Pre-COVID, labor prices ran at 38.5 percent of net sales for Steak ‘n Shake. Something had to change.

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Across Steak ‘n Shake’s footprint, most of the legacy chain’s dining rooms remain closed. When they’re no going away, lock won’t ever before look the same, either.

The brand find itself in the midst of a “radical transformation,” chairman Sardar Biglari stated in a letter come shareholders. And one element involves completely transitioning Steak ‘n Shake come a quick-service restaurant chain.

Yet what does this look like? the a course Biglari shared pre-pandemic before COVID-19 locked up capital. Steak ‘n Shake finished up trying to market 15 nature to money remodels. But no sale took place and parent firm Biglari Holdings Inc. Discovered itself ~ above the doorstep that a gaue won restructuring, v the deadline come pay turn off $153 million in debt fast approaching. It was able to prevent Chapter 11, seemingly in ~ the 11th hour, as it satisfied the load with resources from Biglari Holdings. The upshot being, Steak ‘n shake no longer carries debt.

And that reignites the initial conversation.

Steak ‘n Shake, a full-service brand because that its an initial 78 years, is in the procedure of equipping units with what Biglari labeling “advanced self-service.” once customers return, there won’t it is in servers. There won’t even be air stewardess behind counters. Rather, Steak ‘n shower guests will initiate transactions in ~ a kiosk. “We room embracing efficiency and transitioning the service model to authorize our guests to place and pick increase their own orders,” Biglari said.

Steak ‘n Shake enhanced off-premises sales at equivalent stores 14.3 percent in 2020 together dine-in feeling the COVID cut. This no a pandemic-specific trigger, though. A mix of labor-intensive, slow-moving production and high-cost table company proved a faulty business model for Steak ‘n shower well before coronavirus, Biglari said. “Simply put, the procedure of dining rooms through table organization was a money loser,” he said.

Pre-COVID, labor prices ran at 38.5 percent of network sales because that Steak ‘n Shake—an alarmingly high number that inserted it in ~ a 6–8 percentage suggest disadvantage contrasted with group peers.

“What I had previously assessed together a sustainable competitive benefit proved to it is in anything but when our labor expenses ongoing to rise over the last number of years,” Biglari said. “The Achilles’ heel of enhanced labor prices in the dining room negate our various other advantages, bring about an overall handicap.”

By removed the unprofitable company dining rooms generated, the chain effectively lessened revenue through one half, Biglari said. However, Steak ‘n Shake"s labor now runs at about 29 percent of net sales, albeit at a reduced sales volume.

“The dining room through table business was certainly a revenue center, yet it was no a benefit center,” Biglari said.

“A conversion come a bonafide quick-service restaurant chain will, we believe, boost the company’s economics,” he added. “A refusal to invest, however, would average that our competitors would retain your edge.”

To the earlier point, Steak ‘n Shake’s counter-service dreams weren’t born out of COVID. It just would have actually taken number of years to obtain there before, Biglari said.

Coronavirus prompted the firm to collection a much firmer target, make the call to arise from the public health situation with a different company model for Steak ‘n Shake’s whole system.

“In effect, the pandemic quickened the inevitable,” Biglari said.

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The this firm confidence in the new service model, and resolve to roll it out, means the bulk of earnings generated in 2020 “will no be accessible to Biglari Holdings.” In other terms, the going to take a significant investment to accomplish the goal, v financial softness along the way.

The capital outlay per unit ranges in between $100,000 and also $200,000 to remodel the internal of the restaurant, introduce a new point-of-sale system, and install the self-order kiosks.

Biglari stated expenditures would be phased in by prioritizing restaurants “that own exemplary leadership—namely, those owned and also operated by franchise partners, who invariably provide the gold standard in service.”

This bring Steak ‘n Shake come its various other “monumental change” taking shape today, and also yet an additional initiative that got hold of headlines before COVID snatched them.

