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Financing

Steak ‘n Shake closes another 13 locations

The burger chain has seen traffic and sales plunge during the pandemic as it continues pulling back on unit count.
Photograph: Shutterstock

Steak ‘n Shake and its franchisees appear to have closed another 13 locations as the brand continued its pullback during a pandemic that has sapped it of much of its customer traffic.

The Indianapolis-based chain, part of the Biglari Holdings conglomerate, has been shuttering locations at a steady pace as years of sales declined have deteriorated its finances.

The company appears to have closed another 11 locations in the third quarter, while franchisees closed another two, based on Biglari Holdings securities filings. Steak ‘n Shake currently operates 528 locations, including 260 company units, 69 operated by “franchise partners,” and 199 by traditional franchisees.

Some 37 of those 260 company-operated locations remain “temporarily closed,” according to the filings.

Steak ‘n Shake has been permanently closing locations all year due to the pandemic. It started 2020 with 610 units, suggesting 82 restaurants have shut down so far this year, or 13% of the chain.

The closures have come as traffic has taken a nosedive during the pandemic. According to the filing, same-store traffic plunged 54.2% in the third quarter ended Sept. 30. Traffic has fallen 44.6% so far this year.

Same-store sales numbers were not published, but the company has seen steady decreases in recent years that have presumably worsened in recent months during quarantine-related dine-in restrictions.

To combat that, Steak ‘n Shake has been shifting its traditionally full-service business into a counter-service model—a rare shift, yet indicative of the challenges facing traditional dine-in concepts at a time when consumers are taking their food with them. 

“The COVID-19 pandemic has adversely affected our restaurant operations and financial results,” Biglari Holdings said in a filing. The company has been adding equipment in reopened restaurants to shift the restaurants’ model to one that emphasizes counter service and does away with wait staff. Yet details in the earnings report suggest the effort has been "limited."

But, the company noted, “the funds needed for the transition are limited under its current debt agreement.” Steak ‘n Shake has $153 million in debt that Biglari Holdings doesn’t guarantee—and refuses to guarantee.

That has put the chain under some pressure to turn itself around before next March, when the debt comes due. “Absent a resolution with the lenders, Steak ‘n Shake may need to seek refinancing options, which may not be available,” the company said. The pandemic could also limit those financing options.

Steak ‘n Shake has been shifting many of its restaurants to operators who would take ownership in exchange for a fee of “up to 15%” of sales and a split of the remaining profits. The company now has 69 such restaurants run by those franchise partners.

But traditional royalties have plummeted during the pandemic: Franchise royalties and fees fell 33% in the third quarter and are down 31.5% for the first nine months of the year.

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