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Steak n Shake hopes discounts whet appetites: Yet some fear promotions may hurt the brand

May 19, 2008

In an effort to reverse declining sales at its restaurants, The Steak n Shake Co. plans to roll out a number of new promotions and discounts this summer.

During a conference call with analysts May 14, interim President Jeffrey Blade said the Indianapolis-based chain plans to introduce deals such as 99-cent children's milkshakes and discounted burgers and sandwiches to lure customers back into its stores.

The company also is testing $1 kids' meals, a discounted milkshake "happy hour" from 2 p.m. to 5 p.m., and free coffee one day a week.

The promotions come at a time when restaurants across the country are cutting prices to lure consumers pinched by high gas prices and other economic pressures. Taco Bell this week is debuting a "Why Pay More?" value menu featuring items priced at 79 cents, 89 cents and 99 cents. Sandwich chain Quiznos just launched an aggressive ad campaign promoting its $5 foot-long subs. And T.G.I. Fridays announced plans last month to make its smaller, lower-priced "Right Portion, Right Price" items a permanent part of its menu.

"What chains are trying to do is drive traffic to their restaurants," said Darren Tristano, executive vice president with Chicago-based restaurant consultancy Technomic, "and unfortunately discounting seems to be the way to get it done in this economy."

Steak n Shake officials are hoping the new promotions will bring some relief to the struggling chain, which reported May 13 that same-stores sales fell 6.3 percent in the fiscal second quarter, the 11th consecutive quarter of declines. The company's stock has lost nearly 40 percent of its value this year.

Former Steak n Shake executive S. Sue Aramian, 75, said in an interview with IBJ that the poor results stem from a continued lack of leadership at the company. The chain has been searching for a new CEO since August, when Peter Dunn stepped down.

"We need an executive, a good executive to run that company," she said. "You're putting a second and third string in right now and what are you going to get? If you're going to do the same thing again and again, you're going to get the same results."

Aramian joined Steak n Shake in 1983 and served in various roles alongside the late company chairman E.W. Kelley, including vice president, secretary and board vice chairwoman. She left the company in 2004, but still owns nearly 120,000 shares of stock with a family member.

She said the latest discounting strategy takes away from "the very special niche the company has rightly earned.

"I think it's a terrible thing for the brand," she said. "You're selling discounts. People come to rely on that rather than the products."

Steak n Shake officials declined to comment for this story. However, on the May 14 conference call, Blade said the company was trying to handle the "tricky trade-off" of offering promotions without cheapening the brand.

"One of the things we're very clear on is that we are not looking to be deep discounters," he said. "What we're also clear about is the reality of an intensely competitive restaurant space right now where deep discounting and other promotional offers ... are taking place almost everywhere."

Steak n Shake's first major discount-a "$2.99 Double Steakburger & Fries" deal-debuted in February and resulted in increased same-store sales.

The new summer discounts-such as the 99-cent children's milkshakes and $1 kid's meals-give the chain a chance to pump up its family business, Tristano said, while still focusing on its core products of burgers and shakes.

The proposed milkshake happy hour also lets the company capitalize on the traditionally slow times in its restaurants.

"The biggest challenge in doing this is managing the discounting so it's not impairing their ability to be profitable at the unit level," he said.

During the conference call, Steak n Shake's Blade said all the company's promotions will be designed to break even or turn a profit.

"We're not interested in losing money or making things any worse financially," he said.
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