Steak n Shake seeks younger customers

November 17, 2008
Historic photos of Steak n Shake restaurants show the burger-and-fries joint as a hip hangout for teens and twenty-somethings.

But these days, the average customer is 44. A 75-year-old brand built on youth somehow skipped a generation.

To win young customers back, the new management of the Indianapolis-based chain is planning a series of ads featuring super-fan customers, along with paid disc jockey endorsements on popular radio stations — all in a bid to create new buzz around Steak n Shake.

Of course, executives hope to hold on to baby boomers, too, by making Steak n Shake more about aspiration and less about nostalgia. They plan to retire ads featuring sharp-tongued Steak n Shake servers, and instead feature real customers offering testimonials to their passion for "steakburgers" and milkshakes.

The chain also plans to add a coat of red paint and photos of customers to the walls of its diners, and is considering updated uniforms for its staff and background music for its dining rooms.

"We've been targeting an older, more affluent customer," said Mike Williams, the company's newly hired marketing czar and a veteran of fast-food chains Wendy's and Krystal. "We've lost relevancy with a younger crowd."

The efforts will be timed with Steak n Shake's 75th anniversary starting in February, but the move has a larger mission than recalling Steak n Shake's heyday. The company has reported 13 consecutive quarters with same-store sales declines, including a nasty 7.4-percent drop reported Nov. 10. Its stock price is down about 70 percent this year.

The hope is that more young customers — combined with better service, lower administrative costs and prudent franchising — can help stabilize Steak n Shake. CEO Sardar Biglari laid out the vision at a shareholder meeting Nov. 11.

The company has cut about 35 percent of its administrative expenses, to $37 million, and drummed up $16 million in tax savings by accelerating depreciation of its restaurants. It has closed 18 restaurants and describes another 30 as at-risk.

The chain also is making small cost-saving changes in its restaurants, such as switching from brand-name ketchup to generic and from fresh vegetables to frozen. New ad circulars won't be printed on such heavy, expensive paper. And cups will get one color instead of two.

It has started sending mystery shoppers to its restaurants and launched audits that track cleanliness and speed. An ever-growing menu will drop to just two pages.

"We're slaying sacred cows every single day," said Biglari, 30, who took over after a proxy battle with the chain's former management. "I'm confident we're going to turn this business around."

Steak n Shake will never cut back on the quality of its core: burgers, fries, milkshakes and chili, Biglari said. Pretty much everything else is on the table.

The company, which owns 423 stores and franchises another 68, eventually hopes to expand through franchising as many as 1,500 new stores, including overseas locations.

In crafting the turnaround strategy, executives are looking at chains such as Red Robin Gourmet Burgers and Chick-fil-A as models.

The decision to jettison locally based Young & Laramore, the ad firm that created Steak n Shake's award-winning and iconic advertising campaign, qualifies as a big move. Y&L handled Steak n Shake's ads for 18 years, through eight management groups.

"We needed a fresh perspective and a new direction," Williams, the new marketing chief, said in an interview.

He said another firm, from out of town, is working on the new campaign. He declined to name the firm because a contract has not been signed.

"It's going to be a completely different feel," Williams said. "It's going to be about the customer —the hero of the brand."

Targeting young diners makes sense for Steak n Shake, but the strategy won't be easy to execute, said Bruce Bryant, president of locally based Promotus Advertising and past president of the Indianapolis Ad Club.

For one, Steak n Shake doesn't want to chase away older, loyal customers. The brand is complex, catering to widely varying demographics depending on the time of day. Young consumers also tend to seek out cheaper prices and quicker service.

The positioning of Steak n Shake as an upgrade over fast food makes a lot of sense, but the ad campaign featuring Steak n Shake servers sharing witty lines had run its course, Bryant said.

"It's very hard to build a brand with 18-to 24-year-olds," he said. "It's even more difficult to take an old brand and freshen it up."
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