Steak ‘n Shake started in 1934 and has since become one of the most recognized casual restaurant chains serving premium burgers and milkshakes in the country. Since then, the concept has evolved into a favorite franchise for entrepreneurs due to a low upfront investment fee of only $10,000. Compare this to other fast-food chains like McDonald’s and Wendy’s with upfront investments in the ball-park of million bucks and you can see why it’s so appealing.
A recently opened Steak ‘n Shake restaurant.
Steak ‘n Shake’s franchise partner program is different than most. Participation requires an investment of only $10,000 – a number you don’t usually see when we’re talking about restaurant franchises. With a liquid capital of just $10,500 and a total investment of about $10,000, the Steak ‘n Shake offers a unique opportunity for ambitious entrepreneurs without deep financial resources.
But there is a bit of a catch. Steak ‘n Shake offers a “franchise partner” program that doesn’t grant you true ownership of a business unit like other franchise opportunities. Instead, you serve as a general manager of a store that gets to benefit from the income the store generates. More on this role distinction later, but it’s kind of how the Chick-fil-A model works.
If you’re interested in franchising a Steak ‘n Shake shop, continue reading as I share the most important details in determining if it is a worthwhile investment. Let’s get started. Take our 8-minute franchise quiz to find out if this quick-serve restaurant is the right choice.
Financial Requirements and Fees
As reported, the total investment to become a franchise partner in a Steak ‘n Shake restaurant is just $10,000. If you were to buy into a regular restaurant franchise, here are some of the expenses you would either need to pay or take out a loan on.
As you can see, the overhead of building a new restaurant location can quickly reach $1 – $2 million. The advantage from a startup cost perspective with the franchise partner program is that you won’t need to cover the numerous construction, signage, furniture, and inventory expenses that are outlined below.
| REQUIREMENTS | AMOUNT |
| LIQUID CAPITAL | $10,500 |
| TOTAL INVESTMENT | $10,000 |
| NET WORTH | $1,500,000 |
| FRANCHISE FEE | $25,000 – $40,000 |
| ROYALTY FEE | 5.5% |
| ESTIMATED INITIAL INVESTMENT (Steak ‘n Shake Classic Restaurant Franchise) | $1,375,000 – $2,135,000 |
| ESTIMATED INITIAL INVESTMENT (Limited-Menu, In-Line Burger Franchise) | In-Line: $475,000 – $1,385,000 |
Here’s a detailed breakdown of all other fees included and needed to launch a Steak ‘n Shake franchise that are part of the estimated initial investment fee.
| REQUIREMENTS | AMOUNT |
| CONSTRUCTION MANAGEMENT | $0 – $35,000 |
| BUILDING OR LEASEHOLD IMPROVEMENTS | $621,000 – $762,860 |
| FURNITURE & FIXTURES, EQUIPMENT & SIGNAGE | $303,500 – $400,640 |
| PRE-OPENING EXPENSES | $5,000 – $10,000 |
| INVENTORY & SUPPLIES FOR OPENING | $10,000 – $15,000 |
| TRAINING EXPENSES | $16,000 – $55,000 |
| ARCHITECTUARL, CIVIL ENGINEERING & OTHER PROFESSIONAL FEE | $35,000 – $78,000 |
| IMPACT & TAP FEES | $5,000 – $78,000 |
| GRAND OPENING MARKETING EXPENSES | $0 – $25,000 |
| EXTENSION FEE | $0 – $10,000 |
| ADDITIONAL FUNDS FOR 3 MONTHS | $15,000 – $20,000 |
| TOTAL | $1,208,000 – $1,687,000 |
Financial Requirements
Before signing an agreement to franchise any type of business, you must understand what you’re getting into and that includes knowing how much money you are forking out and all other fees you are paying for.
There are two ways to get involved as a franchise owner / operator of Steak ‘n Shake. The first is a traditional franchise agreement where franchise fee is $25,000 within an anticipated initial investment between $1 – $2 million.
