Indianapolis-based Steak n Shake announced a plan Monday to dramatically change its franchising model.
The company said it wants to convert company-operated restaurants into single-unit franchisee-operated restaurants by offering “franchise partnerships” for $10,000 each.
The Steak n Shake chain consists of about 415 company-owned and 201 franchised locations. Under the new franchising plan, “franchise partners” will be able to pay an initial fee of $10,000 to take over full-time operation of an existing corporate-owned restaurant.
Steak n Shake said those interested individuals must be free of other active business ventures and successfully complete an extensive six-month training program.
“I started my company with $15,000 and built a thriving enterprise,” said Sardar Biglari, CEO of Biglari Holdings, the parent of Steak n Shake, in a written statement. “I want to provide an opportunity to other entrepreneurs who are highly motivated to excel but lack the financial means. What will be important to become a franchisee is not great capital but great ability. We are seeking to harness the power of entrepreneurs and to create a company of owners.”
Steak n Shake said “franchise partners” will earn 50 percent of the profit at the restaurant they oversee. The partners “capable of running the day-to-day business, no absentee ownership,” restaurant officials said.
The restaurant chain’s current franchising model calls for franchisees to pay a franchise fee ranging from $25,000 to $40,000 as part of an initial investment that varies from about $672,000 to more than $1.8 million per unit, depending on the size and location of the restaurant.
Those franchisees, however, have ownership stakes in their properties. The new franchise partners will not.
In its latest annual report, Biglari Holdings said it was interested in extending the Steak n Shake brand through franchising. “The expansion plans include seeking qualified new franchisees and expanding relationships with current franchisees,” the company said.
Steak n Shake has added more than 70 franchises since the end of 2014 while the number of company-owned stores has remained flat. In Indiana, 68 of Steak Shake's 72 restaurants are company-owned.
In recent years, the company has had legal squabbles with franchisees who say it is difficult to be profitable under the franchisor’s menu-pricing requirements.
Steaks of Virginia LLC, which has nine restaurants, filed a lawsuit in April that said Steak n Shake was breaking its franchise and development agreements by not allowing it to set its own menu prices.