Franchises and Steak n Shake and Retail and Sardar Biglari and Real Estate & Retail

CEO: Steak n Shake poised for global growth

December 13, 2011

The parent of Steak n Shake is planning to grow the Indianapolis-based burger chain through an aggressive franchising effort that ultimately could take the company global.

In his latest annual letter released to shareholders on Saturday, Sardar Biglari, CEO of San Antonio-Biglari Holdings Inc., said he has commitments for 110 more franchised units that could open within the next few years.

Steak n Shake currently operates 490 restaurants, of which the majority—413—are company owned within the chain’s 25-state footprint. But Biglari thinks Steak n Shake is poised to become a worldwide player in the restaurant industry.

“We have an ambitious plan: I believe Steak n Shake is a brand that will become global,” Biglari told shareholders. “To speed this idea into reality, franchising becomes integral to our growth.”

The revitalized Steak n Shake has been on a tear since Biglari began buying company shares in 2007 and took over as CEO just a year later.

He slammed the brakes on new store construction, arguing that the chain’s restaurant prototype cost too much to build and that the expansion was hurting shareholder value.

He also revamped store operations and the menu, halting a 14-quarter streak of declining same-store sales. The chain now has posted 16 straight quarterly increases in same-store sales.

For the fiscal quarter ended Sept. 28, same-store sales increased 5.3 percent. Same-store sales also improved 4.2 percent for the entire fiscal year.

In addition, Steak n Shake’s overall annual revenue in fiscal 2011 jumped 4 percent, to $689.3 million, while pretax profit increased 5 percent, to $39.6 million.

Biglari’s strategy to franchise more restaurants seems logical to Philip Whistler, a partner at Ice Miller LLP whose practice includes franchising.

“The basic formula is you’re growing your business using other people’s money and other people’s management expertise,” he said. “As a result of the bad economy the past few years, there are actually a lot of people who are looking for different career paths.”

The fragile economy, however, has made financing a lot tougher to obtain, Whistler said.

Investing in a Steak n Shake franchise takes a 20-year commitment and between $955,000 and $1.8 million in startup costs, according to the company’s website.

If that seems steep, Biglari unveiled a new concept in his letter that would enable franchisees to purchase a cheaper stake in the company.

Dubbed Steak n Shake Signature, the concept features a counter-only service model, rather than a restaurant with traditional seating. It offers a simple menu of core items such as steak burgers and milkshakes, and is ideally suited for shopping centers, Biglari said.

The first one is slated to open on Broadway in New York City on Jan. 12.

“For years I have said that Steak n Shake’s future lies in franchising,” Biglari said in his letter. “Well, the future is now.”

Biglari, whose firm also operates 94 Western Sizzlin restaurants, is seeking a seat on the board of Cracker Barrel Old Country Store Inc., based in Lebanon, Tenn.

Biglari has complained that Cracker Barrel isn't living up to its potential. The company is set to hold its annual meeting on Dec. 20.

Biglari Holdings began buying Cracker Barrel shares in June and has regulatory approval to buy a nearly 50-percent stake in the company.

In his letter to shareholders of Biglari Holdings, Biglari provided a glimpse of his investment strategy: “We are guided by logic to do what makes sense, not what is commonplace. Doing business differently from others invites criticism, to which we are extremely insensitive.”

Biglari Holdings earned $25.86 per share in its latest fiscal year, compared with $19.99 the previous year.
 
Company shares were up $6.59 in mid-morning trading and are fetching $363 each.
 

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