The Steak n Shake Company

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The Steak n Shake Company

500 Century Building
36 South Pennsylvania Street
Indianapolis, Indiana 46204
U.S.A.
Telephone: (317) 633-4100
Fax: (317) 633-4105
Web site: http://www.steaknshake.com

Public Company
Founded: 1934
Employees: 18,000
Sales: $408.7 million (2000)
Stock Exchanges: New York
Ticker Symbol: SNS
NAIC: 72211 Full-Service Restaurants; 53311 Lessors of Nonfinancial Intangible Assets (Except Copyrighted Works)

One of the oldest restaurant chains in the United States, The Steak n Shake Company operates more than 370 Steak n Shake restaurants throughout 17 midwestern and southeastern states. Of the 370 restaurants in operation, approximately 50 are franchised, with the remainder company-owned. The Indianapolis, Indiana-based chain is best known for its burgers (which are referred to as “steakburgers”) and milkshakes, but also serves a range of other sandwiches, salads, soups, and side dishes. The restaurants, which are open around the clock, cater to a mid-range, casual dining market, with the average meal costing approximately $5.60. They offer full-service dining areas, counter service, and drive-through options.

1930s: A “Normal” Beginning

The business that would grow into the Steak n Shake chain began in the early 1930s in Normal, Illinois, in a Shell gas station. The station’s owner was Gus Belt, an Illinois native who had owned a tire distributorship before going into the service station business. In 1932, looking for a way to make his station more attractive to motorists, as well as to supplement his income, Belt hit upon the idea of running a small restaurant in conjunction with the gas business. He began offering customers all the chicken they could eat, along with french fries and cole slaw, for 45 cents. For an additional small charge, thirsty travelers could wash their chicken down with a glass of beer.

Soon, however, the nearby Illinois Normal State Teachers College began objecting to beer being served so close to campus. When the college threatened to shut down Belt’s small operation, he and his wife secured a $300 loan and used it to turn their gas station into a real restaurant. In February of 1934, the Belts opened their new eatery, renamed Steak n Shake. The “steak” in the name referred to the restaurant’s hallmark sandwich, the steakburger—made with real cuts of T-bone, strip steak, and sirloin, ground up, formed into patties, and grilled. The “shake” referred to thick vanilla, chocolate, and strawberry flavored milkshakes, prepared with ice cream the Belts made themselves.

Belt was a stickler for quality in virtually every aspect of his business. In a time when Board of Health standards for restaurants varied widely from county to county, and most roadside eateries were run in a careless, slapdash way, Belt turned scrupulous sanitation into a marketing advantage. He designed the new Steak n Shake to look reassuringly clean, with a stark stainless steel and black-and-white decor that was kept shiny with frequent scrubbings. Belt’s standards for the food he served were likewise stringent. He developed a formula for what he believed would be the perfect burger, which started with the best meat available in Illinois, ground fresh and mixed according to a precise ratio of lean to fat. Belt then grilled the burgers in a unique, carefully choreographed method that seared in the juices and crisped the exterior, and served them on a fresh, custom-designed bun. Even condiments did not escape his attention; he soon began slicing his pickles lengthwise so that diners got a taste of pickle with every bite of burger.

A savvy marketer, Belt did not let his customers overlook the care and quality that went into their meals. He often wheeled in a barrel of steaks during the restaurant’s busiest times and ground them up while the diners watched. This practice of allowing the customers to watch while the food was prepared extended to the cooking phase as well. The Belts’ new building had an open layout that allowed customers to watch the cooks prepare their meals, which gave rise to the Steak n Shake slogan, “In sight, it must be right.”

In addition to its dine-in business, the original Steak n Shake offered curb service. This proved to be highly successful, and soon the restaurant had all the business it could handle. In a July 2000 interview with the Chicago Sun-Times, Mel Tulle, a former curbside waiter at the original Steak n Shake, recalled that customers were “driving circles around the restaurant because there was no place to park.” Tulle went on to say that the Belts even had a Normal police officer directing traffic around the restaurant.

With his Normal Steak n Shake thriving, Gus Belt began expanding. In 1936, he opened a second restaurant in Bloomington, Illinois. A third and a fourth soon followed, in Bloomington and Decatur, Illinois, respectively. Near the end of the 1930s, the Belts acquired an existing restaurant in Champaign, Illinois and converted it into a Steak n Shake. Soon after that, they purchased two restaurants operating under the name “Goal Post”—one in Champaign and one in East Peoria, Illinois—and turned them into Steak n Shakes as well. By 1939, still another Steak n Shake had opened, in Danville, Illinois, giving the Belts a chain of eight locations.

