Steak ‘n Shake is undergoing two major transformations—flipping to a quick-service format systemwide, and selling franchises to single-unit operators for $10,000 in an effort to foster entrepreneurship throughout the organization. In the interim, the legacy burger chain is absorbing its share of COVID-19 blows.

The 1934-founded brand saw comparable traffic decline 54.2 percent in Q3, year-over-year. For the first nine months of fiscal 2020, the figure slid 44.6 percent versus 2019 levels “primarily because of the effects of the COVID-19 pandemic,” parent company Biglari Holdings said in a filing.

Meanwhile, Steak ‘n Shake continues to trim its footprint. The brand permanently closed 13 restaurants in Q3 (11 company run and two franchises).

Steak ‘n Shake exited the period with 260 corporate units, 69 franchise-partner stores (the $10,000 program), and 199 traditional franchises.

On December 31, 2019, Steak ‘n Shake had 368 corporate restaurants, 29 franchise partner, and 213 traditional franchises. Over that span, it’s transitioned 41 locations to franchises and closed a net of 67 restaurants. Forty of those transitions became franchise-partner stores. One became a traditional franchise. Fifteen franchises net closed.

If you go back even further, Steak ‘n Shake touted 411 corporate venues on December 31, 2018, two franchise-partner units, and 214 traditional franchises.

A total look (locations):

  • December 31, 2018: 626
  • December 31, 2019: 610
  • June 30, 2020: 542
  • September 30, 2020: 528
  • Closures so far this year: 82


A quick refresh on the franchise-partner initiative: Steak ‘n Shake asks for an upfront investment from franchisees of $10,000. They are screened based on entrepreneurial attitude and ability and become partners based on achievement, the company said. The main point addresses a prior concern—service quality and consistency. “Franchise partners are required to be hands-on operators,” the company said. Steak ‘n Shake assesses a fee of 15 percent of sales and 50 percent of profits.

Steak ‘n Shake closed most of its dining rooms by March 17 as COVID struck the landscape. The remainder went off line before the end of Q1. Additionally, as of September 30, 37 of 260 company-run stores were temporarily closed. This time a year ago, 106 of 282 corporate venues were temporarily shuttered as Steak ‘n Shake searched for franchise partners to transition stores to.

So it’s been a complicated stretch for the brand.

The company said most of its restaurants remained open with limited operations, such as takeout, drive thru, drive in, and delivery throughout the pandemic. It relaunched “Drive-In Service” over the summer where carhops deliver food on trays and attach it to an open window for guests to enjoy in their car—just like Steak ‘n Shake did back in the 1950s. Customers pull up to a spot denoted by signage evoking a 45 RPM record popularized in the 50s, then place their order via Steak ‘n Shake’s app. Outdoor tables are available for the service as well.

However, a key point is this COVID response is Steak ‘n Shake desire to reopen dining rooms with counter service. The transition, the company said, will “require significant investments in equipment.” It expects to fund these costs mainly by selling owned real estate via an auction process.

The company put 15 restaurants on the block in August. Steak ‘n Shake said the funds needed for the transition were “limited under its debt agreement.”

On that note, the company shared in the filing it had $153 million in outstanding debt coming due in March, which Biglari Holdings would not guarantee.

“Absent a resolution with the lenders, Steak n Shake may need to seek refinancing options, which may not be available. In addition, the duration of the pandemic could have a material adverse effect on financing options or Steak ‘n Shake’s ability to comply with the terms of its credit agreement,” the filing said.


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Steak ‘n Shake’s decision to switch to counter service stemmed from high-labor costs associated with waitstaff. The chain deployed servers for its first 78 years of business. The initial quick-service model arrived in 2012 and targeted non-traditional growth, like universities, casinos, airports, and gas stations. At the end of 2018, there were 87 quick-service restaurants in Steak ‘n Shake’s system, including international.

Biglari Holdings said in February—when the system flip was announced—a combination of labor-intensive, slow production with high-cost table service sent the chain’s overall labor costs 6–8 percentage points higher than those incurred by competitors.

The debt agreement appears to be restricting the effort. And as Steak ‘n Shake noted, financing options could be hard to find come March if the brand hasn’t reignited performance.

In order to reopen the dining rooms profitably, Steak ‘n Shake will require funds for capital expenditures, which are limited under its current debt agreement,” the company said. “The purpose of the capital spending is to convert Steak ‘n Shake’s full-service model into a self-service one.”

Sales across all Steak ‘n Shake and Western Sizzlin locations were down 50.5 percent, year-over-year, in Q3.

Steak ‘n Shake’s revenue came in at $78.3 million, down from $141.4 million last year. Over the first nine months of the year, the figure is $267.64 million compared to $467.5 million.

Net sales in Q3 and the first nine months of 2020 were $67,617 and $241,832, respectively, representing a decrease of $69,034 (50.5 percent) and $214,512 (46.8 percent).

Franchise royalties and fees also fell by $2,217 or 33.4 percent in Q3.

Franchise partner fees were $6,894 during the period compared to $989 in Q3 2019. The reason being there were 69 franchise-partner units compared to 20 last September.

Steak ‘n Shake cut back marketing as well. Its expenses clocked $18,406 over the first nine months of 2019 compared to $30,811 in the year-ago measure.

Biglari Holdings, which also owns Maxim Inc., Southern Oil Co., and a host of other businesses, earned $21.1 million in Q3, or $60.07 per share, on $101.8 million in revenue. It’s up from a $17,000 loss last year thanks to lowered restaurant expenses from temporary closures and refranchising.

Fast Food, Finance, Story, Steak 'n Shake