Steak N’ Shakes Financial Problems Continue

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Steak N’ Shakes Financial Problems Continue

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Recently, I noticed that the Steak N’ Shake in Kokomo had closed down and was for sale. The sign on the window notifies passerby that the total investment to become a Steak N’ Shake franchisee is $10,000. As someone who is interested in becoming a restaurant owner in the future, seeing this peaked my interest. I thought that this sounded too good to be true. After all, under normal circumstances, it would cost a potential franchisee between 1.6 and 2.6 million dollars to become a part of the Steak N’ Shake company, according to their franchise disclosure agreement. So why is the price so drastically reduced, and is this a good investment?

Steak N’ Shake began in 1934 in Illinois, and started franchising five years later in 1939. Today, there are 213 franchised restaurants and over 500 company owned restaurants. Recently, Steak and Shakes majority owner Biglari Holdings announced that they are attempting to transition to a 100 percent franchised model by selling stores that are currently company owned to new franchisees for a low price. Many believe that Steak and Shake decided to do this after seeing the success that Chick-Fil-A had after becoming 100 percent franchised. 

So is this a good investment? Unfortunately, becoming a franchisee at this point would be akin to hopping on a sinking ship.

The root of Steak and Shake’s problems comes from poor management by Biglari Holdings, according to a lawsuit by one unhappy franchisee. The Virginia-based restaurant owner complains that ”The profitability of Steak and Shake is suffering.” and that “As of the end of 2017, all of the Steak and Shake’s in Virginia are losing money.”. The franchisee blames owner Biglari Holdings for the lack of profitability. This isn’t the first complaint Biglari, which also owns a majority stake in Cracker Barrel, has gotten from both shareholders and franchisees.

Biglari Holdings acquired Steak and Shake in 2009. It was said that prior to the acquisition, Steak and Shake was losing $100,000 dollars a day. After the deal, Steak and Shake improved, posting 9 years of same store sales growth and higher customer traffic.This all changed in 2016, however, when the company took a 0.4 percent sales decline. Ever since, their numbers have looked bleaker and bleaker, and in the first quarter of 2019 it was reported that Steak and Shake lost over $25 million according to Indianapolis Business Journal. Additionally, Restaurant Business Online reports that in 2019 alone, Steak and Shake has closed 106 locations due to disappointing sales.

Biglari stockholders and Steak and Shake franchisees have looked to the CEO and President of Biglari Holdings, Sardar Biglari, for solutions. What he has proposed, which was to cut the cherries out of milkshakes, was met with ridicule and incredulity. Since Steak and Shakes financial difficulties have begun, Biglari Holdings stock has dropped by over 75 percent, and the disgraced CEO has continued to take his million dollar bonuses, much to the chagrin of the down-and-out stockholders.

The lesson here is to always do your research before investing in something. Despite the low initial cost, a Steak and Shake franchise would, at this point, most likely be an unwise investment.

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