Steak n Shake woos real estate pros

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At the retail real estate industry's biggest deal-making event, restaurant and retail chains jockey for attention from the brokers and developers who hold the keys to their expansion at the best possible sites.

Attendees of the International Council of Shopping Centers convention in Las Vegas have a handful of free sub-sandwich options, including Jimmy John's, Quiznos and Jersey Mike's. They can pick up a smoothie sample from McDonald's or an Auntie Anne's pretzel.

But this year there was a new champion for the longest line and most buzz: Steak n Shake milkshakes.

The Indianapolis-based chain debuted a new booth—one of the largest for a restaurant chain at the show—that's modeled after its new Signature store concept, the first of which opened in January in New York's Times Square next door to the Ed Sullivan Theater. The booth included a milkshake station serving full-size shakes and a large deal-making room in the back.

Steak n Shake has pinned its growth plans on franchising, and if its sales pitch at the booth is any indication, it sees good site selection as a vital part of that formula: A glossy brochure about the Signature concept shows a rendering of a Steak n Shake next door to an Apple electronics store.

The line for shakes snaked by several other booths, and it took about 15 minutes to reach the gaggle of Steak n Shake employees making each shake from scratch. An employes said they were on track to serve more than 5,000 milkshakes during the three-day show.

"It's probably the best thing here," observed Brian Weber, who brokers retail deals in Dallas but knows Steak n Shake from growing up in St. Louis.

He was waiting in line Tuesday to get a chocolate shake after trying the strawberry version on Monday. He vowed to research possible sites for the chain upon his return.

"I'll try to help them," he said.

Steak n Shake, a subsidiary of San Antonio-based Biglari Holdings Inc., is betting the smaller-format, counter-service prototype—designed for spaces within strip centers rather than outlot spaces—will help it grow faster, in more markets, though it still is offering franchisees a more capital-intensive "Classic" store format designed for standalone sites.

The sleek and modern "Signature" prototype also touts a USDA organic Steakburger and hand-cut fries, and a grill and shake station within view of customers.

Biglari discussed the franchising strategy in his letter to shareholders in December. He said the chain has reached deals with franchisees committed to opening 110 restaurants.

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

The chain's aggressive growth plan is no sure thing. The burger-and-shake market is competitive, and Steak n Shake is not a household name in many of the markets targeted for expansion. And as Steak n Shake tries to sell new franchisees on the concept, it continues to feud in court with the original Steak n Shake franchisee.

At issue: A move by Steak n Shake to force franchisees to adopt uniform pricing. The 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 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.

Biglari Holdings reported fiscal second-quarter earnings on May 18 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 a year ago, 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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