In-N-Out isn’t your ordinary Fast Food Burger Chain
In-N-Out has been a private, family owned business since its first restaurant opened in Baldwin Park, CA in 1948. Today, the burger chain operates in six states (CA, NV, UT, TX, OR, AZ) with over 300 restaurants and estimated revenues of $625M. It has amassed a cult following of fans who can be seen lining up outside a store to be the first customers, ordering off-the-menu items and proudly displaying In-N-Out’s logo on T-Shirts and bumper stickers. What is the secret to their success? Simplicity, quality and discipline has led In-N-Out Burger being consistently rated as one of the top burger chains in the US.
Business Model:
The business model is fairly straight forward: to provide consistent, high quality food using fresh ingredients at reasonable prices and wait times. The focus is on customer first, employees second and growth last.
Operating Model:
In-N-Out’s focus is on controlling the quality at all levels of its business from restaurant to ketchup packet. At a corporate level the firm maintains control of its restaurants by foregoing franchising. They own every restaurant allowing them to maintain control over aesthetics, restaurant quality and cleanliness, operational procedures, quality of employees and restaurant location. Expansion is deliberate and controlled in order to maintain its high quality standards. All of these characteristics add to a cohesive In-N-Out experience whether you are in California or walking into a brand new store in Oregon.
Logistics:
Before opening a new location, management ensures that the location is located within a 500-600 mile radius of one of In-N-Outs three distribution centers to ensure that fresh meat, produce and other ingredients can be delivered by their arsenal of 18-wheeled refrigerated trucks either every day or every other. These distribution centers serve as a hub connecting the In-N-Out ingredients from the farms, which are locally sourced and close to the distribution centers, to the restaurant. These frequent deliveries help minimize inventory and maintain the high quality expected of the brand.
Products and Process:
Freshness, simple menus and quality ingredients is what makes In-N-Out excel. When you walk into an In-N-Out kitchen you won’t find microwaves, heat lamps or freezers as seen in typical fast food joints. Instead, you’ll walk into a meticulously clean environment with a large open kitchen where fresh ingredients are being prepared to fulfill customer orders. Starting with the very first burger, to ensure the highest quality beef was used, In-N-Out’s quality assurances inspect every piece of meat they use to make sure it complies with their lofty standards. In-N-Out has hired their own dedicated butchers and built their own patty-making facilities so that they could ensure the quality and consistency of the product that they serve their customers. Potatoes are hand cut and cooked in batches to make their famous fries. To top it off, each burger is cooked to order. This is only possible by maintaining a simple menu with essentially only four offerings (burgers, fries, shakes and soda) that have pretty much remained the same for over 60 years!
Employees:
A great product is only half of the equation at In-N-Out. The workers at these restaurants are lovingly referred to as associates and are paid exceptionally well (associates earn approximately $2.00 over minimum wage and manager salaries are often in six figures). Managers undergo training programs at “In-N-Out University” which focuses on quality, customer service and cleanliness. Associates are rigorously trained and often cross-trained so that they can perform multiple responsibilities within the restaurant, reducing cycle times.
Additionally, the deliberately small menu allows associates to easily master the production process, leading to process efficiency and a reduction in overall throughput time. Many associates rise through the ranks and are promoted to managerial positions. Promoting within the company, high wages, and engaging work are tools that In-N-Out uses to reduce employee attrition. In-N-Out realizes that their employees are a huge part in the company’s and individual restaurant success.
Conclusion:
The driving force behind In-N-Out’s success is its pursuit of product excellence. Their operating model has been crafted to align with their business model ensuring that the highest quality product is always delivered to their customers. Their focus and ability to execute on quality allows them to have low inventory storage costs, higher efficiency from their employees and customer satisfaction that has given In-N-Out tremendous brand awareness and customer loyalty.
With an outstanding product, robust logistics system, determined and focused growth and strong employees leading the way, In-N-Out will continue to be at the top of the burger mountain.
