The good news for Steak n Shake in 2022: It generated a profit. The burger chain, undergoing a complicated turnaround strategy that involves a shift in its service model and business strategy, generated $11.5 million in operating earnings last year, according to parent company Biglari Holdings.
But that profit came from fewer locations. Steak n Shake finished 2022 with 506 restaurants, down from 536 the year before. It was the fourth straight year in which the chain closed more restaurants than it opened, a period in which it shrunk its unit count by 19%.
Traditional franchisees, who finance and open locations and pay a royalty to Steak n Shake, closed most of those 30 locations in 2022. Those operators closed 24 locations, or 13% of the restaurants they started the year with. Franchisees have closed 28% of their locations since 2019.
The closures have come during a substantive period for the Indianapolis-based Steak n Shake. The company came perilously close to a bankruptcy filing in 2021 before Biglari Holdings paid off its debt. It is also in the midst of a massive change in its business model, both in terms of who owns the restaurants and the service they provide.
Steak n Shake, traditionally a full-service restaurant specializing in burgers, but with drive-thrus, has been shifting toward a counter-service model featuring kiosks. The company has invested $50 million in the kiosks and the service conversions, which CEO Sardar Biglari said was necessary for the chain to keep pace with quick-service and fast-casual competitors.
“If we had not invested in innovation, our competitors would have retained their advantage,” Biglari said in his letter to shareholders. “Overwhelmingly, our customers have embraced the seamlessness of the experience.”
Biglari said that, under the counter-service model, the company generates $131,000 in revenue per employee, compared with $64,000 before. The cost savings, he said, have been “passed onto customers through low prices, and to associates through high wages.”
At the same time, the company is undertaking a shift in its franchise business model. Steak n Shake has been selling locations to franchisees that pay $10,000, plus a fee of up to 15% of sales. Biglari in his letter said that its operators under this arrangement earned an average of $137,000 per year.
Steak n Shake started this program in 2018 and has since converted 175 corporate locations into franchise partner models.
But after converting 29 locations in 2019, 57 in 2020 and 75 in 2021, the company converted just 16 in 2022, according to the letter. Biglari said that was “intentional, to ensure our high standards were not compromised.”
“This franchise opportunity cannot be purchased, only earned,” Biglari wrote, noting that the program “is designed for those long on ability but short on capital.”
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