Archive for the ‘Book Reviews’ Category
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
A few weeks ago I purchased a book detailing the history of what is today a 490-store, $175-million market-cap company named Steak n Shake (SNS). My interest in the company stems from the fact that the Chairman and CEO of SNS, Sardar Biglari, is also the Chairman, President, etc. of Western Sizzlin’ (a company discussed in a separate post). I think exciting things are in store for the company as Biglari improves store-level profitability and eventually initiates a growth through franchising program. Oh, and they have top-notch chicken strips, french fries and Genuine Chili….check it out for yourself.
The book, written in 2000, is only 110 pages. I hope fellow SNS owners find these notes useful in understanding the values that Gus Belt instilled in the organization that made the company what it is today.
The author, Bob Cronin, served as the company’s President from 1971 to 1981 and Chairman from 1971 until 1984. He oversaw the company’s growth from 57 stores in four states to 150 stores in seven states during the 1970s.
From the inside cover:
No one is better suited to tell the story of Steak n Shake in its early years than Bob Cronin. He became president of the company in 1971, only two years after the founding Belt family had sold its interest. The pioneers who knew and worked with Gus Belt, the legendary man who opened the first Steak n Shake in 1934 in Normal, Illinois, where still active in operations.
Cronin has recorded literally hundreds of memories of Belt’s life and methods in creating a unique American institution based on the steakburger. He has analyzed what it took to create a culture which today has thousands of adherents who would not eat anywhere else. Then he has told the story of the rapid and interesting growth of the company in the seventies, when the original dream in Illinois, Missouri, Indiana, and Florida reached out across all of mid-America to form the basis of what is a phenomenon in both the business and pop culture history of America.
This is not a “corporate history.” It is the personal story of the founding and rapid growth years of one of America’s best-loved eating establishments, told by the people who lived it.
Here are my notes and various “fun facts” from Chapters 1-4 (notes from the rest of the book to follow soon):
- After unsuccessful stints as a tire salesman among other things, Gus Belt acquired a Shell Oil station on Route 66 in Normal, Illinois
- Gus Belt, founder of SNS, is described as “one of those men who grab and hold you, figuratively, by the force of their characters and their strong, individualistic personalities.”
- “Fill ‘em up outside, then fill ‘em up inside” was Belt’s motto as his Shell station would offer chicken, fries and coleslaw (all for $.45) and beer for $.09
- Belt came to realize that even though hamburgers and hot dogs had become American staples by the turn of the century, no one had really invented the perfect hamburger. Belt decided he would offer the highest quality hamburger for $.10, which in those days was twice what everyone else was charging.
- In 1934, Belt took out the gas pumps and the Shell station became the first drive-in SNS. The interior was, as it is today, white and black which was meant to symbolize “cleanliness and sanitation.”
- The store achieved early success mostly on word-of-mouth advertising.
- The second SNS location was opened in Bloomington, IL in 1936 (financed partly by an advance from Mrs. Belt) with 11 stools and about 50 parking spots
- “In Sight It Must Be Right” – One of the first SNS slogans…it came from the fact that Belt believed in grinding the meat for steakburgers in open view so the customers could see how their burger is made (this was during the days when Board of Health standards were spotty at best)
- Belt recognized the importance of quick service – pushed the cooking line time down to five minutes
- With a limited budget in his first few restaurants – Belt made his own ice cream to use in shakes…(funny story how he obtained his first freezer to store the ice cream….Belt became an ice cream freezer salesman, used his first commission as a down payment for a freezer to be used at SNS, quit salesman position soon after)
- By 1939, there were 8 SNS locations (Normal, two in Bloomington, two in Champaign, one in E. Peoria, one in Decatur and one in Danville)
- 80% of sales were from curb service – the exterior of the stores were designed to have a “carnival feeling…which brought a little happiness into the dark Depression time.”
- By 1943 there were 15 stores
- Belt made all decisions on who would own or manage a SNS….reluctant to franchise, “wanting to own all the stores himself to reduce complications and increase his own revenues”
- In the early years of development, Belt would undertake sale/leaseback transactions to finance his expansion plans….this method of “off balance sheet” financing still used by the company today albeit for less appealing reasons
- In 1941-2, WWII posed a large threat for SNS…due to government rationing, SNS was short of beef so Belt got a 600-acre farm, bought his own cows and essentially bootlegged beef for SNS.
- Built the first St. Louis store in 1948…9 more would be built there in Belt’s lifetime…would become one of the most successful markets for SNS
- Sold stock in 1948 to fund growth…paid a dividend (as much as 50-60% of earnings) every year until late 70s
- Early reason for success: “Gus appreciated his people, and they stayed with him. One reason was that management in the actual stores was so sound, so founded on practicality and excellence of performance.”
- Belt used to look through the trash and plates returned from table service to see what people weren’t eating