The fast casual restaurant industry is one with hot rivalries — the fried chicken sandwich wars are just one example, and survival means being able to deliver food quickly and inexpensively.
With more options than ever before and everyone looking for value, decades-old chains, like Steak 'n Shake, are starting to feel the burn.
Steak 'n Shake, which has been around since the 1930s and is known for their classic steak burgers and milkshakes, has seen declining sales in recent years and last year, the chain made the decision to turn multiple locations into franchises.
The Indianapolis-based company temporarily closed 111 restaurants as they waited to be taken over by franchisees.
But things are not going well: 101 of the closed locations have yet to reopen. As of last month, the chain had 519 total restaurants (302 of which are company-owned), down from 626 locations (413 of which were company-owned) at the end of 2018.
Many closed locations are in the Midwest but the region has been where the company has been struggling. Last year, Steak 'n Shake lost a lawsuit in St. Louis after a group of managers said they were not receiving overtime pay. Restaurant Business reported the lawsuit was filed in the same state where 44 Steak 'n Shake locations were closed.
The mounting issues are starting to take its toll. According to QSR Magazine, the brand’s revenue is down over $22 million versus $1.5 million in the comparable period a year prior.
The chain has tried to think of ways to save some dough — and some cherries, it seems. Sardar Biglari, CEO of Steak 'n Shake's parent company, Biglari Holdings, announced in 2018 that he could save $1 million by just leaving cherries off milkshakes.
Operator-run franchises are common. It’s what chains like Chick-fil-A and McDonald’s do, but part of the issue for Steak 'n Shake is its franchise partnership program. The restaurant group permits franchisees to operate a location for $10,000 but these individual restaurants have to split profits evenly with Steak 'n Shake. Franchises usually cost more money to operate, but operators end up with a bigger portion of sales.
"I want to provide an opportunity to other entrepreneurs who are highly motivated to excel but lack the financial means,” Biglari had said in a news release at the time of the franchise fee announcement. He suggested the $10,000 fee was being implemented for philanthropic reasons, making running a business more economically approachable.
"Steak 'n Shake is actively working to identify franchise partners for these closed stores,” the company said in a report released earlier this month. “However, no assurances can be given that Steak n Shake will be able to secure suitable franchise partners or that its strategy will restore profitability."
The restaurant chain said that it plans to reopen closed stores, though there is no immediate timetable for the process. “Although the company is committed to the franchise partnership model,” per the statement, “future impairments are possible.”