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    The Burger Gold Rush is On at Steak 'n Shake

  • The classic chain is offering company stores for $10,000. What has been the response so far?

    Web Exclusive September 19, 2018 By Bryan Reesman
    Steak 'n Shake
    After training, the franchise partner will get 50 percent of the restaurant's profits.

    As reported last month, Steak 'n Shake recently unleashed a bold, new promotion. The classic, 85 year-old American brand has offered “would-be entrepreneurs who want to be hands-on, single-unit owner-operators” the chance to own one of the chain's 400 company-run units for a mere $10,000 investment, way less than the cost for typical restaurant brands. The average initial investment for a classic Steak 'n Shake, which includes planning and building a location, runs between $1.6–$2.6 million. QSR checked back with the company, which has a heavy Midwestern footprint and a Southeastern presence, to see how things panned out, so far.

    “We have had an amazing response,” says Judy Kadylak, Steak n' Shake's SVP of marketing. “I'll be honest, the biggest scramble we have now internally is sorting through a lot of the responses. In the first round of our PR hit we got inundated with interest, which is exciting. For us, it's really going through the candidates and figuring out who the right people are internally and externally and matching them with a unit. With this program, it's important that the person will be willing to operate the unit, so finding a unit that's close to where people live is a big part of it as well.”

    On top of people applying from outside of the Steak 'n Shake system, there are many internal general managers whose units have met the company's “gold standard” and have been looking to run their own unit. By the end of the month, the chain should have its first internal candidate officially become a franchise partner. For people new to the company, the training program takes about six months to complete. “We have a decent amount of internal candidates so that over the next couple months they'll start to become franchise partners as well,” Kadylak says. “We certainly want to move as quickly as we can, but we're heavily focused on really evaluating and bringing in the right candidates.”

    The company is also working to highlight some of their “really unique properties,” like the location right across from Braves Stadium in Atlanta and another in St. Louis, “which has a very original design and is just really cool looking and has some unique features,” Kadylak says. “We're going to start working those angles as well as we start to zero in on certain markets.” Their CEO, Sardar Biglari, will also be going out and “doing information sessions and answer people's questions externally.” Kadylak notes that some might question how this franchise promotion “could be that good of a deal, but it really is what it is. The people jumping in quick see that, and they're very excited.”

    As Kadylak points out, unlike units in the regular Steak 'n Shake franchise program that require a much larger monetary investment and effort, the locations being offered for $10,000 are pre-existing and company-run. “In a sense, that upfront investment pays a bit for the training because training and getting people up to speed is an investment on our part,” she says. “That is primarily what this recovers, not in totality, but we also felt like you want people that are committed in some type of an investment. It gives you some skin in the game on that.”

    After training, the franchise partner will get 50 percent of the restaurant's profits. This is a partnership, shared-profit deal similar to the system Chick-fil-A deploys.

    Steak ‘n Shake is looking to shift its business model from a heavy corporate-owned structure to a system run mostly by single-unit franchisees. The company said this would “achieve operational uniformity by marshaling the efforts and strengths of entrepreneurs.”

    Making an investment in a fast food or fast casual property—and Steak 'n Shake runs the gamut from counter service to sit-down table service units—is out of reach for many middle class people who have been getting squeezed by the economy over the last 15 years. “Even if you just wanted to start your own business, [with] the amount of capital, wherewithal, and type of expertise you'd need to bring in, it really becomes insurmountable for a lot of people who would be good business owners,” Kadylak says.

    This promotion was mainly driven by Biglari, owner of Biglari Holdings, who has stated, “I started my company with $15,000 and built a thriving enterprise.” Kadylak says that a lot of Steak 'n Shake's company culture “is based on an entrepreneurial attitude and acting as if you own the place.” She adds that Biglari wanted to give people with limited means the chance to own their own business without having to take the traditional franchise route.

    “We have certain legacy markets like Indianapolis and St. Louis where we have close to 50 units,” Kadylak says. “These are areas where there are people that have loved this brand. People that work really hard that might not be able to afford the opportunity to open their own franchise, but just love the brand and would want to operate it.” The company has been looking for people willing to put in the sweat equity and also would be a right fit for each unit. For example, Steak 'n Shake has around 40 units in St. Louis, so they are seeking local people really focused on that market.

    Founded in 1934 in Normal, Illinois, Steak ‘n Shake had 110 franchised units and 401 company-run stores in 2017, which was a total decline of 57 from the previous year. The company posted average-unit volumes of $1,839.51 (in thousands) and had total systemwide sales of $939.99 (in millions).

    The year before, Steak ‘n’ Shake had 568 total units (415 company-run) after adding 17 restaurants from the previous year. It also had higher AUV ($1.9M), and, naturally with more stores, increased systemwide sales of $1,027 (in millions).

    “Right now, it's really a matter of managing candidates and getting through all the interviews and matching people to locations,” Kadylak says. “And continuing to drive interest to get as many candidates in the pool as we can. Since there's no real financial test on this, it's really determining who would run these restaurants the best and represent our the brand in the best way. That's really where we're focusing our time and efforts right now.”