1940s–60s: Expansion and Ownership Changes

By 1943, there were 15 Steak n Shakes. Most were located in Illinois, but at least one was doing a booming business in Hot Springs, Arkansas. Most of the sites were company owned, although Belt had allowed for a few franchisees. In the late 1940s, Steak n Shake expanded into St. Louis—an area that was to become a major market for the chain. Between 1948, when the first St. Louis store opened, and 1954, the Belts opened ten highly successful restaurants in the city, making it the location most heavily populated with Steak n Shakes. Belt financed the St. Louis growth by making a public offering of the company’s stock, but the Belts themselves continued to own a controlling interest.

In 1954, Belt died of a heart attack. He left the Steak n Shake chain—consisting of 24 restaurants in Illinois and St. Louis, and one restaurant each in Daytona Beach, Florida and Hot Springs, Arkansas—in his wife’s hands. Edith Belt ran the business exactly as her husband had, adhering carefully to the standards and practices he had established. During the 15 years under her leadership, Steak n Shake gradually expanded to include 51 locations in Illinois, Missouri, Florida, and Indiana, but little else changed.

In early 1969, Edith sold her controlling interest in Steak n Shake to Longchamps, Inc., a chain of steakhouses headquartered on the east coast. The sale price was approximately $17 million. During the two and one-half years Longchamps controlled Steak n Shake, it saw sales increase from $17 million to $23.5 million. Because of some managerial missteps, however, the company found itself facing a lawsuit filed by stockholders and pressure from its bankers. In the fall of 1971, Longchamps sold its controlling interest in Steak n Shake to the Indiana-based Franklin Corporation.

1970s–80s: Changing Hands Again

With the ownership change, Robert Cronin became the chairman of Steak n Shake. After making a detail-level assessment of the operation, Cronin began making a few cautious changes to the restaurant’s menu. Some of his changes were simply designed to return Steak n Shake to its roots. For example, during Longchamps’s tenure, management had replaced the chain’s traditional, real ice cream milkshakes with shakes made from a mix. Cronin immediately reverted to the old method, using the real ingredients. He also reduced the cost of a cup of coffee—then 15 cents—to its pre-Longchamps price of ten cents. Other of Cronin’s changes, however, were innovations. He contracted with Sara Lee to add an array of desserts to the menu—the first non-milkshake desserts ever served at Steak n Shake. He also added such side dishes as cottage cheese, pineapple salad, and baked beans.

Most of Cronin’s attention, however, was focused not on tinkering with the menu, but with growing the chain. Launching an aggressive expansion campaign, he more than doubled the number of restaurants in just a few years. By 1975, the number of Steak n Shakes had grown to 130.

The 1970s brought with them some difficulties for the company, however. Fast-food restaurants were becoming ubiquitous on the American landscape, and the popularity of Steak n Shake’s curb service was overshadowed by the ease and speed of these new eateries’ drive-through windows. The increased competition, in tandem with the challenges inherent in running a more geographically dispersed operation, took its toll on Steak n Shake. Cronin responded by eliminating curb service at most of the chain’s locations and closing several restaurants. It was during this time of realignment that the company’s headquarters was relocated from Illinois to Indianapolis, Indiana.

Company Perspectives:

What is Steak n Shake? A restaurant. And by that we mean a place where, instead of standing in line to order, you sit down. We serve you from a full menu including chili, melts, salads, soups, and club sandwiches. But we are most famous for Steakburgers. Why do we call them Steakburgers? Because we can. Steakburgers are made from real steak cuts—sirloin, t-bone and strip steak—and grilled a special way to sear in the flavor. Our real-milk Milk Shakes are hand dipped the old fashioned way as we have done it from our start. These are our core items: Steakburgers and Milk Shakes-good enough to name a restaurant after.

In 1981, the Franklin Corporation sold its interest in Steak n Shake to Ed W. Kelley, a veteran in the restaurant business. Since 1974, Kelley had been the principal shareholder and managing general partner of Kelley & Partners, Ltd., a Florida company with investments in snack food distribution companies and restaurants. In 1982, Kelley formed a new holding company—Consolidated Products—to serve as the parent company for Steak n Shake. According to a November 1995 issue of Indiana Business Magazine, Kelley and his associates chose the nonspecific name “Consolidated” because they intended to acquire and manage other restaurants aside from Steak n Shake.

By the mid-1980s, Steak n Shake again was facing difficulties. The company’s earnings had flattened, and its growth had stalled. In 1985, James Williamson, Jr., was hired as president and CEO of Consolidated Products, inheriting a company that had posted five quarters of losses. Williamson, like Cronin before him, took a hard look at what was going on at the restaurants. He scrutinized the menu, eliminating infrequently ordered items that required a great deal of preparation. He also reviewed the appearance of the restaurants and, feeling that some had strayed too far, brought them back into alignment with the prototypical black-and-white, visible-kitchen look.