But there is a way to own part of Steak ‘n Shake for less than that called the franchise partner program. For only $10,000 you are given the right to operate a franchised Steak ‘n Shake and earn 50% of restaurant profits. For many this is a good option since the alternative may not be possible.
As a franchise partner, you’ll be taking over the operations of an existing company owned Steak ‘n Shake location. At the time of writing, Steak ‘n Shake has 272 company owned restaurant locations. The appealing aspect of this approach that the location you take over is already up and running in most cases. The one ingredient missing is a leader like you to step in to increase sales.
Inside a Steak ‘n Shake restaurant.
How Much Profit Do Steak ‘n Shake Make Per Year?
This is one of the important parts to look at when you’re deciding to buy a franchise. Although not all franchise stores are equal and the same as they differ in location, size, etc., it is safe to gauge how much profit a Steak ‘n Shake franchise can make in a year and see if it’s a number you can accept.
An interview with Maxim revealed that in 2020, the average Steak ‘n Shake franchisee partner earned $161,079 in 2020. Some of the top performers were on track to earn $300,000 in their first year.
Press McDowell, a St. Louis, Missouri franchisee shared that he earned in 2 months what he made in 1 year in his previous job and that the $10,000 payment to join the franchise program is the best investment he ever made. McDowell made close to 20 times the amount of his previous job the first year of franchising the store.
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Remember that this is just one Steak ‘n Shake franchisee and it doesn’t mean that all franchise partners are smiling from ear to ear like with the example reported here.
If possible, interview 4 to 5 more franchisees and ask them the right questions about their experience. Find out what these operators struggle with. What makes them happy? Take the time to understand the pros and the cons of the business model from a variety of perspectives.
Personally, I think the franchise partner program is a pretty cool opportunity. If you’re working as a manager at a restaurant job right now, probably don’t get to participate in much of the upside of the business. If the restaurant makes records sales one year, you may be rewarded with a 3% raise if you’re lucky.
- Company revenue/sales per year – $334,031,000
- Number of units – 600+
- Average Gross Revenue Per Store – $556,718
- Industry Average Profit Margin – 6% – 9% (Fast Casual)
- Projected Annual Profit Per Store – $1,027,000
Steak ‘n Shake SWOT Analysis
Aside from the numbers, a potential franchisee must take into consideration the strengths and weaknesses of a business because getting into the franchise industry is a longterm commitment.
So before you sign a franchise agreement, make sure you familiarize yourself with the good and bad of a franchise. You want to be prepared for whatever this restaurant concept throws your way.
Strengths
Company support – Opening a Steak ‘n Shake franchise is a smooth transition because the company will give its 100% support to new franchisees by providing training and having dedicated people on hand to address issues during the time of developing your store.
Proven supply chain – With their 80-year track record in cost efficiency, you won’t have to worry because the company carefully devises a full supply chain for every market they open in.
Operational support – The company will supply you with state-of-the-art tools and equipment needed to manage and run a successful Steak ‘n Shake store. You’ll rest assured that the equipment provided is top grade, given that the company has proven and tested these supplies through the years.
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Open 24/7 – As it is open 24 hours a day, 7 days a week, it is able to cater to a much larger audience as compared to its competitors. This gives them the advantage to have more sales and attract other customers during the wee hours. The flip side of course is being open 24/7 can lead to staffing challenges. It also means you can get burnt out operating the business.
High-quality products and ingredients – Known as the pioneers of premium, they pride themselves in providing quality products. Since 1934, they pioneered the concept of a “better burger” by preparing the finest quality “Steakburgers” using only the top grade of meat with no preservatives, no hormones, and no antibiotics. Every item on the menu is made to order.
Weaknesses
Similar products to competitors – One of the downfalls of getting a franchise business is not having the power to change the products offered. This is true with Steak ‘n Shake that has similar products to competitors.
