Consolidated Products Inc.
Consolidated Products Inc.
Sales: $161 million
Stock Exchanges: NASDAQ
SICs: 5812 Eating Places; 6794 Patent Owners and Lessors
Consolidated Products, Inc., is a holding company that operated 152 restaurants in 11 states going into 1995. The company’s primary holding was the venerable Steak n Shake chain of 1950s-style restaurants. That division encompassed more than 140 units in the Midwest and Southern United States, only 23 of which were franchised. Consolidated posted healthy sales and profit gains during the early 1990s as a result of new store openings and improved per-store sales.
Consolidated Products was formed in 1981 by Kelley & Partners, Ltd., a New York-based limited partnership headed by E. W. Kelley. Kelley created Consolidated as a vehicle to purchase a controlling interest in Franklin Corp., the Indianapolis, Indiana-based company that owned Steak n Shake. Franklin had purchased Steak n Shake in the late 1960s and subsequently moved its headquarters to Indianapolis. Franklin expanded the chain rapidly during the early and middle 1970s, significantly increasing both sales and profits. By the late 1970s, though, it became clear that Steak n Shake had grown too quickly. Starved for cash, Franklin finally found a white knight in Kelley & Partners’ Consolidated Products.
When Kelley purchased Franklin, he took control of one of the oldest restaurant chains in the United States. Indeed, the first Steak n Shake shop was opened in 1934 by Gus Belt. Belt’s original store was located at 1219 Main Street in the central Illinois town of Normal. In that shop he invented the seared steakburger that was destined to become famous locally and in parts of the Midwest. The patty was made from 100 percent pure ground beef that included fine cuts of T-bone, strip steak, and sirloin. Belt also pioneered the concept of cooking food in front of the customer, which later became commonplace in many restaurants throughout the nation. Belt’s Steak n Shake restaurant quickly caught on and he expanded during the 1940s and early 1950s into other parts of Illinois and into St. Louis, Missouri. In 1954 he extended nationally with stores in Indianapolis and Daytona, Florida.
Belt died in 1954, and his wife, Edith—her picture still hangs in the original Steak n Shake in Normal—took over. She continued to run the company successfully until the late 1960s, when she sold out to Franklin Corp. During her reign, in fact, Steak n Shake established much of the loyal following that would carry it into the 1980s. The restaurant exemplified the stereotypical 1950s burger restaurant: Waiters and waitresses wore black pants, white shirts, bow ties, and white hats and tennis shoes. Carhops provided curb service—patrons flashed their headlights for service and ate from a tray hinged on their rolled down window—while the older crowd usually went inside to eat.
Besides its famous seared steakburgers, Steak n Shake made a name for itself during the 1940s and 1950s with its thin-cut french fries, famous homemade chili, and “tru-flavor” shakes. During the 1960s and 1970s, Steak n Shake distinguished itself from the emerging fast food crowd that turned to disposable packaging and processed and frozen foods. In contrast, Steak n Shake continued to serve meals on white china with flatware, and it eventually became one of the only chain restaurants in the country to still make its milkshakes the “right” way, with a vanilla ice cream base and syrup flavoring. Steak n Shake also became known for its advertising slogans, which included: In Sight It Must Be Right; Famous for Steakburgers; and TAKHOMASAK, which referred to Steak n Shake’s carry out meals in throw-away wrapping.
Steak n Shake thrived during the early 1970s under the wing of Franklin Corp. Franklin tagged a number of new stores onto the chain throughout the Midwest and parts of the southern United States. When the enterprise began to stumble in the late 1970s, Franklin backpedaled and sold or closed unprofitable stores. The company also ceased paying dividends in an effort to stem a rising tide of red ink. Because Steak n Shake was Franklin’s sole revenue source, the company was gasping when Kelley came along in 1981. Kelley, through the newly formed Consolidated Products, provided a much-needed injection of cash into the chain that helped it hurdle a difficult point during the late 1970s and early 1980s.
