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Indianapolis-based Steak n Shake drastically slowed the pace of “temporary” restaurant closures in the third quarter, but showed little progress in its plan to turn company-owned eateries into franchises.
Meanwhile, the hamburger chain suffered its 12th straight period of declining same-store sales, according to a third-quarter earnings report released Friday by parent Biglari Holdings.
Steak n Shake last year launched an ambitious franchise partnership strategy, saying it wanted to convert all of its 400-plus company-owned restaurants to that model over three years while continuing to expand under its traditional franchising model.
The chain closed 103 restaurants “temporarily” under the strategy in this year’s first two quarters, with a plan to reopen them as franchises. Just three more restaurants were added to the closure list in the third quarter, the company said.
Steak n Shake, however, has reopened only four restaurants under the franchise partnership program since the beginning of the year, all of them in the third quarter.
As of Sept. 30, the chain had 519 total restaurants (302 company-owned), down from 626 (413 company-owned) at the end of 2018.
Steak n Shake revenues have fallen dramatically because of the closures, from $191.2 million in the third quarter of 2018 to $141.4 million in the latest quarter.
The chain lost $861,000 in the third quarter, an improvement over the $3.2 million it lost in the same period of 2018.
Same-store sales declined 6.5% in the period, the 13th decline in the past 14 quarters. Same-store sales represent company-owned restaurants open for at least 18 months.
Same-store customer traffic fell 13.3% in the third quarter, worse than the 8.1 percent decline seen in the first two quarters of the year.
Under the franchise partnership program, Steak n Shake offers would-be entrepreneurs the opportunity to operate a single unit for $10,000. That’s far less than a traditional franchisee would pay, but the single-unit operators have to split profits with Steak n Shake.
Under the company’s traditional model, a franchisee pays a franchise fee ranging from $25,000 to $40,000 as part of an initial investment that varies from about $672,000 to more than $1.8 million per unit, depending on the size and location of the restaurant.
Steak n Shake’s struggles took a toll on Biglari Holding’s third-quarter performance.
San Antonio-based Biglari reported revenue of $160.2 million, down from $203.6 million a year ago.
Revenue from restaurant operations sank to $145.1 million, compared with $195 million last year.
Biglari reported a loss of $17,000, or 5 cents per share, compared with a loss of $13.7 million, or 39.5 cents per share, in the same quarter of 2018.
The company benefitted from $1.5 million in investment partnership gains in the period after losing $19 million in that category a year ago.
In addition to owning Steak n Shake, Biglari Holdings holds a big stake in Cracker Barrel Old Country Store Inc. and owns the steakhouse-franchising firm Western Sizzlin, an insurance company and Maxim men’s magazine.
Biglari shares closed Friday at $86.67 each, a 24% decrease since the beginning of the year.
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More than three years ago the quality of the food dropped sharply. It no longer tasted like food. If this is not fixed, I’d imagine there’s no use trying.
I think the biggest problem for Steak Shake is they can’t seem to get their brains around the concept of customer service and treating customers like they are important. I recently stopped in one of their Kentucky restaurants while on a business trip for a bathroom break and something to drink. I ordered a strawberry milkshake. I like their strawberry milkshakes. More than 15 minutes after ordering I had my shake. 15 minutes of standing at the front counter, by the cash register, while employees looked at me and ignored me. More than five shakes went out the drive up window during that time, but seems no one could take the time to make mine.
This same lack of customer service is experienced eating in the restaurant. Service is slow, very slow. Orders are not complete as ordered. Earlier this year, a cole slaw side appeared, after two requests, just as I finished my meal and was rising from the table. And, I was charged for the side…which sat untouched on the table.
Biglari seems to be clueless about how to run a restaurant. He burned through the goodwill the restaurant built over the years, and now customers are now longer willing to be treated in this fashion. I don’t expect S&S to bring out food as quickly as McDonald’s or Wendy’s. I’m willing to expect a slower pace, but a burger, fries, and a shake shouldn’t take more than an hour to order, be served and consume.
The last time I tried a SnS I sat for 45 minutes in the drive-thru for a simple burger and fries. The employees didn’t offer any apologies on the wait, and surprise, the food was cold by the time I received it. I used to really like the chain, but that was two years ago and I haven’t been back since.