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Steak n Shake facing new suit over mandatory menu pricing

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Another Steak n Shake franchise owner is suing the company over its controversial practice that prohibits restaurants in the chain from setting their own menu prices, even after a federal appeals court sided with a franchisee.

St. Louis-based Druco Restaurants Inc., which operates two Steak n Shake locations in Missouri, filed suit against the locally based chain April 3 in U.S. District Court in Indianapolis.

Druco is seeking a permanent injunction to bar Steak n Shake from mandating company-wide menu prices and from terminating Druco’s franchise for refusing to comply with the pricing policy.

Druco argues that it has suffered financially because the policy prohibits franchisees from increasing menu prices while, at the same time, they’re forced to pay higher food costs resulting from a Steak n Shake distribution agreement.

Steak n Shake eliminated its own distribution operations in June 2010 and contracted with another company, Sygma, to be the single distributor of products to company-owned and franchised restaurants, significantly increasing food costs, Druco said in the filing.

“By virtue of its mandate that Sygma is the exclusive supplier of all products to franchisees, together with its policy requiring all franchisees to follow set menu pricing on every item on their menu, Steak n Shake effectively controls both the buy and sell prices for every food item sold by franchisees,” Druco argued.

Druco’s federal suit follows a similar complaint brought by fellow franchisee Stuller Inc. in November 2010.

Springfield, Ill.-based Stuller operates five Illinois Steak n Shake restaurants under franchise agreements with predecessors that date back to 1939, making it the oldest Steak n Shake franchise in the country.

A U.S. District Court in Illinois granted Stuller a preliminary injunction, similar to what Druco is seeking, to stop Steak n Shake from forcing menu prices on franchisees.

Steak n Shake appealed. But last August, the 7th Circuit Court of Appeals affirmed the Illinois federal court’s ruling in Stuller’s favor.

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 policy and higher fuel and food costs.

Yet, even after the Illinois court's judgment "that Steak n Shake has no material evidence to support its contention that its franchise agreements give it the right to enforce the policy, Steak n Shake has held steadfast in its ongoing, and system-wide, breach of those agreements by continuing to force its franchisees to abide by the policy,” Druco said in its complaint.

Steak n Shake is operated by San Antonio-based holding company Biglari Holdings Inc. Calls to the company seeking comment on Druco’s lawsuit were not returned.

Druco is represented locally by lawyers of Cohen & Malad LLP.

Besides asking for the injunction, Druco is suing Steak n Shake for breach of contract and fraud.
 

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  1. Cramer agrees...says don't buy it and sell it if you own it! Their "pay to play" cost is this issue. As long as they charge customers, they never will attain the critical mass needed to be a successful on company...Jim Cramer quote.

  2. My responses to some of the comments would include the following: 1. Our offer which included the forgiveness of debt (this is an immediate forgiveness and is not "spread over many years")represents debt that due to a reduction of interest rates in the economy arguably represents consideration together with the cash component of our offer that exceeds the $2.1 million apparently offered by another party. 2. The previous $2.1 million cash offer that was turned down by the CRC would have netted the CRC substantially less than $2.1 million. As a result even in hindsight the CRC was wise in turning down that offer. 3. With regard to "concerned Carmelite's" discussion of the previous financing Pedcor gave up $16.5 million in City debt in addition to the conveyance of the garage (appraised at $13 million)in exchange for the $22.5 million cash and debt obligations. The local media never discussed the $16.5 million in debt that we gave up which would show that we gave $29.5 million in value for the $23.5 million. 4.Pedcor would have been much happier if Brian was still operating his Deli and only made this offer as we believe that we can redevelop the building into something that will be better for the City and City Center where both Pedcor the citizens of Carmel have a large investment. Bruce Cordingley, President, Pedcor

  3. I've been looking for news on Corner Bakery, too, but there doesn't seem to be any info out there. I prefer them over Panera and Paradise so can't wait to see where they'll be!

  4. WGN actually is two channels: 1. WGN Chicago, seen only in Chicago (and parts of Canada) - this station is one of the flagship CW affiliates. 2. WGN America - a nationwide cable channel that doesn't carry any CW programming, and doesn't have local affiliates. (In addition, as WGN is owned by Tribune, just like WTTV, WTTK, and WXIN, I can't imagine they would do anything to help WISH.) In Indianapolis, CW programming is already seen on WTTV 4 and WTTK 29, and when CBS takes over those stations' main channels, the CW will move to a sub channel, such as 4.2 or 4.3 and 29.2 or 29.3. TBS is only a cable channel these days and does not affiliate with local stations. WISH could move the MyNetwork affiliation from WNDY 23 to WISH 8, but I am beginning to think they may prefer to put together their own lineup of syndicated programming instead. While much of it would be "reruns" from broadcast or cable, that's pretty much what the MyNetwork does these days anyway. So since WISH has the choice, they may want to customize their lineup by choosing programs that they feel will garner better ratings in this market.

  5. The Pedcor debt is from the CRC paying ~$23M for the Pedcor's parking garage at City Center that is apprased at $13M. Why did we pay over the top money for a private businesses parking? What did we get out of it? Pedcor got free parking for their apartment and business tenants. Pedcor now gets another building for free that taxpayers have ~$3M tied up in. This is NOT a win win for taxpayers. It is just a win for Pedcor who contributes heavily to the Friends of Jim Brainard. The campaign reports are on the Hamilton County website. http://www2.hamiltoncounty.in.gov/publicdocs/Campaign%20Finance%20Images/defaultfiles.asp?ARG1=Campaign Finance Images&ARG2=/Brainard, Jim

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