In-N-Out Burger: “Simplicity is the ultimate sophistication”
What's in In-N-Out's secret sauce?
The Business
In 1948, Harry Snyder founded In-N-Out Burger – California’s first drive-thru burger stand – on a ten-square-foot parcel of land in Baldwin Park. Its mission, unchanged over nearly seven decades, is simple:
Serve only the highest quality product, prepare it in a clean and sparkling environment, and serve it in a warm and friendly manner.
Since its inception, In-N-Out Burger has enjoyed tremendous success, growing annual sales to approximately $400mm per analyst estimates and consistently earning a #1 ranking in the fast food burger chain segment, ahead of competitors such as Wendy’s, Five Guys’ and Fuddruckers. With 310 stores currently in operation across the Western U.S. and Texas, the family-run business maintains a loyal consumer base and cult following. Dedicated patrons are known to drive hours for a renowned hamburger or prioritize a stop at In-N-Out during trips to the west coast.
Operating Model to Deliver Mission
As stated on the restaurant’s website, “We only serve burgers, fries and drinks, making a high-quality hamburger patty is everything to us”. This relentless focus on simplicity and quality manifests itself in a variety of ways through the firm’s business and operating models.
Selective Expansion and Franchise Policy
To the vexation of many east coast residents, In-N-Out employs a selective expansion policy, choosing only locations where the company can deliver fresh ingredients. Specifically, corporate policy mandates that all locations must be within 300 miles of the company’s distribution facilities.
The firm owns and operates its patty-making facilities in California and Texas, delivering fresh ingredients to its stores daily. Complete vertical integration and control of the supply chain from start to finish minimizes cost and, coupled with a strict no-franchise policy, ensures consistency in food quality and customer experience across locations.
Store Operations and Menu
At In-N-Out, burgers are made-to-order and, with a constant supply of fresh ingredients, there is no need for heat lamps, freezers or microwaves. Milkshakes are made with real milk; french-fries are cut in-store using whole potatoes shipped from the farm. To warrant compliance with these standards and incentivize proper management, internal inspectors make frequent surprise visits to restaurant locations.
The menu itself is a prime example of In-N-Out’s intense focus on simplicity to maximize quality and minimize expenses. Items on the menu are largely unchanged from the original stand and exhibit a rare marriage of quality and affordability:
- 3 Burger Choices: Hamburger, Cheeseburger, Double Double (most expensive at $3.40*)
- French Fries
- Beverages: Soda (4 sizes), Shakes (3 flavors), Coffee, Milk
In addition to increased quality and cost reduction, this rationalized menu offers a host of advantages:
Optimized Work Flow: Burgers and fries are the only menu items that demand any intensive processing. With just two work streams, In-N-Out can train employees quickly and narrow the scope of investments for process improvement and innovation. Examples include optimal ingredient locations for workers, proprietary bun toasting technology and high-efficiency fryer banks.
Increased Utilization: At restaurants with complex menus, unique orders create variability in the process flow and can disrupt operations, causing bottlenecks and reducing productivity. In contrast, In-N-Out’s simple product mix – French Fries and Hamburgers – is easy to forecast and allows In-N-Out to organize its workflow and resources accordingly, maximizing labor and machine utilization.
Brand Equity: Customer’s view In-N-Out as a burger specialist compared to competitors offering a wide variety of food choices.
Surprisingly, this focused operational model also allows for greater flexibility and creativity. In-N-Out is famous for its not-so-secret “secret menu” that offers variations on the standard menu such as the popular “Animal-style burger” – a cheeseburger with pickles, grilled onions, mustard and In-N-Out’s secret sauce. Secret menu items are created with the same ingredients and via the same processes as standard items which means there is little to no impact on utilization. Furthermore, the secret menu’s word-of-mouth nature amplifies In-N-Out’s mystique and cult status.
Culture
Serving food in a “warm friendly manner” requires satisfied employees. To that end, In-N-Out pays premium salaries over competitors (minimum $10.50 per hour) and offers many employee benefits such as flexible schedules, paid vacations, free meals and 401K plans.
