Lessons From In-N-Out Burger
I recently spent some time in California and, naturally, ate at In-N-Out Burger. While I admire their burgers, I really admire their business. After reading Stacy Perman’s book In-N-Out Burger: A Behind-the-Counter Look at the Fast-Food Chain That Breaks All the Rules I thought I’d share some of the business strategies that made In-N-Out successful.
Be at the right place at the right time.
Harry and Esther Snyder started In-N-Out Burger in Baldwin Park, CA in 1948 — 73 years ago. Though their burgers were (and still are) superb, their timing was impeccable. In-N-Out benefitted from powerful tailwinds in the post-WW2 economy.
First, California’s population exploded. GIs that had passed through California on their way to the Pacific decided to relocate to L.A. after the war. Between 1940 and 1950, California’s population rose 52%, from 6.9 million to 10.5 million. Between July 1945 and July 1947 alone, more than a million people resettled in California.
Baldwin Park’s low cost of living made it one of the fastest growing communities in L.A. By 1948, its population had already doubled from it’s pre-war population. It went on to double again over the next 8 years.
In 1948 Southern California was also the most heavily motorized place on the planet. There were already over 1 million cars in L.A. in 1940—five for every four families. Eisenhower’s interstates only threw fuel on that fire.
During WW2, women entered the workforce to fill the empty positions soldiers left. After the war, many women continued to work, leaving less time for food prep at home. The on-the-go lifestyle Baldwin Park’s factory workers created steady demand for fast, cheap food.
The best businesses don’t just have a great product. They’re also in the right place at the right time. In Outliers, Malcolm Gladwell points out that Bill Gates wasn’t just a genius. He also happened to go to one of the only schools in the country with a computer he could practice programming on.
The best business is a royalty on the growth of others.
In-N-Out benefitted from the government’s investment in driving infrastructure without having to spend a dime on roads.
Similarly, Apple benefitted from AT&T and Verizon’s wireless network. Facebook benefitted from Apple’s devices on that network. Neither Apple nor Facebook have any debt, because they didn’t build any infrastructure. Meanwhile, AT&T and Verizon carry a combined $301 billion of long-term debt.
It wasn’t just In-N-Out either. Virtually all of today’s dominant fast food chains started between the late ‘40s and early ‘60s: McDonalds (1940), Jack In The Box (1951), Burger King (1953), Sonic (1953), Taco Bell (1962), Arby’s (1964), Subway (1965), Wendy’s (1969), and Popeye’s (1972).
Let your customers do your marketing for you.
Harry Snyder believed that “the product—if it’s a good one—should sell itself, and everything else is smoke and mirrors.”
Unlike its fast-food peers, In-N-Out rarely pays for advertising. Word of mouth has always been sufficient to deliver huge opening-day crowds at new stores. As In-N-Out’s onetime chief financial officer Steve Tanner once said, “If you have to tell somebody you’re something, you’re probably not.”
In November 2020, In-N-Out’s first Colorado location drew lines 1.5 to 2 miles long, according to the NY Post. They sold 60,000 burger that weekend, with customers waiting up to 14 hours for one.
Rather than spend time and money on marketing, In-N-Out spent it on great real estate. By strategically placing In-N-Outs along freeway off-ramps, the store’s yellow boomerang arrows funneled travelers inside. Buying that real estate decades ago continues to pay dividends today.
Do one thing and do it the best.
In-N-Out’s menu is spartan. They sell three types of burgers, fries, milkshakes, soft drinks, and lemonade. That’s it. The menu has hardly changed since Harry Truman was president.
Harry Snyder’s philosophy was to “keep it real simple” and “do one thing and do it the best.” This reminds me of Charlie Munger’s advice to “Take a simple idea and take it seriously.”
Harry’s Snyder’s son, Rich, who eventually took over In-N-Out, said: “It’s hard enough to sell burgers, fries, and drinks, right. And when you start adding things it gets worse.”
I’ve always felt this way about investing in the stock market. Plan vanilla, long-only, concentrated investing in U.S. stocks is hard enough (and lucrative enough). Why bother using leverage, derivatives, and shorting? Those complications only lead to blowups or burnout.
While most fast food chains are working around the clock to compete in the “chicken sandwich wars,” In-N-Out keeps their head down and continues making the best hamburgers they can.
The Details Matter
Harry Snyder refused to sacrifice quality for the sake of profits.
From the start, he was adamant about using only four to five slices of the thick, middle part of big, plump beefsteak tomatoes and onions. He demonstrated the same resolve when it came to using only the crisp inner leaves of the head of lettuce, throwing the rest away.
To this day, the lettuce is still leafed by hand, the sponge-dough buns are baked daily—and both the cheese and the ice cream for its shakes remain 100 percent dairy.
Harry was a micromanager, and expected every burger to meet his high standard.
