Although not a big fast-food guy, I'm obsessed with In-N-Out. The fact that I've never eaten one of their burgers, due to the fact that the family-owned chain controls growth with such discipline, heightens my interest. I'd drive a 100 miles to get an Animal Style Double Double, but the closest In-N-Out’s 1000 miles away in Texas.
There's a mystique about In-N-Out that none of its competitors can match. A high-level chef I worked with in Hawaii once told me that as soon as he gets back to the mainland, that's the first place he goes to.
That burger is on people's minds, but the chain’s success is based on business practices that people rarely talk about. In-N-Out’s the Costco of Burgers in that it succeeds despite breaking every rule. Harry and Esther Snyder began the business in 1948 in Baldwin Park, California with a four-item menu—cheeseburgers, hamburgers, fries, and shakes. While the McDonald brothers focused on speed and efficiency, which has produced an industrialized-looking burger, the newlyweds dedicated themselves to freshness.
While Ray Kroc, when he took over McDonalds, was hell-bent on franchising in every corner of the nation, In-N-Out has remained a family operation that owns outright every store it's opened. When Rich Snyder took over the company at 24, after Harry died, he followed his dad's playbook. After 17 years of his stewardship, there were more than 90 In-N-Out's. Rich learned something that many failed fast food chains don’t—how to scale a business without ruining it—but he died in 1993 in a plane crash. His older brother Guy took over, but six years later, after expanding the chain to 140 stores, he died of a prescription drug overdose.
Esther Snyder took over the reins until she died seven years later, at which point Harry and Esther’s granddaughter, Lynsi, became president at 27. Lynsi was constrained from the danger of over-expansion because of the company policy of processing all of the beef they bought—grinding it and forming it into patties—at their own facilities. Because In-N-Out meat is never frozen, this means that a new store has to be within a day’s drive of a processing plant.
None of the stores have ever had microwaves or heat lamps. All of their food is cooked to order, unlike, say, McDonald's, which cooks burgers in advance and then serves them warmed over. If a McKinsey and Company hotshot consultant walked into an In-N-Out, they’d see “inefficiencies” to fix, but those inefficiencies are what makes the chain almost impossible to compete with.
McDonald's has found that opening stores, via franchising, near their other stores works for the corporation, revenue-wise, even though it cannibalizes their franchisee’s customers. In-N-Out avoids this business practice. Because there are so few In-N-Outs, they often have long lines, which is the best advertising a restaurant can get, as well as a profit maximizer.
In-N-Out’s cult reputation creates a word-of-mouth that keeps their marketing expenses to a minimum. McDonald's spends over a billion dollars a year on advertising and marketing because it's a publicly-held firm forced to chase volume. Every new product they introduce requires heavy advertising. In-N-Out doesn't chase trends by introducing new products.
Each In-N-Out location surpasses McDonald's and Five Guys locations in annual revenue. Not having to spend on advertising means they can start their employees at around $18.50 to $20 per hour, making for lower turnover, lower training costs, and higher service quality. A general manager can make $180,000 per year.
While generational turnover is a major hazard for family businesses, Lynsi has guided the firm with vision. Carrying on the family tradition is what drives her. She didn't take the losing route of selling out to private equity, which has a 50 percent bankruptcy rate in the restaurant chains it buys. Nor did she take the firm public, which would've hurt quality by subjecting In-N-Out to cost-cutting measures.
Lynsi, whose net worth is around $8.7 billion, expanded the burger chain to 400 locations. Last year, she moved her family to Tennessee and set up an operations center there, thus allowing for the opening of stores in the Nashville area. In-N-Out is now positioned to do in the East what it's done in the West for so long—beating the pants off the competition.
In-N-Out’s focus on quality means all the basics are in place and that the marketing takes care of itself. The chain has one brilliant selling-proposition in place, however—the so-called “secret menu.” The In-N-Out website calls it the “not so secret menu,” but it's not found in their physical locations. This makes customers who know about it feel like members of an exclusive club. There's the Animal Style burger with mustard spread on the patty before it's cooked. The Protein Burger comes wrapped in a lettuce leaf. Animal Fries come with cheese spread and fried onions. Besides the “clubby” factor, this innovation makes it possible to keep the In-N-Out menu as simple as it's always been.
In an industry addicted to shortcuts, In-N-Out stands out for its discipline and devotion to quality. No other fast food chain has ever been able to gain such intense loyalty. When a new location opens, people have waited for eight hours for a burger.