Steak ‘n Shake Menu Pricing Battle Awaits Court Decision

A federal judge is expected to rule this week in the battle between activist shareholder and restaurant chief Sardar Biglari and three Steak ‘n Shake franchisees in Colorado over who controls menu pricing. The operators are suing the company in federal court, claiming that Biglari’s mandate that all stores offer $4 meals is hurting their profitability.

Earlier this year, Steak ‘n Shake Enterprises sued Kathryn, Larry and Christopher Baerns, claiming they failed to offer the value menu and charged more for menu items than the company allowed. In early July, Steak ‘n Shake terminated the Baerns’ franchise agreements, cut off their computer system and told the food supplier to halt deliveries. The chain’s request for a preliminary injunction to force the Colorado franchisees to quit using the chain’s name led to a temporary restraining order against the company last week; the judge ordered Steak ‘n Shake to restore the franchisees’ access to the computer system and their food supplier.

Biglari’s move to lower menu prices has boosted sales at the 517-unit chain, part of San Antonio-based Biglari Holdings. But the pricing policy instituted three years ago requiring franchisees to offer a set menu priced by the company as well as all company promotions, including one called “4 Meals Under $4,” soured relations with franchisees who typically have some leeway to set prices.

Stuller Inc., Steak ‘n Shake’s oldest franchisee, refused to change prices at its five Illinois stores and won a court injunction to block the pricing policy that it claimed would cost it nearly $700,000 a year. Steak ‘n Shake denied that the policy would have had the financial impact Stuller claimed. The district court judge’s ruling in favor of Stuller was upheld on appeal last year.

Franchisees in Georgia, Missouri and Pennsylvania are taking similar action, filing three separate lawsuits claiming that low menu prices set by Steak ‘n Shake left them no room to manage for variable labor and ingredient costs.