Company Case In-N-Out Burger: Customer Value the Old-Fashioned Way In 1948, Harry and Esther Snyder opened the first In-N-Out Burger in Baldwin Park, California. It was a simple double drive-thru setup with the kitchen between two service lanes, a walk-up window, and outdoor seating. The menu consisted of burgers, shakes, soft drinks, and fries. This format was common for the time period. In fact, another burger joint that fit this same description opened up the very same year just 45 minutes away from the first In-N-Out Burger. It was called McDonald’s. Today, McDonald’s boasts over 34,000 stores worldwide that bring in more than $88 billion every year. In-N-Out has only 281 stores in five states, good for an estimated $625 million a year. Based on the outcomes, it would seem that McDonald’s has emerged the clear victor. But In-N-Out never wanted to be another McDonald’s. And despite its smaller size—or perhaps because of it—In-N-Out’s customers like the regional chain just the way it is. When it comes to customer satisfaction, In-N-Out beats McDonald’s hands down. It regularly posts the highest customer satisfaction scores of any fast-food restaurant in its market areas. Compared to McDonald’s customers, patrons of In-N-Out are really “lovin’ it.” Just about anyone who has been to an In-N-Out believes it’s the best burger they’ve ever had. It comes as no surprise, then, that the average per-store sales for In-N-Out eclipse those of McDonald’s and are double the industry average. Breaking All the Rules According to Stacy Perman, author of a definitive book on In-N-Out, the company has achieved unequivocal success by “breaking all the rules.” By rules, Ms. Perman refers to the standard business practices for the fast-food industry and even retail in general. In-N-Out has maintained a tenacious focus on customer well-being, but it has done so by doing the unthinkable: not changing. The company’s original philosophy is still in place today and best illustrates the basis for the company’s rule breaking: “Give customers the freshest, highest quality foods you can buy and provide them with friendly service in a sparkling clean environment.” The big burger giants might take exception to the idea that they aren’t providing the same customer focus. But let’s take a closer look at what these things mean to In-N-Out. For starters, at In-N-Out, quality food means fresh food. Burgers are made from 100 percent pure beef—no additives, fillers, or preservatives. In-N-Out owns and operates its own patty-making commissaries, ensuring that every burger is fresh and never frozen. Vegetables are sliced and diced by hand in every restaurant. Fries are even made from whole potatoes. And, yes, milkshakes are made from real ice cream. In an industry that has progressively become more and more enamored with processing technologies such as cryogenically freezing foods and preparing all ingredients in off-site warehouses, In-N-Out is indeed an anomaly. In fact, you won’t even find a freezer, heating lamp, or microwave oven in an In-N-Out restaurant. From the beginning, the company slogan has been “Quality you can taste.” And customers are convinced that they can do just that. In-N-Out hasn’t changed its formula for freshness. But in another deviation from the norm, it also hasn’t changed its menu. Unlike McDonald’s or Wendy’s, which introduce seemingly unending streams of new menu items, In-N-Out stays true to Harry Snyder’s original mantra: “Keep it real simple. Do one thing and do it the best you can.” This charge from the founder focuses on what the chain has always done well: making really good hamburgers, really good fries, and really good shakes—that’s it. While others have focused on menu expansion in constant search of the next hit item to drive traffic, In-N-Out has tenaciously stuck to the basics. In fact, it took 60 years for the company to add 7up and Dr. Pepper to its menu. Although the limited menu might seem restrictive, customers don’t feel that way. In another demonstration of commitment to customers, In-N-Out employees will gladly make any of the menu items in a truly customized fashion. From the chain’s earliest years, menu modifications became such a norm at In-N-Out that a “secret” menu emerged consisting of code words that aren’t posted on regular menu boards. So customers in the know can order their burgers “animal style” (pickles, extra spread, grilled onions, and a mustard-fried patty). Whereas the “Double-Double” (double meat, double cheese) is on the menu, burgers can also be ordered in 3×3 or 4×4 configurations. Fries can also be order animal style (two slices of cheese, grilled onions, and spread), well done, or light. A Neapolitan shake is a mixture of chocolate, vanilla, and strawberry shakes. The list goes on and on. Knowledge of this secret menu is yet another thing that makes customers feel special. It’s not just In-N-Out’s food that pleases customers. The chain also features well-trained employees who deliver unexpectedly friendly service. In-N-Out hires and retains outgoing, enthusiastic, and capable employees and treats them very well. It pays new part-time staff $10.50 an hour and gives them regular raises. Part-timers also receive paid vacations. General managers make over $100,000 a year plus bonuses and receive a full-benefit package that rivals anything in the corporate world. Managers who meet goals are sent on lavish trips with their spouses, often to Europe in first-class seats. For gala events, managers wear tuxedos. Executives believe that the men and women who run In-N-Out stores stand shoulder-to-shoulder with any blue-chip manager, and want them to feel that way. Managers are promoted from within. In fact, 80 percent of In-N-Out managers started at the very bottom. As a result, In-N-Out has one of the lowest