In loss 2018, the chain announced a refranchising plan designed come foster a single-unit operator system. Basically, monitor the Chick-fil-A model to improve business through entrepreneurial-minded owners.

Vividly, Steak ‘n shake would perform so by asking franchisees to do an upfront investment of just $10,000. Steak ‘n Shake climate assessed a fee of approximately 15 percent of sales as well as 50 percent the profits. “We generate many of our revenue from our share the the profits. Under this arrangement, a franchise partner is able to earn considerable sums, which is the way we want it,” Biglari said.

“In the end, nothing is as necessary as the means our customers space treated,” that continued. “It take away the right leadership in a unit because that customers to be offered in a warm, caring, and also hospitable manner. To achieve our goal, we are structure a culture of property at the unit level. For operator to think and also act prefer owners, we think they need to be owners. Us are becoming a firm of owners, changing the culture of the organization in our pursuit for business excellence.”

By the finish of 2020, Steak ‘n Shake convert 86 corporate-run stores into these single-unit franchise partnerships—an boost of 57 partner from the front year. It had just 2 partners at the beginning of 2019.

Biglari said Steak ‘n shake received roughly 35,000 applications. Therefore 86 represents an acceptance price of 0.25 percent.

In 2020, the partners earned, on average, $161,079, Biglari said. Some are also on monitor to make more than $300,000 in their an initial year.

“Doubtless, a good number that our partner will come to be millionaires. However make no mistake: We are not minting millionaires but are merely giving the means—they space earning every penny,” Biglari said.

For Steak ‘n Shake, the spontaneous turnover price of its franchise partners was 1 percent critical year.

Originally, the firm believed it would take around three year to transition. There to be 400 company-run venues at the time.

“I to be overly positive with mine timeline, but we have actually no on purpose of lowering our criter to accomplish it,” Biglari admitted. “Whether the takes us second year or two is less essential than ensuring the everyone start the system is no less talented or driven than those we have assembled to date.”

The firm now has actually two franchise agreements. One is the nontraditional franchise-partner program. The 2nd is the classic franchise model, which Biglari stated serves as Steak ‘n Shake’s method to thrive unit count. Like comparable companies, the unlocks expansion potential there is no a significant capital outlay. The funding is borne by third parties.

Starting in 2010, Steak ‘n Shake began investing an extensive sums to breakthrough its traditional franchise route.

Here’s a look at the decade comparisons.

Dollars in 000’s

2010

Franchise royalties and other fees: $4,316Franchise marketing contributions: $6,516Franchise revenue (the two above combined): $10,832Number the franchise units: 71

 

2020

Franchise royalties and other fees: $12,505Franchise marketing contributions: $65,193Franchise revenue (the two above combined): $17,698Number that franchise units: 194

 

Steak ‘n Shake opened up its an initial franchise unit in 1939. From 1939 to 2010, though, it flourished by an average of one franchise unit per year. The addition of 71 locations in 71 year contrasts with boost of 123 in the past decade.

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“For the duration 2011 v 2015, ours franchise service operated at a loss but intrinsic value advanced,” Biglari said. “We allocated capital to develop the franchising service with the expectation of developing greater dollar worth for every dollar spent. Our traditional franchise business—domestic and also international an unified is currently a prodigious cash generator. In 2020, traditional franchise operations posted a benefit of $6.9 million despite the disruption the the pandemic.”

The all at once financial snapshot for Steak ‘n shake is a complex one. Present management ordered the reins on august 5, 2008. From 2009 with 2020, Steak ‘n shiver sent practically $300 million the cash come Biglari Holdings.

But the company’s performance has zigzagged in more recent windows. It placed together a strong eight-year operation out of the an excellent Recession. After same-store sales plummeted 7.1 percent in 2008, the reported seven straight calendars of positive gains, including a 7.5 percent run in 2010 the stacked ~ above a 4.1 percent boost the year before.