The peaks and valleys of Steak ‘n Shake’s 91-year history have been pronounced. It was a brand straddling a cliff during 2008’s financial crisis, holding about $1.6 million cash on hand, debt of $27 million, and losses of roughly $100,000 per day. Sardar Biglari called it a “vessel taking on water.” After Biglari acquired the brand in August of that year, a strategy shift got to where it was generating $100,00 per day by the end of 2009.
That turnaround, though, slid in 2017 as the company went from $34.7 million in operating earnings to $431,000. Then, back-to-back yearly loses in 2018 and 2019, respectively, set off another radical transformation. This time, Steak ‘n Shake shed servers after 86 years and spent some $50 million to revamp the brand, from interior remodels to a new point-of-sale to self-order kiosks. It also reduced operating hours and sliced menu items.
For all intents and purposes, Steak ‘n Shake became a quick-service restaurant company, while also implementing an owner-operator program that mirrored the single-leader, direct-focus ethos of chains like Chick-fil-A. Over the last four years, Steak ‘n Shake produced aggregate pre-tax operating earnings of $71.3 million, as seen below.
Through this process, however, Steak ‘n Shake also became significantly smaller. The brand shed 200 units since its peak of 626 restaurants in 2018, when the losses began.
And 2024 marked a step back in performance from 2023 and from the company’s internal guidance. Steak ‘n Shake reported pre-tax operating earnings a touch shy of $20.1 million last year. That pre-tax cash return on capital missed Biglari Holdings targets by 20 percent.
Biglari said in a letter recapping the year the inadequate levels of profit and return on capital employed occurred primarily because the company failed to maintain operating margins despite growing same-store sales. Net sales in Q4 were $159,213 compared to $152,545 the prior year. Same-store sales increased 6.4 percent at company-operated restaurants.
Those “shortcomings,” Biglari said, led to a major overhaul of the senior management team. Steak ‘n Shake replaced executives in charge of operations, finance, traditional franchising, and supply chain.
“The new team is setting a new pace in 2025—fast and focused,” Biglari said.
He noted Steak ‘n Shake $50 million transformation “improved unit economics mightily.” The payback on the capital investment took just under 18 months.
By converting from a full-service operation to a quick-service one, and even more so, a self-service iteration, the breakeven point declined by about 40 percent, “obviating our dependence on high unit sales to register a profit,” Biglari said.
The chain embraced the power of simplicity, he continued. Steakburgers, fries, shakes, and soda now comprise nearly 90 percent of sales. “We do not waste space, inventory, or labor to support marginal products,” he said.
Biglari also believes Steak ‘n Shake is well positioned for today’s economic, inflationary-weighted pressures. Instead of reducing portion size and quality, the brand increased the size of beef patties by 9 percent, the quantity of mix-ins for milkshakes, and the amount of homemade whipped cream it serves. More recently, Steak ‘n Shake ignited social chatter by announcing it would now cook its shoestring fries in 100 percent beef tallow instead of vegetable oil. That went into effect systemwide at the end of February.
“Any one of our actions may go unnoticed by our customers but cumulatively they should strengthen our competitive position,” Biglari said.
Steak ‘n Shake evolution led to triple-digit gains in productivity. Under the prior approach, annual unit sales per employee, measured on a full-time equivalent basis, were about $64,000 (2019). Biglari said they were nearly $137,000 last year. With few exceptions, store operating hours were also cut from 24 to 14 hours a day.
Although, naturally, overall sales per unit fell in response, he said sales per operating hour lifted 51.9 percent. In tandem, the average number of employees working per operating hour slid by 28.9 percent. It’s an equation, Biglari said, that hiked productivity 114 percent.
This bump over a five-year period translated into a trifecta of higher wages, higher quality, and higher profits. “The future from here cannot be charted blithely,” he said. “We must continue to take advantage of technological innovation as we seek to improve margins. To be sure, other restaurant chains will attempt to do the same. Yet while the buildings, the equipment, and other balance sheet figures are important, it is the individuals operating the restaurants who make or break the company.”
That latter point gave Biglari a chance to turn to the single-unit, owner-operator flip. A little more than five years ago, Steak ‘n Shake launched a franchise partnership program where prospective operators make an upfront investment of $10,000. The company constructs the restaurant and its equipment (or has previously) and assesses a fee of up to 15 percent of sales as well as 50 percent of profits. Biglari Holdings generates more of its revenue from its share of profits.
