In-N-Out – The Freshest, Friendliest Fast Food
In-N-Out Burger stands apart from its fast food competitors by shirking freezers and encouraging smiles
Harry Snyder had a motto: “do one thing, and do it well.” The co-founder of In-N-Out Burger, Snyder opened In-N-Out’s first location in Baldwin Park, CA, in 1948 with three items on the menu: burgers, fries and shakes. Almost 70 years later, In-N-Out’s business model remains almost as simple, with its operations aligned to match.
Snyder’s focus at In-N-Out was on quality, cleanliness and service. By providing fresh, high quality food in a clean and friendly environment, In-N-Out is able to drive sales and sustain customer loyalty with very minimal marketing spend. In turn, this allows them to spend money on upholding their three core values.
Quality
Today, In-N-Out still has very simple menus: burgers (with some variants – one or two patties, cheese or no cheese, grilled or raw onion), fries and drinks (shakes, soda, lemonade, iced tea, coffee). It requires very few ingredients: buns, beef patties, American cheese slices, lettuce, tomato, proprietary “spread” (condiment blend), onion, potatoes, vegetable oil (for frying) and various beverages.
While In-N-Out offers a large “secret menu” with twists on its traditional items (extra patties, cheese on the fries, etc.), the “secret menu” only requires three additional ingredients (mustard, pickles, chopped chilies). In fact, while the “secret menu” only offers simple modifications to the core menu, knowledge of the menu offers a sort of “insider status” for those in the know, driving customer loyalty.
Because it requires so little variety in its ingredients, In-N-Out is able to maintain substantial control over its supply chain and to ensure that it is receiving the highest quality items. Most of its produce is sourced from farms in California, where two of its distribution centers are located. In-N-Out sources all of its own beef, individually inspecting every chuck that it receives. In-N-Out employs in-house butchers to break down and grind its meat, and forms patties in-house, maintaining absolute control over the patty-making process. While this process initially took place in-store, in 1963 In-N-Out opened its first patty-making facility, and today operates three such facilities alongside its distribution centers in Northern California, Southern California and Texas.
All ingredients are delivered fresh to In-N-Out stores, and each order is cooked fresh to order – even the potatoes are cut in-store and fried fresh. In fact, In-N-Out stores don’t even feature freezers, microwaves or heat lamps – a fact that distinguishes In-N-Out from its fast food competitors, and is attractive to customers.
In-N-Out’s commitment to fresh food serves as a marketing tool, but also perfectly aligns with its operating model. Using only fresh food minimizes the amount of kitchen equipment necessary, reducing capital expenditures. Further, having a limited menu allows In-N-Out to rely entirely on fresh ingredients, but also allows for extremely high inventory turnover, reducing the risk of spoilage that restaurants otherwise face.
In contrast to its fast food competitors, who have achieved massive scale by relying on frozen products, In-N-Out has sustained this control and quality by ensuring that each new store is within a 500-mile radius of a patty-making facility and distribution center (though several of its Utah locations are closer to 700 miles from a distribution center, the company maintains that they employ a 500-mile rule). In-N-Out has expanded at an average of 6% per year, and still only has locations in six states, all close to their three patty-making facilities and distribution centers: California, Nevada (opened in 1992), Arizona (2000), Utah (2008), Texas (2011) and Oregon (2015).
By maintaining a very limited menu and only expanding as its distribution channel allows, In-N-Out is able to offer fresh, high-quality food that in turn drives sales and customer loyalty.
Cleanliness and Service
In-N-Out further drives sales by maintaining extremely clean stores, and providing excellent customer service. It does this primarily by training its employees thoroughly, keeping them happy and retaining them far longer than the average fast-food employer.
In-N-Out is able to attract, and retain, talent by paying much higher wages than competitors, and providing better benefits. In-N-Out associates have always made at least $2-3 above minimum wage, and in 2012 store managers made more than $120,000 on average, compared to a median food service manager salary of $48,000 per year. In-N-Out also offers substantial benefits for employees, including retirement savings plans, paid vacation (even for part-time employees), and full health and dental benefits for full-time workers. Managers who meet sales goals are sent on luxurious vacations with their spouse. The company also throws companywide picnics and an annual gala dinner.
In addition, In-N-Out provides ample opportunities for advancement, promoting most of its managers from store associates. Around 80% of In-N-Out’s managers started as entry-level associates and rose to the manager level. When employees are promoted to manager, they receive training at In-N-Out University, a centralized training facility in Baldwin Park that reinforces the company’s core values and ensures consistent manager training across all locations. In-N-Out University enables the company to maintain a pipeline of qualified managers who will uphold the company’s core values. This further plays into In-N-Out’s growth strategy; the company only expands to new locations when it has a trained management roster that allows for expansion.
