Steak N' Shake

Steak 'n Shake

Executive Summary:

Steak 'n Shake was founded in Normal, Illinois in 1934 by Gus Belt. Mr. Belt converted his gas station and Shell's Chicken into a hamburger stand. The restaurant opened its doors with several things in mind; first Belt's special focus was on customer service and second he wanted the food he made to be "fresh."

Today, Steak 'n Shake continues to focus on providing the customer the "best dining experience," with freshly prepared foods. Their commitment to the marketplace is stated in their Code of Business Conduct and Ethics, "Steak 'n Shake commits to compete legally and ethically. We will act responsibly in our relationships with our guests, business partners, suppliers and each other. We will be honest and fair in our business dealings."

A strength of Steak 'n Shake is the investment made in the career development of employees resulting in lower employee turnover. Weaknesses include longer wait times in the drive-through

, compared to other drive-through

restaurants, and the lack of nationwide recognition. An additional weakness is the non-appeal to the health conscious consumer. Steak 'n Shake has the opportunity to expand nationwide and add healthier items to the menu. They are also increasing community involvement. Competition is the primary threat of most restaurants. Steak 'n Shake also struggles with fluctuation in the economy and negative food press.

Steak 'n Shake has been funding investing and financing activities internally with operating cash flows and a decrease in cash. This internal funding caused a decrease in liquidity. All of Steak 'n Shake's activity ratios were below the RMA industry bottom quartiles. The debt ratios were usually between the upper quartile and the median. Profitability ratios started slow with gross profit margin well below the industry average, however, rebounded with net profit above the industry average. The DuPont analysis revealed that competitors Friendly's and Denny's have not faired well the past three years, however, competitor Red Robin has had strong performance. The market ratios revealed that Steak 'n Shake was below the industry average in all ratios calculated.

Strengths:

Steak 'n Shake started making "real" Steak burger sandwiches and hand-dipped milk shakes in 1934. Today, these two signature menu items are still what consumers expect. To offer a unique dining experience Steak 'n Shake combined a friendly, sit-down diner with a drive-through

where consumers can order freshly made breakfasts, lunches, dinners, and of course, milkshakes made with real milk and real ice cream. Steak n' Shake's "making it fresh" meals are not common in the drive-through

restaurant business. In fact, in Stark County, Steak 'n Shake is the only restaurant offering such a service. Steak 'n Shake is one of the oldest restaurant chains in the United States who are open 24-hours a day and cater to just about anyone.

Employee turnover of 200 percent was a problem for Steak 'n Shake in 2003. Today, Steak 'n Shake's employee turnover is under 135 percent for associates and only 25 percent for management. They have lowered turnover by investing in the career development of employees. Steak 'n Shake offers promotional opportunities for employees and advancement/relocation possibilities for managers. They also offer a competitive health benefits package and 401k plan to employees who work at least 20-hours a week.

Weaknesses:

Steak 'n Shake is not a fast-food restaurant; however consumers perceive them as fast food because of the drive-through

. The average wait time for a consumer to receive a meal going through

the drive-through

is 4 minutes. The average wait time for other drive through

restaurants is approximately a minute and a half. This factor can turn away consumers who are looking for the quicker turn around on their food.

Steak 'n Shake, located in only 20 states, is not currently recognized nationwide. The lack of brand identity is a hindrance with a restaurant chain that provides services above the traditional fast food chain. Consumers unaware of the diner style atmosphere and quality food will not be willing to pay more or wait longer for the dining experience.

Steak 'n Shake may not be a restaurant appealing to the health conscious consumer. One original single Steak burger with cheese has 33 grams of fat, which is 51% of the daily allowance. A hand dipped regular vanilla milkshake consists of 664 calories and 35 grams of fat, which is 54% of the recommended daily allowance.

Opportunities:

Currently, Steak 'n Shake has 445 restaurants in 20 states. By 2010 they estimate having over 1000 restaurants nationwide. The additional 550 restaurants will increase the brand recognition and develop brand loyalty. In 2008, they are planning the addition of "healthier" menu items. Steak 'n Shake hopes to capture the health conscience consumer that may not currently be a patron of the restaurant.

Steak 'n Shake's involvement in the community may generate additional revenues and raise consumers' awareness. They support local communities by sponsoring educational sporting events and advertising in school yearbooks. Steak 'n Shake also donates gift certificates to non-profit events.

Threats:

Competitors like Denny's and Red Robin have always been considered threats to Steak 'n Shake. Other competitors include Friendly's, Handel's Ice Cream, and the other ice cream/ family dinning restaurant chains. Competitors have made it a challenge for Steak 'n Shake to increase profits.

Another challenge Steak 'n Shake faces is the fluctuation in the economy, mainly the increase in gas prices. When gas prices go up, revenue tends to drop, according to Mike the Steak 'n Shake General Manager at Belden Village Mike states, "people just don't want to eat out as much when gas prices are at an all time high, they are trying to fill up their gas tanks, not eat out."

Mike also stated a threat they cannot control is negative press of the food industry. For example, when "mad cow