Kelley was 64 years old when he purchased a controlling interest in Steak n Shake. He was born on a farm outside of Kokomo, Indiana, and had been raised in a family of farmers and entrepreneurs. Prior to forming Consolidated, Kelley had accrued broad business experience in both small and large organizations, and as an entrepreneur. By the early 1990s his credits would include reviving the ailing Steak n Shake, bringing Grey Poupon to the U.S. market, developing ingredients for Lean Cuisine dinners and Klondike ice cream bars, and overseeing a snack company and a large agribusiness in Indiana and Florida. His associates and managers, several of whom went on to run major companies on the New York Stock Exchange, attributed much of his success to his emphasis on long-range planning. Kelley also devoted a significant amount of his time to social causes, including the founding of the Tipton Foundation, which was established to better the quality of life in small communities.
Although Kelley’s investment saved the company from going under, Steak n Shake continued to languish during the early 1980s. The chain needed more than a small influx of cash to help it recover from a period of neglect that began in the mid-1970s. By the early 1980s the chain had lost its luster and was lagging important trends in the marketplace. Its old black and white exterior-tile buildings looked antiquated, and the traditional curbside service was losing its appeal against the speedy fast food drive-thrus at competing burger chains. Furthermore, Steak n Shake had strayed from the important concepts that had made it famous. Many of the stores had moved the grill to the back of the kitchen to hold down noise, for example, whereas other stores had replaced the bright white interior tile with a drab beige, giving them a coffee-shop appearance.
Steak n Shake struggled during 1982 and 1983, and then began experiencing losses in 1984. After five consecutive quarters of losses, Kelley decided to shake up the organization. To that end, he hired James Williamson, Jr., in 1985 to act as president and chief executive of Consolidated. Williamson had previously served as president of the large convenience store chain Circle K. Williamson’s goal was to restore the three basic elements that had made the chain so successful: clean stores, hot food, and friendly service. His first move was to revamp the menu. He yanked items that were ordered infrequently and took a long time to prepare, and adjusted the menu to feature the famed seared steakburgers. Williamson then went to work on the restaurants themselves. He brought back the original clean black and white tile, but added red awnings and accents to give the stores some punch. He also jettisoned curb service and began installing drive-thrus. Finally, he moved the kitchen back out into the dining area and brought back the applicable slogan, “In Sight It Must Be Right.”
Steak n Shake reached bottom in 1985 when it lost $567,000. From that point on, however, both sales and profits surged. Much of the growth was attributable to the addition of drive-thru service, which grew to account for a full 30 percent of company sales by the late 1990s. However, the updated appearance and menu also contributed to the company’s recovery. Furthermore, Steak n Shake was benefiting from a program Kelley launched in 1984 to weed out poorly performing stores and supplant them with new restaurants in better locations. Between 1985 and 1989 he shuttered 25 restaurants and built about 20 new company-owned or franchised units. By 1989 the Steak n Shake chain consisted of about 120 outlets mostly in the Midwest. In that year, Consolidated garnered net earnings of $4.3 million on revenues of $99.8 million.
Revenue gains during the late 1980s also reflected Kelley’s addition of a new division to Consolidated. In 1985 Kelley purchased restaurants held by Wheel Restaurants Inc. and Sweeney Specialty Restaurants. He then formed a division called Consolidated Specialty Restaurants, Inc., to operate a diverse group of eateries ranging from full-service theme restaurants to coffee shops. By 1989 the division was sporting 16 locations that included Carlos Murphy’s, Santini’s, The Charley Horse, Big Wheel, Jeremiah Sweeney’s, and more. Williamson was planning to convert several of the units into Santini’s or into Charley Horse restaurants, the latter of which was a concept born in suburban Chicago. Although the specialty division boosted Consolidated’s sales, it was failing to bring in profits and became a drag on the company’s bottom line during the late 1980s and early 1990s.
