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Federal court to hear Steak n Shake franchisee appeal

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A federal appeals court on Wednesday is set to hear oral arguments in a case involving an Illinois franchisee of Steak n Shake that successfully sued the restaurant chain over its mandatory menu and pricing policies.

Stuller Inc. filed its lawsuit in November 2010 against the Indianapolis-based chain after it said the company and its parent, Biglari Holdings Inc., adopted a policy forcing franchisees to follow set menu and pricing options.

Steak n Shake sent default notices to several restaurant owners—including the chain’s original franchisee, Springfield-based Stuller, which opened its first restaurant in 1939.

Stuller, which operates five Steak n Shake restaurants in central Illinois, argued to a federal court that the new policy violated long-standing company practices allowing franchisees to set their own prices.

The federal court agreed, saying Steak n Shake cannot force Stuller to use its pricing policy nor take action against the franchise for setting its own prices.

Steak n Shake appealed the decision, which will be considered by the federal appeals court in Chicago.

In its argument, Stuller said that in 2008, after the franchise adopted Steak n Shake's pricing policy, it lost $538,446 due to the new pricing, and higher fuel and food costs.

The franchisee increased prices 10 percent to make up for the shortfall, despite Steak n Shake’s recommendation not to do so, according to court documents.

Steak n Shake argued that the 48 franchised restaurants that adopted the policy in 2009 increased sales an average of 7 percent and customers an average of nearly 10 percent.

The company maintained that no franchise went out of business because of the policy.

The pricing policy coincided with Sardar Biglari’s arrival as Steak n Shake CEO. He began buying company shares in 2007 and took over 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. Since then, the chain has posted 17 straight quarterly increases in same-store sales.

Steak n Shake parent Biglari reported fiscal second-quarter earnings on Friday and posted a smaller profit of $4.5 million for the quarter ended April 13, compared with $5.6 million in the year-ago period.

Quarterly revenue grew 5 percent, to $221.7 million.

Steak n Shake’s same-store sales increased 4.8 percent on higher customer traffic. Profit for the Biglari subsidiary increased to $13 million from $9.5 million during the same period last year while revenue grew 5.2 percent, to $217.9 million.

Steak n Shake operates 493 restaurants, including 79 that are franchised.
 

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  1. to mention the rest of Molly's experience- she served as Communications Director for the Indianapolis Department of Public Works and also did communications for the state. She's incredibly qualified for this role and has a real love for Indianapolis and Indiana. Best of luck to her!

  2. Shall we not demand the same scrutiny for law schools, med schools, heaven forbid, business schools, etc.? How many law school grads are servers? How many business start ups fail and how many business grads get low paying jobs because there are so few high paying positions available? Why does our legislature continue to demean public schools and give taxpayer dollars to charters and private schools, ($171 million last year), rather than investing in our community schools? We are on a course of disaster regarding our public school attitudes unless we change our thinking in a short time.

  3. I agree with the other reader's comment about the chunky tomato soup. I found myself wanting a breadstick to dip into it. It tasted more like a marinara sauce; I couldn't eat it as a soup. In general, I liked the place... but doubt that I'll frequent it once the novelty wears off.

  4. The Indiana toll road used to have some of the cleanest bathrooms you could find on the road. After the lease they went downhill quickly. While not the grossest you'll see, they hover a bit below average. Am not sure if this is indicative of the entire deal or merely a portion of it. But the goals of anyone taking over the lease will always be at odds. The fewer repairs they make, the more money they earn since they have a virtual monopoly on travel from Cleveland to Chicago. So they only comply to satisfy the rules. It's hard to hand public works over to private enterprise. The incentives are misaligned. In true competition, you'd have multiple roads, each build by different companies motivated to make theirs more attractive. Working to attract customers is very different than working to maximize profit on people who have no choice but to choose your road. Of course, we all know two roads would be even more ridiculous.

  5. The State is in a perfect position. The consortium overpaid for leasing the toll road. Good for the State. The money they paid is being used across the State to upgrade roads and bridges and employ people at at time most of the country is scrambling to fund basic repairs. Good for the State. Indiana taxpayers are no longer subsidizing the toll roads to the tune of millions a year as we had for the last 20 years because the legislature did not have the guts to raise tolls. Good for the State. If the consortium fails, they either find another operator, acceptable to the State, to buy them out or the road gets turned back over to the State and we keep the Billions. Good for the State. Pat Bauer is no longer the Majority or Minority Leader of the House. Good for the State. Anyway you look at this, the State received billions of dollars for an assett the taxpayers were subsidizing, the State does not have to pay to maintain the road for 70 years. I am having trouble seeing the downside.

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