Additionally, company management places high value on training and internal promotion opportunities – restaurant managers can earn up to $150,000 per year (industry comparable: $72,000) and average fourteen years’ experience. Collectively, these benefits and policies boost morale, loyalty and drive an employee turnover rate of 50%, 4-6x less than the industry average.
*Prices vary by location
References
Almendrala, A. (n.d.). In-N-Out Reddit AMA: Cook Delights With Descriptions Of His Own Menu Creations. Retrieved from Huffington Post: http://www.huffingtonpost.com/2013/02/28/in-n-out-reddit-ama-cook_n_2782427.html
Hack The Menu. (n.d.). Retrieved from In-N-Out Menu Prices: http://hackthemenu.com/in-n-out/menu-prices/
Hoovers. (n.d.). In-N-Out Burgers.
In-N-Out Burger, 9-503-096 (July 30, 2003).
In-N-Out Burger Employment. (n.d.). Retrieved from In-N-Out Website: http://www.in-n-out.com/employment/corporate.aspx
In-N-Out Burger In Hong Kong. (n.d.). Retrieved from My Wandering Life: http://www.mywanderinglife.com/2012/01/in-n-out-burger-in-hong-kong.html
In-N-Out president explains why the burger chain probably won’t expand to the East Coast. (n.d.). Retrieved from SF Gate: http://www.sfgate.com/technology/businessinsider/article/Why-In-N-Out-burger-won-t-expand-to-the-East-Coast-5066438.php
Locations. (n.d.). Retrieved from In-N-Out: http://www.in-n-out.com/locations
Menu and Food Quality. (n.d.). Retrieved from In-N-Out Burger: http://www.in-n-out.com/menu/food-quality.aspx
OC Register. (n.d.). Retrieved from Behind the scenes at In-N-Out: http://www.ocregister.com/articles/-75354–.html
The Best Fast Food Burgers. (n.d.). Retrieved from Ranker: http://www.ranker.com/crowdranked-list/top-fast-food-burgers
The top 10 fast food burgers in America. (n.d.). Retrieved from Business Insider: http://www.businessinsider.com/top-10-restaurant-burgers-in-america-2015-5
Why In-N-Out Works. (n.d.). Retrieved from The Productivity Advantage: https://theproductivityadvantage.wordpress.com/2010/07/21/why-in-n-out-works/
Jon,
In N Out’s operational decisions, like offering a limited menu and treating their employees well, reminded me a lot of the Benihana model. Decreasing SKUs allows the company to minimize variability, allowing for a consistent customer experience. They probably also get great prices from their suppliers and are able to manage their limited inventory effectively. One question–if the business and operating model is so compelling, what accounts for the fact that In-N-Out has not scaled throughout the US?
As a Southern California native, I can confidently say that In-N-Out does actually make the world’s best burger and can corroborate a number of the points that you made in your post. In-N-Out is known for the freshness of their burgers and fries and indeed, the quality consistency of the customer experience is remarkable. I have never visited an In-N-Out that was dirty, where the employees were not friendly and helpful, and where the food was not delicious. In-N-Out’s true value proposition to customers is the consistency of its delicious and reasonably priced experience. While you briefly mentioned the brand equity, however the only point that I would add to your post is the strong perception among customers that In-N-Out is different from the more “corporate” and “chain-focused” fast food restaurants with which it competes. I think a large part of this perception is due to the fact that In-N-Out is a private company, and as a result, customers truly believe that it is focused on providing a quality burger and experience, as opposed to driving profits and growth. Looking forward to heading to In-N-Out multiple times when I am back in Orange County during winter break.
Very interesting post Jon! It’s clear that In-N-Out creates value not only for the end consumer (by producing undeniably superior hamburgers) but also creates value for their employees by offering high wages relative to competitors. One question I had, is how In-N-Out is able to compete with firms like McDonald’s that have much lower labor costs? Does In-N-Out hire fewer employees relative to competitors due to their simple operating model?