In February, Steak ‘n Shake had a fleet of temporarily closed restaurants before the practice became a broad COVID-19 reaction. Naturally, the legacy burger chain’s decision had nothing to do with the pandemic, which was just a stateside whisper at the time.

At the end of December, 107 Steak ‘n Shakes were closed amid a broad refranchising initiative intended to transform the company into an entrepreneurial-driven, single-unit system not unlike the one Chick-fil-A built its $11 billion, 2,500-unit empire on.

But while this process dated back to the fall of 2018, a new wrinkle emerged heading into 2020. Chairman of the board Sardar Biglari said in Steak ‘n Shake’s annual report the company intended to reopen “most” of those 107 venues. However, they were going to return as counter-service units.

The format was still pretty fresh to Steak ‘n Shake, which deployed servers for its first 78 years of business. A quick-service version arrived in 2012 and initially targeted universities, casinos, airports, gas stations, shopping centers, and other non-traditional outlets. At the end of 2018, there were 87 quick-service restaurants in Steak ‘n Shake’s footprint, including international.

Yet COVID changed the trajectory. In the company’s Q2 report this week, Steak ‘n Shake said the transition to a counter-service model “will require significant investments in equipment.” And it expects to fund these added costs “mainly be selling owned real estate via an auction process.”

In terms of what this will eventually look like, Steak ‘n Shake’s total unit count has declined by 69 restaurants over the first half of 2020, the company revealed. Fifty-six of those are corporate locations.

In December 2018, there were 411 company-run restaurants, two “franchise partner” units (the new, aforementioned program), and 213 traditional franchises. A year later, those numbers were 368, 29, and 213, respectively.

The most recent date—June 30—Steak ‘n Shake boasted 289, 51, and 201.

The company said 59 of its 289 corporate stores are temporarily closed. A year earlier, 103 of 299 were.

Steak ‘n Shake absorbed $14,419 from the permanent closings and COVID-19 dining room lockdowns.

Why Steak ‘n Shake is turning to counter service is no secret. Biglari said earlier the decision stemmed from the same reason units started to close in the first place—customer service. The company in recent years took a low-price approach to driving transactions. But its kitchen design lagged behind. It was never built to handle high-volume. So Steak ‘n Shake started to lose the speed and convenience battle as consumer behavior shifted. Fighting forward with just price was a category Steak ‘n Shake was getting buried in.

Biglari noted that the combination of labor-intensive, slow production with high-cost table service sent Steak ‘n Shake’s overall labor costs 6–8 percentage points higher than competitors.

And so the rush to become a quick-service chain was on.

Q2’s report is the first Steak ‘n Shake mentioned of how it’s going to fund the process. It’s difficult to say if COVID-19 sped the concept along or not. Steak ‘n Shake is bringing 15 restaurants to sale that were closed over the past year. It retained Keen-Summit Capital Partners LLC and local partners from NAI Global to run the process with a bid deadline of August 31 and an auction date of September 3. These restaurants are located in Alabama, Florida, Illinois, Indiana, Iowa, Michigan, Missouri, Ohio, Pennsylvania, and Texas, and are being dealt individually or in combinations. The reserve price per property is $367,000 with a buyer’s premium of 7 percent.

The free-standing buildings feature drive thrus and range from 3,734 to 7,041 square feet. Here’s a list of the exact locations.

Overall, Steak ‘n Shake’s operating losses narrowed in Q2 to $1.1 million from $3.1 million in the year-ago period. Revenue, however, declined 49.9 percent to $78.2 million from $156 million.

If you go back to the first six months of 2019, Steak ‘n Shake’s revenue was $326.117 million thanks to a larger base. Yet it posted a loss of $21.915 million in that window and $12 million over the first six months of 2020.

Operating costs in Q1 sliced to $26,955 from $78,595 thanks to the closure of restaurants, transition to franchise partners, and shuttering of dining rooms. The six-month, year-over-year difference: $80,452 versus $169,390. Reduced labor costs being the main culprit, the company said. Marketing expenses were also essentially cut in half to $5,695 from $10,117.

Steak ‘n Shake closed all of its dining rooms in Q1, with most remaining open for limited operations, such as drive thru and takeout. Net sales in Q2 and the first six months of 2020 were $69,487 and $174,215, respectively, representing a decrease of $82,575 (54.3 percent) and $143,478 (45.2 percent).

Franchise royalties and fees decreased by $2,653 (39.4 percent) in Q2 compared to the year-ago period. “Franchise partner fees,” though, came in at $4,537 compared to $421 in 2019. They were $7,881 over the first six months versus $679 last year. Steak ‘n Shake has grown the program to 51 partner units compared to eight as of June 30, 2019.

In addition to being single-unit operators, these franchisees reopened units under a $10,000 upfront investment program, which made headlines in 2018. Operators who sign up for this route, where the company pays the construction and equipment costs, agree to a fee of up to 15 percent of sales as well as 50 percent of profits.

Steak ‘n Shake did not share same-store sales or traffic figures in its Q2 report. Comps declined 6.9 percent in 2019—the fourth straight year in the red after seven consecutive calendars of growth, including 4.1 percent gains in 2009 and 7.5 percent in 2010. Traffic was down 11.2 percent last year.

On March 19, 2014, Steak ‘n Shake and its subsidiaries entered into a credit agreement that provided for a senior secured term loan facility in an aggregate principal amount of $220,000. The term loan is scheduled to mature March 19, 2021. As of June 30, the company said, $153,606 remained outstanding. Steak ‘n Shake said it’s evaluating refinancing options, and alternative financing “may not be available on terms commensurate with its current financing arrangement.”

Also, the duration of COVID-19 could present a material adverse effect on financing options or the company’s ability to comply with the terms of its credit agreement. Biglari Holdings is not a guarantor under the credit facility. The company retired $26,792 of debt during the first six months of 2020.

Going back, going forward

Steak ‘n Shake is also getting nostalgic. The company announced August 4 that it’s bringing “Drive-In Service” to locations across the country, effective immediately.

It harkens back to the 1950s, when Steak ‘n Shake carhops would deliver food to customers. “Today’s pandemic world has enabled us to revitalize the Drive-In experience with renewed purpose,” Steve May, SVP, Steak ‘n Shake said in a release. “Our modern version of the Drive-In not only reinforces those early days with delivery right to your car—but it also fits perfectly into today’s reality, offering our guests a way to enjoy dining out of the house while still protecting their family’s health.”

Guests will pull up to a parking spot denoted by signage evoking a 45 RPM record popularized in the 50s, then place their order via Steak ‘n Shake’s app.

After ordering, carhops—just like in the old days—will deliver food on trays and attach it to an open car window for guests to enjoy in their car. Also, outdoor tables will be available for diners who prefer to sit outside, the company said.

“The relaunch of our Drive-In Service allows us to bring the legacy of our brand to life in an unforgettable way. Ultimately, the return of the Car Hop allows us to do what we do best—serve customers in a fun way for a memorable dining experience,” May added.