Sources
1. http://www.dailyfinance.com/2009/05/24/in-n-out-burgers-six-secrets-for-out-and-out-success/
2. http://www.businessinsider.com/in-n-out-heiress-expansion-2013-2
3. http://www.in-n-out.com/history.aspx
4. http://www.fool.com/investing/small-cap/2008/07/02/the-best-company-ive-ever-seen.aspx
5. http://www.forbes.com/sites/calebmelby/2013/03/06/why-in-n-out-heiress-lynsi-torres-isnt-a-billionaire-yet/
6. http://www.nbcdfw.com/the-scene/food-drink/Inside-the-In-N-Out-Burger-Empire-134008293.html
7. http://www.bloomberg.com/bw/stories/2009-04-08/in-n-out-burger-professionalizing-fast-food
8. http://www.in-n-out.com/menu/food-quality.aspx
9. http://www.squadle.com/blog/in-and-out-best-place-to-work
Great, now I’ve got a ridiculous craving for a #2 Animal style.
One question I’ve always had about In-N-Out was whether the company could exist as is without it being a privately owned, majority shareholder business. It’s brand strength across North America is insane – They opened up a one hour, 1,000 burger pop up shop in Toronto last year and had a 3 block line by 10am. I just don’t think any investor could refrain from leveraging a brand with that much short term potential, be it through outsourcing supply lines on the back end or franchising on the front end. They are growing, but it is likely one of the most pure examples of organic growth…its refreshing.
It won’t be long before I’m back in California eating some In n Out.
In n Out’s menu simplicity and their success has always made me question why other franchises fall into the trap of expanding their menu items, which leads to reduction in quality, and eventual loss of customers/revenue. What I do wonder is why In n Out hasn’t worked on opening a distribution center on the East Coast and leverage it to move into Boston/NYC. I know they have Tasty Burger here, but I think In n Out would still do well.
Interesting read! In full disclosure, this post is coming from someone who has never actually been to an In N Out so I apologize in advance if it’s offensive to some 🙂
I find the craze of fast casual restaurants and in particular, fast casual burger restaurants to be quite interesting. To be honest, i am not one who can tell the difference (at least not as passionately as others can!) between a Shake Shack burger, a Five Guys burger, a Smashburger burger or a Tasty Burger burger, for example. They’re all delicious to me, and far superior to something like a McDonald’s burger, but still hard to differentiate among that higher quality fast casual burger. As such, I am wondering if part of the reason (although i realize they would never admit this) In N Out hasn’t opted to open a new distribution center on the east coast and expand here is because of the intense competition they would face and the need to convince east coast lifers that In N Out is superior to Five Guys, for example? Furthermore, with chains like Shake Shack expanding extremely rapidly (seemingly taking the exact opposite approach to In N Out), do you think In N Out is missing out on a huge growth opportunity given their promise to remain private and not open franchised units? Based on your post, my sense is they are probably content with missing out on the land grab going on right now in return for staying true to their customer promise, but as a former consumer investor myself I can’t help but wonder…curious to hear your thoughts! I’ll be sure to try In N Out the next time i’m headed West!
Great read about hands-down the best fast food chain in the country (in my humble opinion). My friend from high school started working there as a fry cooker when he was 16 and now makes over 140K annually as a manager. He recently completed a year-long tour consisting of 3-4 month training blocks with new employees at new store locations in Texas (as In N’ Out slowly creeps east). He stated is that In N’ Out’s greatest fear is that their quality diminishes with growth, which, as you mentioned, is why they invest so much in employees and employee training – ensuring that every new employee in Texas prepares food and delivers service in the exact same manner as store #1 in California. I really think this deliberate approach to growth will serve them well in the long run, though must admit it is an incredible display of patience as they very easily could have rapidly and successfully taken over the entire country by now. That being said, I will be anxiously looking forward to them eventually making it to Boston.
aaron, thanks for making me hungry at 2am. As a foreigner, I can tell that In-N-Out is by far my favorite burger chain. I am curious to hear one thing though. I understand that simplicity and proximity to distribution center are quite essential part of their operating model, thus they need to make a large capital investment to enter the East Coast. Do you know the company’s expansion plan in the near term?
Secondly, I was planning to open a doner kebap (Turkish fast food) chain in the East Coast and know that lots of international cuisine fast food chains are popping up in that region. Do you have any view around how is increasing competition impacting In-N-Out? Do they have a gameplan against this competition
I love food service industry. Thanks again for sharing such fruitful article