In a more dramatic effort to bolster its sagging bottom line, Consolidated began a program of diversification. Forming a specialty restaurants division, the company began acquiring and/or opening a variety of casual dining steakhouses and other specialty restaurants.

By the late 1980s, the Steak n Shake chain was again on solid ground, posting record profits. The Specialty Division, however, had yet to earn a profit. In 1990, Consolidated appointed Stephen Huse as president, at the same time acquiring two of his specialty restaurants located in Bloomington and Indianapolis, Indiana. Although Huse’s mission was to turn the Specialty Division around, he did not stay with the company long enough to make much of an impact. He resigned in 1991, eventually to be replaced by Alan Gilman.

1990s: Rapid Growth

The 1990s ushered in a new era of growth for Steak n Shake. The chain, which contained slightly more than 100 units at the beginning of the decade, was to more than triple in size over the next ten years.

Part of the growth stemmed from a franchise campaign, which the company launched in 1991. Between late spring and fall of that year, the company signed franchise agreements for 15 restaurants in the Charlotte, North Carolina and Atlanta markets; four restaurants in the Louisville and Bowling Green, Kentucky markets; and five restaurants in the cities of Jonesboro and Little Rock, Arkansas.

As the mid-1990s approached, Steak n Shake was truly thriving. The company had seen steady growth since the mid-1980s and had posted record earnings every quarter for six years. With such a strong position, management believed the chain was ideally poised for rapid growth; in 1994, the company announced that it planned to double the number of Steak n Shakes by 1998. Its expansion strategy was to “cluster” its locations, adding units in markets that already had a Steak n Shake presence, and then eventually expanding out into contiguous metropolitan markets, in order to benefit from existing name recognition.

Steak n Shake lost no time. In 1995, the chain had 171 restaurants in 12 states, including 34 franchised units; by the end of 1997, the company had added 57 company-owned stores and 21 franchised units, bringing the total restaurants in the chain to 249. In 1998 and 1999, 85 new units were added to the Steak n Shake stable, and the expansion was still going strong. The company had shown remarkably consistent growth, as well, in its sales and profits. Between 1994 and 1999, total sales grew from $185 million to $387 million; earnings grew from $7.2 million to $19.7 million, and Consolidated’s stock appreciated 372 percent.

By the middle of 2000, Consolidated Products decided to expend all of its energies on the Steak n Shake brand. The company announced that it planned to discontinued its Specialty Restaurants division, closing or selling its remaining non-Steak n Shake locations. “Steak n Shake has been our vehicle for growth and that’s where we intend to focus our attention,” explained company spokesperson Victor Yeandel in a September 2000 interview with the Indianapolis Business Journal. The company also announced that it was changing its name to more accurately reflect its new focus; therefore, in early 2001, Consolidated Products formally became The Steak n Shake Company.

Looking to the Future: Still More Expansion

Steak n Shake continued to have ambitious plans for growth as it moved into the new millennium. The company’s goal was to have 600 Steak n Shake restaurants by 2004, with more than 500 of them company-owned. It was likely that the company’s growth strategy would continue to emphasize gradual geographic expansion, moving from one metropolitan area into adjacent markets. Beyond becoming bigger, it seemed unlikely that Steak n Shake would exhibit many changes throughout the coming years. As various generations of management had discovered, the fundamentals of Gus Belt’s restaurant concept were virtually timeless—and there was no good reason to tinker with a proven formula for success.

Key Dates:

1934:: Gus Belt opens the first Steak n Shake in Normal, Illinois.
1939:: Steak n Shake has eight locations.
1948:: Steak n Shake moves into St. Louis, which will prove to be one of its largest markets.
1954:: Belt dies, leaving restaurant chain to his wife Edith.
1969:: Edith Belt sells the 51-unit Steak n Shake chain to Longchamps, Inc.
1971:: Longchamps sells its interest in Steak n Shake to the Franklin Corporation.
1975:: There are 130 Steak n Shake locations.
1981:: The Franklin Corporation sells Steak n Shake to Ed Kelly, who forms Consolidated Products.
1986:: Consolidated forms a Specialty Restaurants Division.
2000:: Consolidated Products discontinues its Specialty Restaurants group; changes its name to The Steak n Shake Company.

Principal Competitors

Advantica Restaurant Group, Inc.; Burger King Corporation; Checkers Drive-in Restaurants, Inc.; CKE Restaurants, Inc.; Frisch’s Restaurants, Inc.; McDonald’s Corporation; Sonic Corp.; Triarc Companies, Inc.; TRICON Global Restaurants, Inc.; Wendy’s International, Inc.; White Castle System, Inc.