In this FDD Talk post, you’ll learn the following:

• Section I – Estimated initial investment (franchise costs) for a Steak ‘n Shake franchise, based on Item 7 of the company’s 2022 FDD

• Section II – Initial franchise fee, royalty fee, and marketing fee for a Steak ‘n Shake franchise, based on Items 5 and 6 of the company’s 2022 FDD

• Section III – Number of franchised and company-owned Steak ‘n Shake outlets at the start of the year and the end of the year for 2019, 2020, and 2021, based on Item 20 of the company’s 2022 FDD

• Section IV – Background information on the Steak ‘n Shake franchise opportunity, including relevant news updates

• Section V – Presentation and analysis of Steak ‘n Shake’s financial performance representations (average revenues and/or profits), based on Item 19 of the company’s 2022 FDD, including information on the:

• 2021 average, median, highest, and lowest sales; and percentage of Steak ‘n Shake restaurants that achieved certain annual sales levels (above $2.0 million, $1.8 to $2.0 million, $1.6 to $1.8 million, $1.4 to $1.6 million, $1.2 to $1.4 million, and below $1.2 million) for the 81 traditional franchise Steak ‘n Shake restaurants and the 97 franchise partner Steak ‘n Shake restaurants that had been in continuous operation for at least 18 consecutive months as of December 31, 2020

• Section VI – Key ratios, comparables, computations, and analyses for the Steak ‘n Shake franchise opportunity (exclusive content for Platinum subscribers)

Section I – Steak ‘n Shake Franchise Costs

• Steak ‘n Shake franchise costs (freestanding quick service format), based on Item 7 of the company’s 2022 FDD:

• Franchise Fee:  $25,000
• Real Estate/Rent:  not included
• Construction Management Fee:  $0 to $35,000
• Site Improvements:  $410,864
• Building or Leasehold Improvements:  $660,508
• Furniture, Fixtures, Equipment, and Signage:  $352,523
• Pre-Opening Expenses:  $5,000 to $10,000
• Additional Funds for 3 Months:  $15,000 to $20,000
• Inventory and Supplies for Opening:  $10,000 to $15,000
• Training Expenses (travel, meals, and lodging only; wages excluded):  $16,000 to $55,000
• Architectural, Civil Engineering and Other Professional Fees, and Permits:  $35,000 to $78,000
• Impact and Tap Fees:  $5,000 to $78,000
• Grand Opening Marketing Expenses:  $0 to $25,000
• Extension Fee:  $0 to $10,000
• Total Estimated Steak ‘n Shake Franchise Costs:  $1,480,895 to $1,720,895

Section II – Steak ‘n Shake’s Initial Franchise Fee, Royalty Fee, and Marketing Fee

• Steak ‘n Shake’s initial franchise fee, royalty fee, and marketing fee, based on Items 5 and 6 of the company’s 2022 FDD:

• Franchise Fee:  $25,000
• Royalty and System Fee & License Fee:  5.5% of Gross Receipts
• Digital and Production Fund Fee:  1.5% of Gross Receipts

Section III – Number of Franchised and Company-Owned Steak ‘n Shake Outlets

Franchise Partner

2019

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  29
• Net Change:  +28

2020

• Outlets at the Start of the Year:  29
• Outlets at the End of the Year:  86
• Net Change:  +57

2021

• Outlets at the Start of the Year:  86
• Outlets at the End of the Year:  159
• Net Change:  +73

Company-Owned

2019

• Outlets at the Start of the Year:  410
• Outlets at the End of the Year:  365
• Net Change:  -45

2020

• Outlets at the Start of the Year:  365
• Outlets at the End of the Year:  272
• Net Change:  -93

2021

• Outlets at the Start of the Year:  272
• Outlets at the End of the Year:  195
• Net Change:  -77

Traditional Franchised

2019

• Outlets at the Start of the Year:  185
• Outlets at the End of the Year:  183
• Net Change:  -2

