Tim Hortons Inc. (USA) (THI), Biglari Holdings Inc (BH): The Lesser-Known Restaurateurs

The Warren Buffett of Buffets

Biglari Holdings Inc (NYSE:BH) is likely the least known company on this list, as well as the smallest with a market cap of just under $500 million. Biglari Holdings Inc (NYSE:BH) is not the name of a restaurant, but of a diversified holding company run by Sardar Biglari, who has modeled himself and his company after Warren Buffett and Berkshire Hathaway Inc. (NYSE:BRK.B). Biglari Holdings Inc (NYSE:BH)’ business model revolves around using the excess cash generated by its subsidiaries to invest in new businesses and equity positions, such as its nearly 20% stake in restaurant operator Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) (a stake valued today at about $450 million). For its wholly-owned businesses, Biglari Holdings’ cash generators and largest subsidiaries are its two restaurant companies, Western Sizzlin’ and Steak ‘n Shake.

Western Sizzlin’ is the much smaller of the two restaurant subsidiaries. Western Sizzlin’ has 89 restaurants under the names Western Sizzlin’, Great American Steak & Buffet and Wood Grill Buffet. All except five of Western Sizzlin’s restaurants are franchise-operated. The much larger Steak ‘n Shake currently operates a different business model. Of its 508 Steak ‘n Shake restaurants, 414 are company-operated. In 2012, Western Sizzlin’ generated about $2.157 million in earnings, a 12% decrease compared to 2011. Steak ‘n Shake, however, generated about $45.622 million in earnings, a 10.6% increase over 2011 earnings.

Steak ‘n Shake’s 10% increase came despite the company’s efforts to franchise restaurants and expand internationally. These efforts in the short term are taking away from Steak ‘n Shake’s profits, but over the long term should help generate more cash for Biglari Holdings Inc (NYSE:BH). Steak ‘n Shake has recently signed franchise agreements with partners to open 171 restaurants, including the company’s very first international locations. The first of which will open in the United Arab Emirates. Steak ‘n Shake is also currently hiring staff for its new European office and will soon begin to bring the American diner concept to old world restaurant patrons.

Latin America’s Golden Opportunity

In a plot straight out of Back to the Future II, imagine we are climbing into a heavily-modified DeLorean and taking a trip back in time to 1972. It was this year that McDonald’s Corporation (NYSE:MCD) celebrated its 2,000th restaurant opening. This was also the year that McDonald’s recorded its first billion dollars in sales. Two years later, their store count will increase to 3,000. Two years after that and they will see the grand opening of their 4,000th restaurant. In another two years’ time, say hello to restaurant number 5,000. This was the beginning of McDonald’s explosive growth, a great time to purchase a few shares of McDonald’s stock. Unfortunately none of us have a time machine, but Arcos Dorados Holding Inc (NYSE:ARCO) presents investors with potentially the next best thing.

Spanish for Golden Arches, the Argentina-based Arcos Dorados was formed in 2007 when it purchased McDonald’s Latin American division. The purchase included the rights to franchise and operate McDonald’s restaurants in 20 countries and territories in South America, Central America, Mexico and the Caribbean, a combined population of about 580 million people. Arcos Dorados today has a restaurant count of 1,959 McDonald’s, as well as 339 McCafé restaurants and 1,997 Dessert Centers.