Over the past couple decades there are all sorts of burger concepts that have come in to take market share like Culver’s and Shake Shack, among many others. The fact is the more premium burger chains that open their doors, the more market share will be split among competitors.
Not having 100% ownership of the store – With Steak ‘n Shake’s franchise agreement, it is stated that franchisees only own 50% of the profits. This is fantastic, but keep in mind you don’t own the store. Typical franchise owners have the potential to sell their locations for a premium if they were operated well. You won’t have this option as a franchise partner.
Continuous losses in the past years – The company has seen a consistent decline in earnings in the past couple of years and restaurant closers. This is alarming as the increase in numbers of closed company-operated restaurants and closed franchise locations show that overall, the company has not performed well the past 2 – 3 years.
Longer wait times – A lot of customers have complained about the long waiting times when ordering food from Steak ‘n Shake no matter if it was dine-in or drive-thru. They mentioned that Steak ‘n Shake’s speed of service falls way behind their competitors and is one of the main reasons customers are moving past them.
Slipping food quality – Although they’ve been famous for quality burgers and shakes, customers are saying that there’s a decline in food quality in the past years. Some customers report the promise of quality shakes is not evident when they use artificial flavors.
Opportunities
Low cost and easily accessible – One of the ways the company can improve is by lowering the cost of operations and looking at more accessible locations.
Limiting menu and focusing on prime products – Some customers have shared their thoughts about Steak ‘n Shake’s menu saying that there’s just a lot of options that are not making it. Like they say, ‘less is more’. Chipping down on the menu and focusing on what they sell best – milkshakes and burgers – can make a difference and might attract more customers in the long run.
Creating more opportunities for franchisees – It’s been reported that getting into Steak ‘n Shake’s franchise program is one of the hardest in the industry with an approval rate of just 1%, a percentage that is lower than that of Harvard University. This explains the introduction of the franchise partner program as a means to give a chance to people who want to take more ownership of the business.
Threats
Not as established as top competitors – As a business that’s in the populated industry including big brands such as McDonald’s, Shake Shack, Burger King and Wendy’s, Steak ‘n Shake, although has many stores in the country isn’t as well-known compared to its competitors.
High-calorie food – With the growth of vegan restaurants and café comes the threat of dooming fast-food chains like Steak ‘n Shake who serve high-calorie food like burgers, hotdogs, and milkshakes. Dealing with this type of threat can pose a serious problem since the company is famous for those specific offerings.
Inconsistent customer ratio – What is probably caused by some of the weaknesses stated above, having an inconsistent customer ratio could possibly cause a business to shut down if problems are not taken care of immediately.
Are you hungry yet?
Is the Steak ‘n Shake Worth the Cost to Invest?
Becoming a franchisee isn’t for everyone and no two franchises are the same which is why researching on your intended franchise is highly encouraged to prepare you for what you need and have to know about the business.
For Steak ‘n Shake though, their franchise program acceptance is so low that thousands who apply get rejected all the time. According to the company, in order to be accepted, you must have a passion for excellence with great customer relations, want to please customers, are committed to high performance, and to delivering quality products. Lastly, you must be dedicated to guest service and prioritizing everything in their best interest.
Just because this is a low-investment opportunity, doesn’t mean it will be easy to be accepted.
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If you think you are exactly what I just described, then what you need to do next is consider the money involved. Obviously, with their low franchise free program, anyone would be ecstatic to go and sign up for it. But keep in mind that the $10,000 means you will not be given 100% ownership of the business.
However, there’s a reason that the company has successfully opened franchise stores for years. There are also several success stories from franchisees about growing their restaurant and earning so much more than what they initially put out.
If you’re up for the challenge and want something that will not require you to cash out a huge amount of money, then I’d say go for a Steak ‘n Shake franchise. Plus, as stated on their website, Steak ‘n Shake will be with you and offer you all that you need to start your restaurant, even providing full marketing expertise to help support in every step of the opening process, as well as providing you with all the tools you need for an outstanding continuity in the franchise industry.
