Tuesday, December 15, 2009

Shareholders as mystery shoppers

I recently moderated a webinar where the participants cited the need for new ways of gauging customers’ service experiences. The prevailing method, of inviting patrons to take an online or telephone survey in exchange for a freebie, has apparently lost its impact, though they did not explain why. Instead, they suggested there has to be a more effective way of soliciting input, using new technology or at least fresher techniques.

Sardar Biglari, the activist investor who took over Steak n Shake’s corner office last year, told investors yesterday of a feedback mechanism he’s put in place to short-circuit the process between guest experiences and a restaurant’s better financial performance.

The mechanism also fits his self-avowed cheapness. “We are demons on costs,” he proudly told stockholders in a letter posted on Steak n Shake’s corporate website. “Trimming them is
now embedded in our corporate DNA.”

The system he’s set up in effect turns Steak n Shake’s thousands of stockholders into mystery shoppers. As Biglari explained in his letter to those investors, the family restaurant chain set up an e-mail hotline a year ago, owner@steaknshake.com, so any stockholder could recount their experiences in a unit to the home office.

If they spotted something good or bad, executives will take note, Biglari stressed. You can be assured that each message is read, and when necessary the Steak n Shake team is dispatched quickly to remediate any problems,” he said.

In addition to fixing problems before they can fester, the arrangement demonstrates that headquarters will be accountable to the company’s owners, even over such things as the cleanliness of the silverware.

So far, Biglari indicated, the system has been a success: “The email, which goes to all members of the restaurant operation’s senior leadership team, has been both effective and cheap — in line with our motto.”

To keep the system from being commandeered by suppliers trying to flog a product, Biglari has set some stern ground rules: Do it once and you'll be assured of never doing business with Steak n Shake.

Any other non-stockholder who uses the e-mail address will be boiled in oil. Okay, I made that up. But I don't think the response from headquarters will have its i's dotted with little hearts or flowers.

Biglari recently surpassed Nelson Peltz as the gadfly most likely to be covered by Restaurant Reality Check. His prescriptions for reviving a restaurant company, and most definitely his means of putting them forward, are hardly cookbook, as his feedback mechanism and shareholder letter readily attest.

But it’s hard to argue with his approach, given the results. When Biglari assumed control of Steak n Shake, the company was losing money at the rate of $100,000 a day, he told shareholders. For its most recently completed quarter, the concern posted a net profit of $3.4 million, compared with a net loss a year ago of $9.2 million.

The bounce back was even more dramatic on an annual basis. Steak n Shake enjoyed a profit for the fiscal year of $6 million, compared with a loss the year beforehand of $23 million.

Granted, the most recent fiscal year encompassed 53 weeks instead of 52. Still, same-store sales during the fourth quarter leapt 10% on a 20% quantum leap in traffic.

Biglari might ruffle some feathers, but he’s delivering to Steak n Shake’s shareholders, employees and guests.

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