Why Steak 'N Shake's $4 Menu Led To A Lawsuit
If you live in the Midwest, you probably know all about the casual burger chain Steak 'n Shake. Famous for their signature Steakburger and hand-dipped milkshakes, the restaurant was founded in 1934 and, although it passed through many owners over the next 70 years, it continued to successfully expand until the mid-2000s, when the company ran into hard times and began losing up to $100,000 per day, according to Nation's Restaurant News.
In late 2008, the chain tried to boost declining sales by offering a 4 for $4 menu deal. The promotion, which offered four meals for just four dollars, was implemented with the hope that the low prices would help get customers into the doors and give them a leg up on their competition. However, the promotion proved to be more trouble than it was worth, as soon many unhappy franchisees began filing lawsuits over what they felt was an unfair menu pricing policy.
Steak 'n Shake franchisees alleged the low menu pricing would mean "financial disaster"
In 2013, over 50 of the chain's 70 franchisees collectively sued the Indianapolis-based chain, claiming the prices that had been set by corporate were unreasonably low. Steak 'n Shake required that all restaurant locations adhere to the same corporate-set pricing and promotions, and, with the bulk of the hamburger chain's 517 store locations being company-owned, the franchisees were left with little leverage to dispute the pricing, according to Indy Star.
The franchisees alleged that the mandatory low prices made it extremely difficult for individual franchises to turn a profit. "Steak 'n Shake made the decision to bully rather than bargain and made clear that it would terminate any franchisee that refused to adopt the (low pricing) policy," one franchisee claimed in the lawsuit. It was also claimed that "Steak 'n Shake effectively controls both the buy and sell prices for every food item sold by franchisees. Lower menu prices would mean financial disaster for many franchisees." The complaint argued that the chain tried to attract more customers with "lower-priced food without concern as to whether franchisees actually make a reasonable profit."
Steak 'n Shake retaliated by suing Colorado franchise owners for overcharging customers
Steak 'n Shake struck back by filing a lawsuit of their own citing pricing misconduct. Per The Denver Post, the company brought the suit against Larry and Christopher Baerns, the franchise owners of two Colorado locations, alleging that the Baernses had been purposefully overcharging customers without the parent company's knowledge. At the Baernses' restaurants in Centennial and Sheridan, the $4 promotional menu had been hidden from sight. Customers who didn't explicitly request the menu couldn't access it.
Instead, the Baernses had been charging customers upwards of $5 for meals that were supposed to ring in at $4, according to The Denver Post. Steak 'n Shake also claimed the Colorado franchisees had raised the prices of other menu items without corporate's knowledge by employing practices like charging customers a la carte prices for combo meals and serving regular-sized soft drinks in place of large sizes.
Steak 'n Shake has continued to face legal troubles
For their part, the Baernses claimed that the company had knowingly withheld information that caused them to believe operating the franchise would be substantially more profitable than it really was. They also claimed that the company policy requiring "uniform pricing and promotions" across all franchise locations was causing them to lose money due to their remote location, despite the fact that they received subsidy checks from the corporation to help offset the disparities, per The Denver Post.
The two Colorado locations had reopened under corporate ownership by the end of 2013, and U.S. District Judge Raymond Moore ruled in Steak 'h Shake's favor in 2016. "Indisputably, such pricing not only violated the franchise agreements but also – as acknowledged by (the franchisee's management) – was deceptive," Moore said.
However, although in this instance the company came away victorious, their celebrations were relatively short-lived. Steak 'n Shake came under legal fire again starting in 2014 when yet another lawsuit was brought against the company, this time regarding allegations of withholding overtime pay from managers, per QSR magazine. What started as a complaint by two managers ballooned into a class action involving 286 managers. In 2019, Steak 'n Shake lost the case and was ordered to pay $7.7 million in compensation.