Holistically, Biglari has painted this strategy over the years as a call intended to become “the most productive, hospitable restaurant company in the industry.” The notion being it would improve fortunes by relying on enterprising operators who laser into communities and store-level economics. Again, in a similar vein to Chick-fil-A’s angle to avoid absentee ownership through owner-operator empowerment.
Steak ‘n Shake sets brand standards at corporate and centralizes functions like purchasing and training. But it confers authority on operating decisions to franchisees (hiring, etc.). Biglari said doing so frees them from layers of bureaucratic control.
“We have therefore structured the organization to achieve uniformity while building a culture of ownership at the unit level. For operators to think and act like owners, we believe they must be owner,” he said. “In becoming a company of owners, we are changing the culture of the organization in our quest for service excellence.”
Five years in, there are now more units operated by franchise owners than the company. Biglari said the goal remains to place all corporate stores in the hands of owner-operators.
By year-end 2024, Steak ‘n Shake had converted 173 company restaurants into single-unit franchise partnerships. It was down eight, year-over-year. Fees generated by franchise partners last year were $70,616 compared to $72,552 in 2023.
With company-operated restaurants continuing to transition, Steak ‘n Shake will appear a lighter company from a revenue perspective. That’s not true on the profit said, Biglari said. Accounting convention dictates in company-operated restaurants sales to the end customer be recorded as revenue; but for franchises, only Biglari Holdings’ share of profits, along with certain fees, are recorded as such.
In plain terms, the franchise partnership system is more a federation of legally and administrative sperate enterprises. “Our single-unit franchise partners display a consummate commitment to their respective restaurants,” Biglari said. “Absentee ownership is neither desired nor permitted. Our partners are responsible for 10 managing the day-to-day operations of their restaurant, setting wages, and building their business one customer at a time. Under this franchise arrangement, an owner-operator is able to earn considerable sums, which is the way we want it.”
The average franchise partner made about $132,000 per year in 2024, “which was more than the average accountant, architect, or engineer in America earned,” he continued.
“Doubtless, a good number of our partners will become millionaires,” Biglari explained. “But make no mistake: We are not minting millionaires but are merely providing the means—they are earning every penny.”
The combination of low profits at remaining company-run restaurants and tightened eligibility standards has made it difficult to transition the balance of corporate restaurants. Biglari said Steak ‘n Shake is working to improve performance to make them more attractive to prospective partners.
Steak ‘n Shake also still touts a traditional franchised business, although it’s steadily declined in recent years. The brand tried to develop a new prototype to reinvigorate outside investment. Biglari said closures here have “mainly occurred with franchisees who failed to follow in our transformational footsteps.”
“Because Steak ‘n Shake underwent a radical change in its business model, it will take some time to spur traditional franchise growth,” he said. “Led by a team recruited to expand the company’s franchise operations, our efforts should reverse the decline in unit count. The traditional franchise business is an important dimension of Steak n Shake because the funding necessary to expand the brand is borne by third parties. We have fixed the business model and are primed for franchise growth.”
At 2024’s exit, Steak ‘n Shake had 173 franchise-partner units (the single-unit model), 107 traditional franchises, and 146 corporate restaurants. The franchise number retracted by 20, year-over-year.
Overall, Biglari said the brand ended 2024 with a book value of $177 million, as cash dividends to Biglari Holdings exceeded net earnings. He claims it was worth about $293 million in August 2018, at acquisition, based on the prior fiscal quarter.
Book value, or “net worth,” represents the capital invested in a company by its owners, or an accounting term that reflects the capital built up in the corporation. Biglari points out, though, Steak ‘n Shake could not “sell anywhere close to that sum in 2007 or 2008,” as evidenced by its failure to find a buyer the year before Biglari jumped in. All bids were below book value, he said.
So, in August 2008, Steak ‘n Shake’s number overstated its going-concern and liquidation value. Simply, the enterprise was a money-losing operation saddled with lease liabilities.
Biglari feels the intrinsic value of Steak ‘n Shake today is in far excess of its carrying value, despite what roads remain ahead.
“Our franchise partners are living the American dream, and their achievements are the result of their deeds—they are a group of doers,” Biglari said. “They know how to translate hard work into a productive enterprise because they possess the talent and energy the position requires. The common thread among them is an early struggle, which calls to mind the motto of the state of Kansas: ‘Ad astra per aspera,’ which means “through adversity to the stars.” The grit of our operators and the spirit of cooperation that prevails throughout the partnership are unmatched.”
