Steak 'N Shake Has Found Its Road To Redemption

For a dining concept so straightforward that its two main offerings are right in the name, Steak 'n Shake has faced a complicated set of challenges. Thanks to increased burger competition, a pandemic, staffing challenges, and much more, the chain keeps shrinking—Restaurant Business reports that the restaurant closed 30 locations last year, making it the fourth year in a row in which it closed more than it opened. Following years of decline, however, Steak 'n Shake finally became profitable again in 2022. And as it fights to stay alive, it'll have to keep retooling.

Steak 'n Shake first started to hit troubled waters back in 2019 when it lost almost twice as much money in the first quarter as it had lost the entire year before. Consequently, the brand closed 106 locations, bringing its total number down to 510. At the time, Steak 'n Shake owner Biglari Holdings said the closures were temporary and part of a "franchise partnership program," positioned as an opportunity to update the locations to a new model within three years.

It didn't help that the brand's best ideas to offset its huge losses sounded ridiculous on paper. In April 2019, Steak 'n Shake's leadership suggested the brand could save as much as $1 million by withholdding cherries from its milkshakes.

By 2021, the chain managed to narrowly escape bankruptcy by paying off a $153 million loan debt that was about to mature. Steak 'n Shake also sued its lender, alleging that the lender was trying to take over the company by purchasing the chain's loans on the secondary market, then threatening to drive the company into bankruptcy. After all that, later that same year, Steak 'n Shake decided to move from a table service model to installing order kiosks at each table to reduce the need for servers.

"The combination of labor-intensive, slow production and high-cost table service was a faulty business model," Biglari Holdings' CEO wrote rather candidly at the time. "Simply put, the operation of dining rooms with table service was a money loser."

Restaurant Business reported soon afterward that the restaurant chain planned on franchising 276 corporate-owned locations with a buy-in cost as low as $10,000. Once they're thoroughly vetted, franchisees would also participate in profit-sharing from their locations. All of this to say, Steak 'n Shake's strategy to stay afloat seems to be converting it from a diner-style restaurant into something closer to fast food, and it's a strategy that seems to be working.

The tableside order kiosks installed in 2021 do seem to have made an impact, as Steak 'n Shake was able to generate $11.5 million in operating earnings in 2022. But of course, there are currently only 506 locations earning that money, compared to the 536 locations the brand was operating in 2021.

In a February 2023 letter to shareholders, Biglari noted that $50 million has been invested in updating the kitchen equipment, restaurant layouts, order kiosks, and other aspects of the business—an investment that has led to "a boost in
per-restaurant productivity," the note says.

Under the new order kiosk model, the company generates $131,000 in revenue per employee, compared with $64,000 using the previous table service model. That cost savings has, according to Biglari, kept prices low for customers and increased wages for associates (in part because there are presumably fewer of them to pay).

"If we had not invested in innovation, our competitors would have retained their advantage," Biglari wrote. "Overwhelmingly, our customers have embraced the seamlessness of the experience."

Steak 'n Shake has also been more selective in its franchising, converting only 16 locations from corporate to franchise partners in the past year. "This franchise opportunity cannot be purchased, only earned," Biglari wrote.

Steak 'n Shake has chosen an interesting path forward, adapting its retro flair to a modern experience and hoping no one misses the ways in which it used to feel more like a full-fledged restaurant. On the whole, though, it sounds like Steak 'n Shake's key strategies—investing in fewer, high-performing locations and removing all friction from the ordering process—have been bearing fruit. Namely, a cherry on top.