Harry didn’t like sloppy burgers, either. There was a system for building the burgers; the secret sauce was spread generously on the bottom slice of the bun to prevent it from running off at the ends. That way it wouldn’t drip through the paper wrapping when customers went to eat it.
When it came to grilling the burgers, it was one minute on the first side and two minutes on the other so as not to lose the juices.
When cooking the fries, the fryer was kept clean and floating pieces removed quickly. Salt was to be shaken while holding the container at shoulder length to ensure evenness.
Buns were lightly toasted before the meat and onion were added, and each burger received two slices of tomato.
Only those tomatoes that fit five wide in a specially designed box were deemed the right size for In-N-Out.
In 1963 the fast food industry began shifting from fresh to frozen beef. Frozen beef allowed the chains to open stores further from distribution centers and grow even faster.
Harry Snyder did the opposite. First, he tried to operate his own cattle ranch so that’d he’d have total control over supply of beef. But, In-N-Out didn’t have enough scale to justify the costs. So Harry did the next best thing. He built a butchering facility in Baldwin Park where his suppliers could deliver uncut beef.
There, In-N-Out’s butchers boned and hand-cut the chuck’s front rib and shoulder. Harry insisted that any other cut was sub par and unusable. The select cuts were ground and molded into hamburger patties before shipping fresh to stores.
The Snyders were equally fanatical about their french fries.
Burlap sacks of whole, fresh Kennebec potatoes specially grown for In-N-Out arrived in Baldwin Park and were distributed to each store where they were washed, peeled, cut, and cooked in cholesterol-free, 100 percent vegetable oil. Frequently, the potatoes were picked in the morning and delivered to In-N-Out the same evening. Harry made sure to scrutinize the freshly delivered sacks. They were inspected for starch content and a test batch of fries was made up right away. If the potatoes weren’t up to muster, the whole truckload was rejected.
When cooking the fries, the fryer was kept clean and floating pieces removed quickly. Salt was to be shaken while holding the container at shoulder length to ensure evenness.
Share the wealth with employees.
Harry Snyder believed in paying for quality, and that included wages. In-N-Out has always paid above-average wages while offering a full suite of benefits. Most importantly, In-N-Out promotes from within, which means entry-level positions aren’t dead-end jobs. This reminds me of Costco, which also pays up for quality employees.
In-N-Out jobs are in high demand. “When in 2002 In-N-Out opened a new drive-through in the coastal town of Oxnard (a forty-minute drive south of Santa Barbara), there were nine hundred applicants for seventy positions.” In-N-Out is not drawing from the same talent pool as McDonald’s, which gives it a leg up.
On average it takes five years for an entry level employee to become a store manager. There are no other route to that job but climbing up from the bottom.
Unlike other fast food chains, store managers at In-N-Out man the grill. “The company considered a grill position a highly skilled job. After all, it was the altar upon which the whole enterprise rested. It was a very intricate operation, since every single burger was made to order—a beef patty did not go down until an order ticket went up. It required a tremendous amount of coordination and speed, requiring three to six months just to learn to operate and manage.”
In-N-Out’s promote-from-within policy has preserved the company’s culture, but limited its growth. In-N-Out will only open a new store after someone has moved up to the store manager position. Harry was adamant that In-N-Out never grow faster than its management strength allowed.
As a result, In-N-Out’s “managers maintained an average tenure of fourteen years, while its part-time associates remained, on average, two years. The result was a corporate culture operating in stark contrast to the competition’s systems.”
Treat suppliers like you would want to be treated.
As long as In-N-Out’s suppliers maintained the quality and integrity of their products, Harry Snyder was willing to work with them on everything else. When prices spiked or plunged because of weather or disasters, In-N-Out always absorbed the cost.
When In-N-Out’s distribution warehouse burned down one night, In-N-Out’s suppliers paid Harry back by taking care of him. Instead of delivering suppliers to In-N-Out’s one warehouse, the company’s suppliers began delivering supplies to In-N-Out’s individual stores. That act of kindness may have saved the chain, which was totally dependent on its single distribution center for everything.
Turn cost centers into profit centers.
As In-N-Out expanded beyond its Baldwin Park store, Harry Snyder saw an opportunity to cut costs. He started Snyder Distributing so that he could buy small paper goods, like plates and napkins, in bulk at wholesale. In-N-Out was too small to absorb wholesale quantities on its own, so Harry began selling supplies to In-N-Out’s competitors. Snyder Distributing allowed In-N-Out to reap the scale advantages of a much larger company while also creating a new profit center.
Amazon and Alibaba are the kings of turning expenses into profit centers, which they’ve done most notably with their cloud businesses. This might seem like an obvious strategy on paper, its extraordinarily difficult to execute and requires a cohesive, entrepreneurial, and open-minded culture. Few businesses have the requisite culture, but the ones that do are extraordinarily valuable.
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Thanks for sharing this really nice summary, Matt! PS: I really admire and love the business as a customer. Dunyu Liu, Austin, TX.