As a result of these initiatives, In-N-Out turnover is extremely low for the fast-food industry; part-time associates at In-N-Out stay for an average of two years (in the industry as a whole, only 25% of workers stay for two years), and In-N-Out managers stay for an average of 14 years. Thus, its employees are much more likely to be happy in their jobs, and to fulfill In-N-Out’s objectives of proving a clean and friendly environment for customers.
In the rare event of substandard customer service, however, In-N-Out also maintains a centralized customer service line that customers can call toll-free, that is fully staffed by In-N-Out associates who have experience working in-store. These associates are empowered by the company to take care of customers, ensuring that each customer has a positive impression of the company, even in the event of a bad in-store experience.
Driving Value
Despite its growth and success, In-N-Out is still entirely privately owned by the Snyder family. In-N-Out owns all of its locations entirely, with no franchising. This allows the company to maintain complete control over its supply chain and employee hiring and training, further reinforcing its core values. By aligning its business model with its operating model, and maintaining control over operations by refusing to franchise, In-N-Out has built a brand with intensely loyal customers that is, by all accounts, extremely successful.
Sources:
http://www.In-N-Out.com/menu/food-quality.aspx
http://www.In-N-Out.com/history.aspx
http://www.bloombergview.com/articles/2014-10-02/In-N-Out-doesn-t-want-to-be-mcdonald-s
http://www.businessweek.com/smallbiz/content/apr2009/sb20090424_877655.htm
http://www.bloomberg.com/bw/stories/2009-04-08/In-N-Out-burger-professionalizing-fast-food
http://www.ocregister.com/articles/torres-496945-company-snyder.html
Just reading this has made me hungry and sad that I’m not currently in LA. It was really interesting reading about the interplay of their marketing a simple, fresh menu with their integrated supply chain. I’d love to learn how they arrived at their 500 mile maxim (is it based on a day’s drive?) and why they decided to unofficially break it for certain locations in Utah. Also, I never focused on the fact that In-N-Out specifically stocks a few ingredients solely for certain Secret Menu orders.
Thanks Jacob! I believe the 500-mile radius was determined by a day’s drive, and I too am curious why they decided to break the rule for their Utah locations. Unfortunately Boston is still about 1,800 miles from their nearest distribution center in Dallas so it looks like we won’t be able to try any of those specially-stocked Secret Menu ingredients any time soon…
Thank you for sharing this article Leigha! I was specially surprised to learn that their staff remains ~2 years within the company. I believe this company exemplifies how adding value to external stakeholders (such as shareholders and customers) can also be translated into internal value-creation with the employees. Hence, their 6% growth rate doesn’t surprise me at all.
Thanks Yendi! I agree, it is very nice to see alignment of internal and external stakeholders – In-N-Out makes everyone happy!
Leigha, thanks for the post! (And for making me hungry!). I definitely have enjoyed the value that IN-n-Out offers and personally appreciate the quality of ingredients and cooked to order meals. One thing I wonder about with the 500 miles radius to distribution centers is about supply chain risk- how much stores would suffer if a particular distribution center had a health issue. Another is the scalability and competition- if having to building another distribution center within 500 miles will limit the geographic expansion (allowing other competitors within the hotly contested space to steal share). In any case, I’m just sad right now that we in Boston have to cross the country to get one of those animal style burger and fries!
Thanks Michael! I agree, the lack of In-N-Out in Boston is tragic. I definitely agree that their lack of scalability provides opportunity for competitors to gain market share. However, I think it also works as a marketing tactic, solidifying the “cult status” of the brand, such that when they do enter new markets, they should be able to quickly gain market share (as has happened in more recent markets – Texas and Oregon). This is likely due to their high brand awareness, but also competitive pricing (much less than competitors like Five Guys or Shake Shack) and convenience (drive through!).
Leigha – I had NEVER understood the fan following and cult-like status of In-N-Out Burgers until your enlightening article. In fact, I had mentally lumped In-N-Out with all those burger chains (Five Guys, etc.) and had vowed never to go. It also doesn’t help that I don’t eat beef 🙂
This article, however, made me ravenous and highlighted how a company can be totally aligned with my beliefs (serving fresh food, keeping employees happy) — even if it isn’t serving burgers I can eat! From reading several articles, it appears that employee satisfaction is an emerging theme among SEVERAL winning companies in delivering value to customers.