2020

• Outlets at the Start of the Year:  183
• Outlets at the End of the Year:  159
• Net Change:  -24

2021

• Outlets at the Start of the Year:  159
• Outlets at the End of the Year:  143
• Net Change:  -16

Section IV – Background Information on the Steak ‘n Shake Franchise

15 Things You Need to Know About the Steak ‘n Shake Franchise

Avoids Bankruptcy and Refocuses on Growth

1.  In early 2021, Steak ‘n Shake announced that it might have to file for bankruptcy. After some maneuvering, Steak ‘n Shake was able to avoid bankruptcy and in March the company announced that it had plans to open 12 new restaurants by the end of the first quarter of 2021. This is in addition to the 33 restaurants Steak ‘n Shake opened in the fourth quarter of 2020.

2.  Steak ‘n Shake had previously closed restaurants that did not deliver excellent customer service. With the advent of its new owner-operator model, Steak ‘n Shake intends to award every restaurant to an operator who provides legendary customer service. Unlike a typical franchising opportunity, which could cost over $2 million, Steak ‘n Shake’s program requires that an aspiring owner-operator invest a total of $10,000 and demonstrate exemplary service as an operator. Steak ‘n Shake is making the American Dream a reality for those with talent and passion.

3.  In 2020, Steak ‘n Shake owner-operators earned, on average, $161,000 in their first year. Some are on their way to earning over $300,000. Today, there are 100 owner-operators, and each one is a true American success story. Steak ‘n Shake encourages every general manager in the hospitality industry to apply if they are interested in working for themselves.

4.  Steak ‘n Shake CEO Sardar Biglari said, “By paving the way for franchise partners to live the American Dream, we are providing them an opportunity to attain financial liberty. A salient point for those who become America’s ablest restaurant operators is that neither birth nor pedigree, ethnicity nor religion is an obstacle to success. A franchise partnership is a passport that cannot be purchased but only earned. It takes talent along with the passion to serve others, a rare combination that is woven into the character of each individual we accept. Doubtless, a good number of our partners will become millionaires. But make no mistake: We are not minting millionaires but are merely providing the means – they are earning every penny.”

5.  Steak ‘n Shake is also investing significant sums to remodel all of its restaurants. Over the course of the last 12 months, the company has fixed its unit economics. As the originator of the Steakburger and a legendary milkshake, it is poised to grow throughout the United States. Steak ‘n Shake owns much of its real estate and is aided by the inherent advantage of being owned by a strong parent company, Biglari Holdings.

Continues Shift Toward Quick Service and Opens More Franchises

6.  In mid-November 2021, Steak ‘n Shake reported Q3 revenue of $57 million, a 27 percent decline from $78.3 million in the year-ago period. The company credited much of the slide to its continued effort to shift company restaurants to “franchise-partner” locations. It’s a multi-year effort that began in fall 2018, where company stores are sold to single-unit operators for $10,000. The brand then assesses a fee of up to 15 percent of sales as well as 50 percent of profits.

7.  At these stores, however, Steak ‘n Shake only records its portion of restaurant profits and certain fees as revenue. “We are therefore fully affected by the operating results of the business, unlike in a traditional franchising arrangement, where the franchisor obtains a royalty fee based on sales only,” the company noted in filings.

8.  After the initial franchise fee of $10,000, recognized when the operator becomes a partner, the company reports franchise partner fees monthly as underlying restaurant sales occur. The brand had 221 corporate stores as of September 30. There were 276 at the end of 2020. In addition, 42 of those company-operated venues were “temporarily closed” as of September 30, 2021. So as the company suggested, revenue is going to continue to fall as restaurants transition from corporate to franchise-partner locations. Franchise-partner fees were $11.5 million in Q3 compared to $6.9 million the previous year.

9.  The other evolution taking shape is Steak ‘n Shake’s conversion to a counter-service model. The brand spent $29.8 million in CapEx making the flip over the first nine months of the year, per filings. A full-service brand for its first 78 years, the company took on the transformation to address speed and labor concerns. Guests now initiate transactions at a kiosk.

