Steak n Shake Stirring In Major Markets
Quick service player has beefed up infrastructure for growth.

For one of the oldest restaurant chains in the United States, Steak n Shake is looking pretty vibrant. Founded by Gus Belt in 1934, the Indianapolis-based burger chain added 16 new company-owned stores last year. Also in 2004, same store sales grew 7.7 percent, driven by new product news and improved service. That was on top of 4.9 percent growth in the prior year. The company plans to open 18 to 24 new units in 2005, with similar growth plans going forward.

The Steak n Shake Company currently operates 431 locations, including roughly 60 franchised restaurants in 19 states, including Alabama, Florida, Georgia, Iowa, Illinois, Indiana, Kansas, Kentucky, Michigan, Missouri, Mississippi, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas and Wisconsin. A mid-scale casual dining restaurant, Steak n Shake features a core menu of steakburgers (with real steak), thin and crispy French fries, chili and hand-dipped milk shakes. Additional menu items include fresh salads, chicken sandwiches and other specialty sandwiches, home-style soups and desserts.

The rest-aurants, which run 4,180 square feet on average, offer full-service dining areas, counter service and drive-thru windows. The décor, which hasn't changed since the restaurant's conception, has a nostalgic play that reminds one of a 1950s or ‘60s diner, with a red, white and black color scheme, tile and stainless steel.

“We're not playing to something as much as we are something,” notes John Reller, Steak n Shake's senior real estate manager. “One of our greatest strengths could also be considered one of our weaknesses, and that's our reluctance to change.”

An important restaurant attribute is the open kitchen, where food is cooked to order.

“In 1934, they did not have the health departments like we have today,” adds Reller, “so what went on in the kitchen was a little bit of a mystery. Gus Belt put the kitchen in the dining room, which was pretty cool back then. Today it's not that different, but it's unique because it's part of our heritage.”

Though the restaurant's interior hasn't changed, Steak n Shake has been purposeful over the years about staying on top of consumer trends with added menu items, such as chicken sandwiches, salads and soups. And today, the company is much more focused on new product development, with items such as the new Sippable Sundae Milk Shake, which was rolled out, and became very successful, in the dead of winter last year. The Sippable Sundae Milk Shake is a base Steak n Shake milk shake flavor with added toppings, like the Banana Split — a banana shake with hot fudge, strawberry topping, whipped cream, nuts and a cherry.

When staking out locations, Steak n Shake likes freestanding and shopping center outparcel locations in densely populated areas with high traffic and a highway interchange with hotels, gas stations, hospitals and business areas. Located primarily in major markets in the Midwest and Southeast, the chain is moving westward, with sites in Texas and Oklahoma, filling in existing major markets as it moves.

“We're stepping out from our existing markets so it's a contiguous expansion,” says Reller. “We're also going into some new major markets which we're evaluating, such as Dallas and Houston.”

Other new locations include Glenview, Illinois; Greenfield, Indiana; and Halendale, Florida. The company also has a sharp development near the Aventura Mall, says Reller, which is an indication of the kind of casual dining development today that must fit in with the architectural elements of a shopping center.

“We're recognizing that to meet our expansion objectives, we need to be flexible with developers,” he says. “These communities are requiring you to bend over backwards with architecture and with multiple businesses in line together, and they are the communities we want to serve because they have a very discriminating, well-educated, affluent customer.”

During the late 1990s, Steak n Shake expanded rapidly, but eventually had to scale back due to a lack of infrastructure to support the growth rate. Today, the company is investing in its infrastructure and leadership to support its expansion. In 2005, Steak n Shake plans to invest $1.2 million to $1.5 million to hire and train an additional 125 to 150 managers. The company will also invest roughly $1.4 to $1.8 million to strengthen its real estate and construction, human resources, information technology and other support functions.

The company is also deeply committed to strengthening its foundation with what it calls the “Virtuous Cycle.” The initial phase of Steak n Shake's growth plan, the Virtuous Cycle includes better support of leaders, taking better care of associates and guests and taking care of margins and labor. The result is more satisfied managers and associates, more delighted guests and growth of sales, profits and shareholder wealth.

“The essence of the principle is that when guests and associates interact, it is by far the core of the business function,” says Shannon Jordan, marketing director. “When that goes well, our shareholders become happy and they invest more, which allows our leaders to get the associates more fully developed. And it's just a continuous cycle.”

As Steak n Shake moves ahead, franchising will play a significant role in the expansion, says Reller.

“Franchising is an important part of our expansion objectives, and we're continuously evaluating and encouraging franchise development,” he says.

The company is also trying to grow in areas where it can get on television quicker, notes Jordan.

“We've   found that TV is the most powerful media form for Steak n Shake. So when we look at where we want to grow, obviously television costs and efficiencies are on the forefront, too,” she says.

— Susan H. Fishman