Williamson left Consolidated and was replaced by Stephen Huse in May of 1990. Huse was an Indiana restaurateur. Among other credits, he cofounded the Noble Roman’s pizza chain in the 1970s and later started Huse Food Group, a holding company with various restaurant interests. Among his first moves was a controversial recapitalization in October of 1990; Consolidated borrowed $23.8 million to provide shareholders, many of whom were insiders, with cash dividends. The move was designed to buoy the company’s lagging stock price. Then, in 1991, Huse launched a franchising initiative that he believed would allow Steak n Shake to expand rapidly nationwide. To that end, Steak n Shake Inc. signed an agreement with an Atlanta-based company owned by Kelley’s son that transferred five Atlanta Steak n Shakes into that company’s hands. The same company also agreed to open 50 new stores in the Atlanta and Charlotte, North Carolina, areas during the next 10 to 15 years. Huse hoped to reach similar agreements with area franchisers in Indiana, Ohio, Illinois, and Kentucky.
Huse never got the opportunity to push his franchising strategy; he resigned late in 1991. Kelley temporarily filled the void. Although he had been disappointed by what he viewed as a slow start for Steak n Shake’s franchising campaign, Kelley remained committed to the concept. “We’ll see franchising come through, come Hell or high water, because it’s in the long-term interest of the company,” Kelley said in the February 24, 1992, Indianapolis Business Journal. Also under Huse’s leadership, Steak n Shake began using television advertising, which ultimately turned out to be a smart move for the chain. Meanwhile, the Specialty Restaurants division continued to suffer. Kelley was trying to convert several of the division’s 14 units into a new concept called Hardwood Grill, but the overall division still struggled for profits.
Kelley eventually replaced Huse with Alan B. Gilman, a retail industry veteran who had served as chief executive at New York’s Abraham & Straus and president of Murjani International, a marketing company. Gilman, under Kelley’s direction, remained focused on the goal of increasing franchising and intensifying existing marketing programs. Between 1992 and 1993 the number of franchised Steak n Shakes increased from 16 to 23, while the total number of outlets rose from 104 to 118. More importantly, marketing campaigns and an improving economy significantly boosted per-store sales. Revenues climbed from $115 million in 1991 to $126 million in 1992, and then to $158 million in 1994. Moreover, net earnings more than doubled during the same period to about $7.17 million in 1994.
Going into 1995, Consolidated was operating a total of 141 Steak n Shake restaurants in Missouri, Indiana, Illinois, Michigan, Georgia, Florida, Ohio, Kentucky, Iowa, Arkansas, and Kansas. Management was pursuing an aggressive growth plan designed to more than double the number of outlets to 315 by 1999. Of 171 new restaurants planned for development, 78 were expected to be franchises. Improving per-store profits throughout the early 1990s and going into 1995 added validity to the plan. Meanwhile, Consolidated Specialty Restaurants reduced its holdings to 11 units, all but three of which were operating under the Colorado Steakhouse banner by 1995. That division continued to produce lackluster returns.
Steak n Shake, Inc.; Consolidated Specialty Restaurants, Inc.
Aramian, S. Sue, “Consolidated Elects New President,” PR Newswire, July 13, 1992.
“Consolidated Elects President,” Indianapolis Business Journal, July 20, 1992, p. 8.
Harton, Tom, “Steak n Shake Is on a Roll, but Stock Price and Specialty Restaurants Can’t Keep Up,” Indianapolis Business Journal, December 1989, p. 3.
MacKenzie, Coral, “Enhanced Stock, But Bigger Debt Load: Consolidated Products Recap Has Changed the Balance Sheet,” Indianapolis Business Journal, March 4, 1991, p. 5.
Murphy, Scott, “Indiana’s Entrepreneurs of the Year: Master,” Indiana Business, September 1993, p. 65.
Parent, Tawn, “Franchising Stalls at Consolidated Products,” Indianapolis Business Journal, February 24, 1992, p. 3A.
——, “Steak n Shake Signs Franchise Agreement to Add 50 Stores,” Indianapolis Business Journal, June 24, 1991, p. 1A.
Partington, Marta, “Steak n Shake:’Famous for Steakburgers’ for 56 Years,” Indiana Business, April 1990, p. 37.
Romeo, Peter J, “Steak n Shake Tosses Salads: Rollout Spices Two-Year Turnaround Strategy,” Nation’s Restaurant News, April 11, 1988, p. 116.