Compounding Machines

Selling Steakburgers – Part 2

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Here are my notes from the rest of the book, Selling Steakburgers: The Growth of a Corporate Culture. 

  • Belt was active in the Democratic Party….led to friendship with Indianapolis banker named Frank McKinney, Sr. who convinced Belt to open and SNS in Indianapolis which Belt did in 1954 (company now headquartered in Indianapolis)
  • From 1934-1954, SNS offered only counter and curb service (no tables)
    • Table service first offered in 1956 (Indianapolis)
  • Gus Belt died in 1954, Mrs. Edith Belt took over
    • The company then had 26 units in operation
  • “Gus Belt was one of the true geniuses of the American restaurant business. His formula was simple but true: provide and charge for the best drive-in or dine-at-the-counter food in the business, cook it expeditiously and in the sight of the customers, treat your people well and play to the public taste. And – don’t experiment unnecessarily when you reach success.”
  • In January 1969, the Belt family sold their 53% controlling interest  for $25/share or $17 million to a NY restaurant chain named Longchamps
  • During Longchamps’ ownership (1969-1971) sales increased from $17.1 million to $23.5 million….EPS went from $.71 to $1.02…but the parent company ran into issues with its bank after spending too much  money on acquisitions
  • Bob Cronin’s company, the Franklin Corporation, acquired control of SNS in 1971…paid $9 million for 52% of the stock
  • Cronin: “When I mentioned my new association, people said, “I love Steak n Shake – don’t change it.” You heard it all the time. What a wonderful asset to a company – to be loved. It certainly wasn’t a common thing…That sort of reinforcement, which I heard out loud when I went into the stores I visited early on, was a morale booster for the employees too. It was nice to be loved.”
  • Cronin: “The only real problem with Steak n Shake is that there aren’t enough of them…The problem was that the company wasn’t organized to expand at any substantial rate. It just hadn’t operated that way.”
  • Things Cronin did:
    • Added breakfast, a super steakburger, cottage cheese, pineapple and desert items to the menu
    • Emphasized quality, cleanliness and service (a la McDonald’s)
    • Brought back “only the best” Heinz ketchup
    • Added some touches of red to the traditional black and white interior of the stores
    • Began a company newsletter called Food for Thought
    • Located headquarters in Indianapolis (even though 60% of sales at the time came from St. Louis stores)…decentralized and departmentalized the corporate structure
    • Established a manager training center in Indianapolis
    • Began the company’s first major advertising campaign in 1972 with $500k, 2% of sales
    • From 1971-1976, sales tripled, net earnings increased at 19.1% per year…driven mostly by 68 new store openings
    • Decided not to go the route White Castle and McDonald’s went…did not look to invest in locations near major interstates
    • Mid-70s – opened first stores in Louisville, Atlanta, Cincinnati, Houston
    • From 1971 to 1976…the average sales per SNS store increased from $366k to $610k….half of the increase was due to price increases which incidentally were below the increase in CPI…the other half was higher customer traffic counts and from opening larger restaurants
    • From 1971-1977, store count went from 57 to 141…sales increased at a CAGR of 22.7% per year, earnings at 13.4% per year…paid a dividend every year since 1948
  • Cronin: “Steak n Shake never did need to compete with McDonald’s and the other fast-food places. It hits a higher note, makes the customer rise, rather than go down the speedburger level”
  • In the 70s, one of the lowest sales stores was in Gainesville, FL (home of Univ. of Florida)…to boost sales the company bought a Volkswagen to deliver food to the college campus…offered athletic scholarship…and bought a double-decker bus from London so students could ride to the store from campus….sales went from $5,000 per week to over $10,000 per week.
  • Mid-70s: Louisville store was the first to stay open for 24 hours…it increased the store’s profitability….soon all the stores were open 24 hours
  • SNS ran into sales and earnings problems beginning in 1977 (blamed partly on harsh winters! which Cronin said cost them $3 mm per year in lost sales) in the midst of rapid expansion (similar to what happened in the past few years – 2006-2008 – under previous management’s watch)
  • E.W. Kelley acquired control of the company in 1981


Written by sdinvest

January 14, 2009 at 12:30 am

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