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Steak ‘n Shake closes 31 locations

The burger chain has temporarily closed units as it looks for franchisees to run the restaurants.
Photograph courtesy of Steak 'n Shake

Steak ‘n Shake, struggling with falling sales, traffic and profits in recent years, has temporarily closed at least 31 locations, mostly in Ohio and Missouri, as it continues to look for franchisees to run its restaurants.

The count is based on a combination of local reports and a search of the company’s website.

According to the Dayton Daily News, Steak ‘n Shake has closed 10 locations in southwest Ohio.

Fox 2 out of St. Louis, meanwhile, suggests that eight restaurants in that area were recently closed.

A search of the Steak ‘n Shake website shows that at least 31 locations in several states, mostly near St. Louis and Cincinnati, have been “temporarily closed.”

In an email, Steak ‘n Shake Franchise Operations CFO Thomas Murray said the closures have been done to prepare the restaurants for a franchisee to take over.

“We close them to prepare them for franchise partners,” he wrote. “Some of the units have a franchisee in process of taking over the unit. We have some new equipment as well.”

Steak ‘n Shake is turning to franchisees as the chain’s sales and traffic have fallen in recent years, believing that owner-operators are key in turning those numbers around.

The chain, owned by San Antonio-based investment Biglari Holdings, is something of a hybrid family dining-QSR chain. It has about 600 locations, two-thirds of which are owned by the company. The 31 temporary closures represent about 5% of the total number of units.

Same-store sales at the company declined 5.1% last year, the third straight year of declines following seven years of consistent increases. U.S. system sales last year declined 3.4%, according to data from Restaurant Business sister company Technomic.

Declining same-store sales have taken a toll on the restaurants’ earnings.

Operating earnings per location, meanwhile, have plummeted from a profit $95,300 in 2015 to a loss of $25,800 in 2018, according to a letter to shareholders from Sardar Biglari, chairman of Biglari Holdings.

“For seven consecutive years, we registered industry-leading gains in customer traffic,” Biglari wrote. “But for the past three years, we have been in decline, with same-store sales below the average for the industry. The work we left undone has led us in recent years to be a market laggard.”

One of Steak ‘n Shake’s strategies for improving its sales has been to refranchise units in something of an owner-manager model—similar to the one Chick-fil-A operates.

The company in August said it planned to sell its more than 400 company-owned locations for $10,000 apiece. Those operators would then run their single stores and split the profits with the company. And it would shift Steak ‘n Shake from a mostly company operation to a total franchisor.

“We are not interested in absentee owners,” Biglari wrote. “We seek entrepreneurs with a consummate commitment to the business.”

According to the company’s franchise requirements, operators receive six months of training and are not allowed to be in any other business ventures. Franchisees are guaranteed a “$100,000 minimum” in their first year.

But at least some of these operators would be required to reopen a closed restaurant. And some of these restaurants have closed with little apparent notice.

According to Fox 2, employees were given less than a day’s notice of closures in the St. Louis area.

Some of the restaurants started closing in January, others in February, according to the local reports.

In his letter, Biglari detailed increases in takeout and drive-thru revenue, which he says requires an increase in speed. Takeout revenue increased by 51.5%, he wrote, and it now represents more than half of the company’s overall revenue.

That requires more speed, he said. “While in our first decade of control we employed an aggressive pricing formula, we enter our second decade determined to implement advanced production techniques,” he wrote.

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