10.  Pre-COVID, labor costs ran at 38.5 percent of net sales for Steak ‘n Shake – a number that placed it at a 6-8 percentage point disadvantage compared with category peers. In 2020, it said the counter-service switch brought labor to about 29 percent of net sales, albeit at a lower sales volume. CEO Sardar Biglari explained it as, “The dining room with table service was undoubtedly a revenue center, but it was not a profit center.” He added COVID “hastened the inevitable,” as stores shut down and took the pause to rework operations. Off-premises sales at comparable stores rose 14.3 percent in 2020.

11.  Steak ‘n Shake also noted in its Q3 report that it expected to increase menu prices in the coming quarter to improve margins. Parent company Biglari Holdings lost $10.7 million in the quarter versus earnings of $21.1 million in Q3 2020. Its investment partnerships, or “Lion Funds,” lost $20.2 million in the period after gaining $27.6 million in the comparable run.

Company History

12.  Steak ‘n Shake was founded in 1934 by Gus Belt in Normal, Illinois. Belt initially opened a combination gas station and chicken restaurant, but later decided that he wanted to sell freshly ground steakburgers. He converted the gas station into a hamburger stand. To help his burgers stand out from competitors, Belt ground T-bone, sirloin, and round steaks right in front of customers to show that his burgers were freshly made with high quality meat. The gimmick worked and Steak ‘n Shake was an immediate hit with customers.

13.  Belt began franchising Steak ‘n Shake in the late 1930s. The brand continued to grow around the Midwestern United States. After Belt’s death in 1954, his wife Edith ran the company until 1969. Over the next few decades, several different people owned Steak ‘n Shake. In 1981, the company was acquired by E. W. Kelley and Associates. Kelley successfully ran Steak ‘n Shake until his death in 2003.

14.  Following Kelly’s death, Steak ‘n Shake ran into trouble and the company’s growth declined. Then in 2008, entrepreneur Sardar Biglari acquired Steak ‘n Shake and turned things around. Under one of its previous owners, Steak ‘n Shake had stopped franchising, but Biglari decided to revive franchising operations in 2018. Biglari said the company planned to turn all of its locations into franchise operations. Today, there are company-owned and franchise locations of Steak ‘n Shake across the United States, Europe, and the Middle East.

Entrepreneur’s Franchise 500

15.  Steak ‘n Shake did not rank on Entrepreneur’s 2022 Franchise 500 list.

Section V – Financial Performance Representations (Average Revenues and/or Profits) for the Steak ‘n Shake Franchise (Item 19, 2022 FDD)

• The historical financial performance representations in this section include unaudited results for the 12-month period ended December 29, 2021 (“FY21”) for 81 traditional franchise restaurants and 97 franchise partner restaurants (respectively, the “Traditional Franchise Restaurants” and the “Franchise Partner Restaurants”) which had been in continuous operation for at least 18 consecutive months as of December 31, 2020.

• Steak ‘n Shake has included sales results from locations based on its franchise partner franchise offering if they have operated as a franchise partner for 12 or more consecutive months as of December 29, 2021.

• As used in this Item 19, the term “Net Sales” is the same as “Gross Receipts” upon which your continuing fees are based (that is, total sales, excluding sales tax, promotional and employee meal discounts).

• For the majority of the Traditional Franchise Restaurants and Franchise Partner Restaurants, the dine-in component of the business was either closed or severely restricted beginning in the second quarter of 2020 and extending into 2021.

