Denver-area Steak 'n Shake locations in fight for survival

10:16 AM, Jun 20, 2013   |    comments
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KUSA - Steak 'n Shake, one of the metro area's most popular new restaurant chains, is in a fight with its corporate owner for its very survival.

Despite huge crowds, sources close to the local franchise restaurants believe the operations are losing as much as $100,000 per store in their first year of operation.

They are in danger of closing their doors.

Both new customers and loyal followers continue to flock to the stores. They can't imagine losing something that took years to arrive in Colorado.

"We were here the opening weekend," said Lindsey Wicke, who drove from Johnstown with her husband Neal to have lunch at the Centennial Steak 'n Shake. "I think we waited three hours to be seated at a fast food restaurant. We love it."

Adrienne Davis of Aurora is another long-time Steak 'n Shake customer.

"I've been driving back to St. Louis, Missouri for the past 24 years, and as soon as we hit Kansas City, the first Steak 'n Shake, that's our first stop," Davis said.

However, sources close to the local owners say that despite enormous popularity, the stores are losing money with every burger that goes out the door.

The problem is a controversial practice by the corporate parent company that prohibits restaurants in the chain from setting their own menu prices.

That means that if the cost of beef, potatoes or milk-shake ingredients should rise, store owners aren't able to recover the cost by raising prices, even by a few pennies.

Business experts say the practice is not uncommon. However, given other costs for the restaurants, it could spell financial doom for the franchise owners.

"I think it's just the parent company trying to maintain control," said Professor David Duber-Smith of Metropolitan State University of Denver. "This is very common in any licensing arrangement, where Subway doesn't want their stores selling hamburgers for instance. They're trying to maintain brand image and brand consistency, and pricing is a very large part of that."

Other franchisees in Illinois and Missouri have already gone to court to challenge the corporation and stop Steak 'n Shake from forcing menu prices on franchisees.

A St. Louis-based Steak 'n Shake franchise says it is suffering financially, and an owner group in Illinois claims that after it was forced to adopt the policy, it lost more than $500,000.

Local owners had plans for 13 Steak 'n Shakes when they first opened in the Denver metro area, but they have now stopped all construction.

The local franchisees now reportedly have three options. Declare bankruptcy and walk away, look for new owners who might buy the operations or join the suits against Steak 'n Shake and hope to win some relief.

9NEWS contacted Steak 'n Shake corporate Wednesday and there was no comment.

(KUSA-TV © 2013 Multimedia Holdings Corporation)

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