turnover rates in an industry infamous for high turnover. Happy, motivated employees help create loyal, satisfied customers. In fact, words like loyal and satisfied don’t do justice to how customers feel about In-N-Out Burger. The restaurant chain has developed an unparalleled cult following. When a new In-N-Out first opens, the line of cars often stretches out a mile or more, and people stand in line for hours to get a burger, fries, and a shake. Fans have been known to camp overnight to be the first in line. When In-N-Out made its debut in Texas, one woman cried. “Pinch me, it just doesn’t feel real,” whimpered customer Danielle DeInnocentes, overcome with emotion as the reality of her newfound proximity to the burger chain set in. Slow Growth Nurtures Fans Some observers point out that it’s probably more than just the food and the service that created In-N-Out’s diehard customer base. Because of In-N-Out’s slow-growth expansion strategy, you won’t find one of the famous red-and-white stores with crisscrossed palm trees on every corner. By 1976, In-N-Out had grown to only 18 southern California stores, whereas McDonald’s and Burger King had opened thousands of stores worldwide. It took In-N-Out 40 years to open its first non-California store in Las Vegas. And even as the company expands into Arizona, Utah, and Texas, it sticks tenaciously to its policy of not opening more than about 10 stores per year. The lack of access to an In-N-Out in most states has created legions of cravers coast to coast. Fans have created countless Facebook pages, filled with posts by consumers begging the family-owned corporation to bring In-N-Out to their states. But In-N-Out’s policy is driven by its commitment to quality. It will open a new store only when it has trained management and company-owned distribution centers in place. The scarcity of In-N-Out stores only adds to its allure. Customers regularly go out of their way and drive long distances to get their fix. Having to drive a little further contributes to the feeling that going to In-N-Out is an event. Out-of-state visitors in the know often put an In-N- Out stop high on their list of things to do. Jeff Rose, a financial planner from Carbondale, Illinois, always stops at In-N-Out first when he visits Las Vegas to see his mother. “You have to pass it when you drive to her house,” he says in his defense. “It’s not like the time I paid an extra $40 in cab fare to visit an In-N-Out on the way to the San Diego airport.” Consistent with the other elements of its simple-yet-focused strategy, In-N-Out doesn’t spend much on advertising—it doesn’t have to. In fact, although the company doesn’t release financial figures, some estimates place total promotional spending at less than 1 percent of revenues. McDonald’s shells out 7 percent of its revenue on advertising. In-N-Out’s small promotional budget is for local billboards and radio ads. But when it comes to really spreading the word, In-N-Out lets its customers do the heavy lifting. Customers truly are apostles for the brand. They proudly wear In-N-Out T-shirts and slap In-N-Out bumper stickers on their cars. Rabid regulars drag a constant stream of new devotees into restaurants, an act often referred to as “the conversion.” They can’t wait to pass along the secret menu codes and share the sublime pleasures of diving into a 4×4 animal style. “When you tell someone else what ‘animal style’ means,” says an analyst, “you feel like you’re passing on a secret handshake. People really get into the whole thing.” In-N-Out doesn’t use paid endorsers, but word-of-mouth praise regularly flows from the mouths of A-list celebrities. When former Tonight Show host Conan O’Brien asked Tom Hanks what he recommended doing in Los Angeles, Hanks replied,” One of the true great things about Los Angeles is In-N-Out Burger.” Paris Hilton famously claimed she was on her way to In-N- Out when she was pulled over for a DUI. And paparazzi have snapped shots of scores of celebrities getting an In-N-Out fix, including Miley Cyrus, Selena Gomez, Christian Slater, and Nick Jonas. The fact that such celebrities aren’t paid to pay homage to the brand underscores that In-N-Out is truly a hip place. A Questionable Future? Many analysts have questioned whether or not In-N-Out can sustain its unwavering 65-year run. For example, the company that had been run only by Harry, Esther, or one of their two sons for its first 58 years hit a barrier in 2006 when Esther Snyder passed away. The only direct descendant of the Snyder family at that time was 23-year-old Lynsi Martinez, who was not yet in a position to take over the company. That left In-N-Out in the hands of Mark Taylor, the former vice president of operations. But as directed by Esther Snyder’s will, granddaughter Lynsi took over as In-N-Out’s sixth president in 2010 before her 28th birthday. Often described as shy, Martinez has progressively gained ownership of the company and will have full control in 2017. The changing of the executive guard has gone largely unnoticed by customers and fans, an indication that the In-N-Out legacy carries on. With long lines still snaking out the door of any location at lunchtime, demand seems as high as ever. “The more chains like McDonald’s and Burger King change and expand, the more In-N-Out sticks to its guns,” says the analyst. “In a way, it symbolizes the ideal American way of doing business: Treating people well, focusing on product quality, and being very successful.” In-N-Out’s customers couldn’t agree more. When it comes to fast-food chains, delighted customers will tell you, “There’s In-N-Out, and then there’s everyone else.”

1. Conduct a SWOT analysis on IN-N-Out burger based on the evidences on this case. Do you think IN -N-Out should adopt a high growth strategy? Why or why not?