strong same-store sales. Starbucks (NASDAQ: SBUX) has made efforts in recent years to increase sales of breakfast sandwiches and pastries, such as its 2012 acquisition of La Boulange.

Breakfast is also competitive because it's been one of the fastest-growing categories in restaurants for several years and it tends to deliver higher margins than lunch and dinner items.

In the fast-casual arena, however, competitors have been slow to jump on the breakfast bandwagon. Speculation has swirled for years that Chipotle Mexican Grill (NYSE: CMG) would eventually jump into the breakfast fray, but the company pulled its breakfast menu at the two airport locations where it was offered, saying that customers preferred its standard fare, even in the morning hours. Privately held Five Guys has offered breakfast at a handful locations, but it never moved beyond that.

That shouldn't dissuade Shake Shack, however. In fact, it's an opportunity in the space, as no other fast-food chain is offering Shake Shack's brand of high-quality, all-natural food at breakfast. And the morning meal would offer another way for Shake Shack to show off its culinary fare the way it has with burgers and shakes.

The company certainly doesn't need breakfast to succeed, as its locations are already bringing in an average of $5 million in sales, far better than any other fast-food chain. But it would be another way to add sales and increase operating margins, especially as the company targets high-rent, high-traffic locations. Offering breakfast would also reassure investors worried about the stock's pricey valuation.

I wouldn't expect a national launch anytime in the immediate future, but if the Fulton Center location is able to drive morning traffic as management hopes, you could see breakfast coming to a Shake Shack near you.

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Jeremy Bowman owns shares of Chipotle Mexican Grill and Shake Shack. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.