So, now, where can cracks develop? What limitations is the company creating? Could In-N-Out perhaps expand to another meat, such as turkey, to expand the demographics they attract? And as people become increasingly health-conscious, even with simple, fresh ingredients, these are high-caloric burgers, must In-N-Out consider expanding its menu to healthier sides? What would be the tipping point? How do they decide the locations for stores / patty center distributions? Is it by customer density? If so, what is stopping them from opening either near Boston or NYC? Are there any other regulations at play here?
Thanks Snigdha! I definitely agree that In-N-Out has placed limitations on themselves with their slow geographic expansion and small (tiny really) menu. Sadly for the non-beef eaters, I doubt that In-N-Out will be moving to make any significant menu changes any time soon; they pride themselves on maintaining their original menu, and use it as a marketing tactic. (The good news is, there is a vegetarian grilled cheese on the “secret” menu! I highly recommend it!) In terms of health consciousness, In-N-Out was actually one of the first fast food restaurants to offer lettuce-wrapped burgers (as far back as the 60s!), but I don’t think they’ll be adding salads (or similar options) to their menu. I think the marketing value of sticking to their original menu – and their strengths – is too high at this point in time.
Regarding distribution, it does seem to be based on population density (though the expansion to Utah as opposed to, say, Seattle puzzles me). That said, I think proximity to fresh California-grown produce is a huge factor – by the time all of the tomatoes and lettuce would make it Boston or New York, they wouldn’t be quite as fresh or delicious. I think that was a major factor to open a new distribution center in Texas (as opposed to the Northeast). But I am hopeful that someday New York will get an In-N-Out! A girl can dream!
Awesome post! Another reason to miss California.
You mentioned that In-N-Out does little marketing, which I realized is very true. Though I’ve noticed that most of its stores are located very close to if not right next to highways, and their signs are highly visible. Do you think this is part of their (cheap) “marketing” strategy? If not, how do you think people hear about it? Is it mainly Word of Mouth?
Thanks Chun! I definitely think that their locations are part of their marketing strategy – all close to highway exits (with very large, visible signs) or in high-traffic areas (i.e. right next to UCLA in Westwood). In-N-Out does do a tiny bit of marketing, but it is almost all radio ads, which is odd but also fits their their nostalgic vibe (and focus on cars/travel/convenience). But I think you’re spot on, it’s primarily word of mouth – and I think things like the “secret” menu help with this, because people feel like they are “in” on something special when they hear/know about it, reinforcing the cult image of In-N-Out.
Really interesting, thanks Leigha.
I just read another post about Shake Shack and it looks like both In-N-Out and Shake Shack share a lot in common (service quality, emphasis on the quality of food). In which way would you say these two differ? Or is In-N-Out simply a copy of Shake Shack targeting a different target (city vs suburbs/rural)?
Thanks Vincent! Shake Shack and In-N-Out definitely have similar values (friendly service, high quality food). But In-N-Out definitely seeks to be more accessible – both price-wise and convenience wise – whereas Shake Shack is more upscale. While Shake Shack is primarily in urban or wealthy suburban locales, In-N-Out is in diverse locations, often close to highway exits with a drive-through. In-N-Out is substantially less expensive than Shake Shake (<$2 for a burger, vs. Shake Shack's $6+). Shake Shack also offers beer and wine (with upscale offerings) and a slightly more diverse menu than In-N-Out. Overall, though, they are quite similar!
Thanks for a great read Leigha! What really struck me about your post is how much emphasis In-N-Out has put in retaining its employees, as well as the amount of money its invested in them. While I can see customer service being important for a dine-in restaurant, do you really think that it’s that much of a differentiating factor for a fast food joint?
Also, as Vincent pointed out, I see Shake Shack as very similar in its focus on customer service and (standardised) quality. What do you think is the key factor that is stopping In-N-Out from expanding in the same way that Shake Shack has? Their emphasis on having their own distribution centres?
I normally try not to eat in these types of chains, but I will have to make an exception if I go to California!!
I really liked how you explain customer service and how the brand adds value.
What type of difficulties do you foresee as main challenges in the near future?
This company is also a great example of a winner that adapts its operational model to its business model so, congratulations!
Great job!
Thanks Gonzalo! I highly recommend trying In-N-Out next time you are near one – it is definitely worth a try! I think their main challenges in the future will be maintaining their quality and fresh ingredients as they continue to expand their footprint. I am hoping that eventually they will make it all the way to the east coast, but there are certainly challenges in expanding this far away from their headquarters (and far from where most of their supply comes from).