Sardar Biglari, the chairman and CEO of Steak ‘n Shake owner Biglari Holdings, has drawn numerous comparisons to his hero, Warren Buffett, even if his company hasn’t quite generated the same returns.
But Biglari himself apparently provided a couple of other comparisons, to a pair of exceedingly wealthy 19th-century industrialists.
“We are old-fashioned,” he said, according to the San Antonio Express-News. “Our whole modus operandi is old-fashioned. Can you imagine an Andrew Carnegie or a Cornelius Vanderbilt seeking a cadre of consultants on whether they should buy a steel mill or buy a railroad?”
The comment came during Biglari’s annual meeting, held in person last month near the company’s San Antonio headquarters. They were in response to a question about why the company doesn’t seek outside assistance when making acquisitions. Biglari, who controls the company largely by voting shares the company bought back but didn’t retire, makes all of those decisions himself.
The presentation was detailed in an in-depth story on Biglari’s operations that is very much a worthy read. Biglari himself does not talk to the press. His company refuses to hold quarterly earnings calls, and his annual meetings are available only in person.
Biglari described his company in his most recent letter to shareholders as an “economic museum” that collects companies from a wide range of industries. Indeed, Biglari Holdings owns restaurants, a pair of small insurance companies, a small oil company and Maxim Magazine.
Yet if this economic museum of Biglari’s really is more like an art museum that collects “the economic equivalents of Renoirs, Cézannes and Rembrandts,” as the letter says, then its flagship holding is more like a restored Elias Garcia Martinez fresco.
Steak ‘n Shake was one of the industry’s biggest success stories for the first eight years of Biglari’s tenure, with its low-priced offerings giving the chain a remarkably consistent source of traffic.
(It might be noted that the company used a consultant to help craft the plan it used to generate those sales, while maybe Carnegie really did use steel business consultants.)
Yet Steak ‘n Shake has struggled badly over the past three years, likely because it held onto its price promotions too long, cut food and labor costs too much, and lost ground in a hotly competitive burger market.
The company has closed at least 51 locations permanently and has temporarily closed another 62, though those numbers vary. In any event, it is at least 100 units smaller than it was two years ago.
Steak ‘n Shake is now widely seen as a candidate for a bankruptcy filing, because its debt comes due next March. The company is trying to refinance that debt at a time when lenders aren’t exactly falling over themselves to loan money to restaurants.
That refinancing is an important event. Biglari Holdings does not guarantee Steak ‘n Shake’s debt—which was taken out in part to fuel Biglari’s investments. If the refinancing doesn’t work, the company could end up in bankruptcy.
“We’re not going to discuss what exactly we’re doing with the lenders,” Biglari told shareholders, according to the Express-News. “We must do what is in the best interest of Biglari Holdings.”
Ironically, Steak ‘n Shake has likely benefited from the pandemic. The chain is a hybrid of sorts, a burger-focused full-service family dining chain with a drive-thru. That drive-thru has made labeling the concept a consistent frustration—Biglari has in the past pushed back against efforts to call the company a family-dining chain.
That drive-thru has likely saved its bacon. Concepts with the window have done far better than have concepts without one, and family-dining chains have been among the weakest performers in the past three months.
In addition, the pandemic has likely helped one of the Hail Marys that Steak ‘n Shake has been throwing at its sales problem.
The chain is shifting its business to a full-on counter-service model, doing away with wait staff. It’s an idea that makes sense on the surface, but the chain risks alienating many of its longtime customers in the Midwest.
It’s rare for a chain that old to completely shift its business model, and certainly to do so in a short period. (Ask Pizza Hut how tough it is.)
Yet now, with consumers not dining inside of restaurants anyway, the company gets to work on its new model. The pandemic has “accelerated the entire process of changing the business model,” Biglari said.
And then there is the company’s shift to an operating partner model, akin to the exceedingly successful one at Chick-fil-A. Steak ‘n Shake has refranchised 51 of its units to these operating partners and, according to the Express-News, plans to have 100 of them in place by the end of the year.
One place Steak ‘n Shake is adding units is France, where Biglari apparently keeps a yacht and a motorbike and has started the “Biglari Café” and also a vegetable farm that grows produce for the restaurant and for the Steak ‘n Shakes.
But Biglari said he spends most of his time on his work. “This is the fun part,” he said. “Biglari Holdings is my painting.”