- Steak ‘n Shake is struggling, reporting an $US18.9 million operating loss in the first quarter, following a $US10.7 million loss for all of 2018.
- Investors are apparently contemptuous of CEO Sardar Biglari, with the Indianapolis Business Journal reporting that insiders are questioning his turnaround plan.
- Biglari has closed dozens of company-owned locations meant to reopen under franchisee control and reportedly plans to invent a new way of making milkshakes.
- The CEO has also reportedly said he would love to save $US1 million by no longer putting cherries on the chain’s iconic milkshakes.
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Steak ‘n Shake could be in its final days, as insiders reportedly worry about massive losses and CEO Sardar Biglari’s turnaround strategy.
The Indianapolis Business Journal published an article last week diving into the problems plaguing the struggling chain. In the first quarter, Steak ‘n Shake reported an $US18.9 million operating loss – after reporting a $US10.7 million loss for all of 2018.
The IBJ columnist Greg Andrews wrote that investors were “contemptuous of both Biglari and his doormat board” following the annual meeting of Steak ‘n Shake’s parent company, Biglari Holdings, in late April. Biglari also owns Maxim magazine, the steakhouse chain Western Sizzlin, and the insurance brand First Guard.
“It resembles a museum – not of art but of businesses,” Biglari wrote in the parent company’s 2018 annual letter. “Rather than collecting Monets, we collect money from productive assets.”
Steak ‘n Shake, however, is far from an industry leader. Biglari acquired the company in 2008 and pulled off a short-term turnaround. The company, however, has struggled more recently. IBJ’s Andrews reported that customer traffic counts dropped 13% over the past three years and a whopping 7.7% in the first quarter.
Investors are sceptical of Biglari’s turnaround plan, Andrews said. The brand has temporarily closed 60 company-owned restaurants this year, with Biglari reportedly saying in the annual meeting that there could be more closings to come. Biglari plans to reopen the company-owned stores as franchised locations.
Biglari Holdings also plans to roll out a new way to make milkshakes that the CEO himself is said to be behind.
Then, there’s the issue of the cherries.
IBJ cited a post on the website Seeking Alpha describing a comment Biglari apparently made at the annual meeting.
“Sardar Biglari said at one point that Steak n Shake spends $US1 million per year on cherries for milkshakes and that he would love to get rid of that $US1 million,” the post reportedly said.
“Three different shareholders pointed out, in conversations, how ridiculous that sentiment is … Given all [the dubious expenses], shareholders were pointing out that maybe there is a better way to save $US1 million rather than eliminating cherries from Steak n Shake’s milkshakes.”
IBJ said another shareholder in attendance had verified the comment.
Steak ‘n Shake did not immediately respond to Business Insider’s request for comment. Biglari touched on the issues in his annual letter, promising changes related to speed and operations.
“To be a market leader in the fast food business, we should have paid greater heed to becoming, well, fast,” Biglari wrote. “We are in the process of addressing this misstep. To do so, we are overhauling and streamlining production – that is, developing a sophisticated operating and delivery system – in order to gain volume through speed. This principle can be summed up in the dictum of Benjamin Franklin: ‘Time is money.'”
Steak ‘n Shake’s problems are no secret to many investors. In 2018, the chain made S&P Global Markets’ list of 19 retailers most at risk of defaulting next.
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