Look out. Steak n Shake, the full-service hamburger segment’s low-cost operator, has opened its first fast-casual unit and could add 110 more.
The debut of the first Steak n Shake outlet in New York City drew plenty of media coverage, much of it marveling at the chain’s low prices despite its high rent location in Times Square. How come nobody pointed out that this national full-service chain was introducing a fast casual format?
Steak n Shake has already proven itself to be a formidable competitor in the hamburger segment, providing a family friendly full-service dining experience at a modest price point that rivals those of most QSRs. Considering its food quality, staffing levels and other aspects of the experience it provides, it doesn’t seem possible that this chain could make much money.
But it does. For 2011, owner Biglari Holdings reported that annual operating earnings averaged $96,000 per unit for the 490-store chain.
It pulled off these numbers despite a pricing strategy that’s almost the inverse of the ones other restaurants follow. Steak n Shake doesn’t upsell; instead, it downsells via an endless array of deals and coupons that lowers the already low price of its meals.
Consider the final sequence of a Steak n Shake dining experience. The customer receives a check for the full price of his or her meal. Then the customer heads for the cashier, where coupon and deal discounts are deducted from the total. It’s always a pleasant surprise when the total bill turns out to be several dollars less than the full menu price, even though that full price wasn’t that much to begin with. It’s a cheap thrill that guarantees whoever is paying the bill walks out with a smile.
They must be really smiling in New York City. Steak n Shake opened its first unit there in early January. The location—immediately next to the Ed Sullivan Theater, where the David Letterman show tapes each night—couldn’t be better. Yet the pricing is exactly the same as everywhere else in the Steak n Shake chain. Most national chains that open a New York City unit tack on a price premium because of high operating expenses; this one didn’t.
We’ll let Biglari Holdings chairman Sardar Biglari describe what’s different about his chain’s New York City venture.
“One of the most exciting projects I have worked on has been the development of a new concept named Steak n Shake Signature,” he says. “It features a counter-service-only model carrying a simple menu with choices centered primarily on core menu items such as steakburgers and milkshakes. Steak n Shake Signature prepares 21st century fare delivering the finest in quality burgers, fries, and shakes.
“Furthermore, the ambiance is unmatched. Then too, the architectural design has been formed for the Signature to appear as sleek, modern, exotic, inviting and suitable for everyone’s enjoyment. This concept affords prospective franchisees the opportunity to own a Steak n Shake at a less costly investment, smaller footprint and a more simplified operation — ideally suited for shopping centers.”
It other words, here’s a fast casual concept that’s ready for expansion. Right now, Steak n Shake is primarily an operator of restaurants. It owns 413 of its 490 stores. But it’s hoping to do more franchising soon. “We have signed agreements with franchisees who in the coming years have committed to open 110 units,” Biglari says.
Given Steak n Shake’s strong national brand and hard-to-beat value proposition, its “Signature” concept will be a tough competitor wherever it sets up shop. Get ready if one or more opens in your market.