Average, Median, Highest, and Lowest Sales for Traditional Franchise Restaurants and Franchise Partner Restaurants for FY21

Traditional Franchise Restaurants and Franchise Partner Restaurants (Consolidated)

• Total Stores:  178
• Average Net Sales:  $1,618,238
• Median Net Sales:  $1,559,085
• Highest Net Sales:  $3,622,926
• Lowest Net Sales:  $259,397

• Percentage of Restaurants With Annual Sales Above $2.0 million:  20.8%
• Percentage of Restaurants With Annual Sales of $1.8 to $2.0 million:  11.2%
• Percentage of Restaurants With Annual Sales of $1.6 to $1.8 million:  14.0%
• Percentage of Restaurants With Annual Sales of $1.4 to $1.6 million:  14.6%
• Percentage of Restaurants With Annual Sales of $1.2 to $1.4 million:  23.0%
• Percentage of Restaurants With Annual Sales Below $1.2 million:  16.3%

Traditional Franchise Restaurants

• Total Stores:  81
• Average Net Sales:  $1,441,891
• 27 of 81 Traditional Franchise Restaurants (33%) met or exceeded the Traditional Franchise average.
• Median Net Sales:  $1,327,692
• Highest Net Sales:  $3,208,185
• Lowest Net Sales:  $259,397

• Percentage of Restaurants With Annual Sales Above $2.0 million:  16.0%
• Percentage of Restaurants With Annual Sales of $1.8 to $2.0 million:  4.9%
• Percentage of Restaurants With Annual Sales of $1.6 to $1.8 million:  4.9%
• Percentage of Restaurants With Annual Sales of $1.4 to $1.6 million:  8.6%
• Percentage of Restaurants With Annual Sales of $1.2 to $1.4 million:  38.3%
• Percentage of Restaurants With Annual Sales Below $1.2 million:  27.2%

Franchise Partner Restaurants

• Total Stores:  97
• Average Net Sales:  $1,765,497
• 18 of 81 Traditional Franchise Restaurants (22%) met or exceeded the Franchise Partner average.
• Median Net Sales:  $1,686,380
• Highest Net Sales:  $3,622,926
• Lowest Net Sales:  $827,351

• Percentage of Restaurants With Annual Sales Above $2.0 million:  24.7%
• Percentage of Restaurants With Annual Sales of $1.8 to $2.0 million:  16.5%
• Percentage of Restaurants With Annual Sales of $1.6 to $1.8 million:  21.6%
• Percentage of Restaurants With Annual Sales of $1.4 to $1.6 million:  19.6%
• Percentage of Restaurants With Annual Sales of $1.2 to $1.4 million:  10.3%
• Percentage of Restaurants With Annual Sales Below $1.2 million:  7.2%

• As of the end of FY21, there were 153 Traditional Restaurants open and operated by Franchise Partners in the United States. 56 of these restaurants have been excluded as they were non-comparable due to: (a) not consecutively operating 18 or more months, or (b) not consecutively operated 12 or more months by the same operator.

• As of the end of FY21, there were 93 Traditional Restaurants open and operated by Traditional Franchisees in the United States. 12 of these restaurants have been excluded as they were non-comparable due to not consecutively operating 18 or more months.

• Due to rounding, percentages may not equal 100%.

• The financial information has not been reviewed or audited by an independent certified public accountant.

• The above results do not include any results for the new Roadside prototype that has been developed by Steak ‘n Shake. The above results should not be relied upon when evaluating the new Roadside format.

• Your sales results may vary based on a number of factors, including but not limited to the Restaurant’s physical location within a particular market, the geographic area of the country in which the Restaurant operates, visibility and access, the level of competition from nearby restaurants, proximity of retail, and the operational skill and the management methods employed by you.

• These results do not include results for locations operating from Steak ‘n Shake’s quick-service or roadside formats or non-traditional locations and should not be relied on to suggest the results you might experience if you operate Steak ‘n Shake’s quick-service or roadside format or a non-traditional location.

• Some outlets have sold this amount. Your individual results may differ. There is no assurance you will sell as much.

• The revenue figures in this Item 19 do not reflect the costs of sales, operating expenses, or other costs or expenses that must be deducted from the gross revenue or gross sales figures to obtain your net income or profit.

Section VI – Steak ‘n Shake Franchise Ratios, Comparables, Computations, and Analyses (Exclusive Content for Platinum Subscribers) ⬇️