Why In-N-Out Burger is impossible to compete with

In-N-Out Burger is perhaps one of the craziest business stories of the 20th and 21st centuries. They've done it by basically breaking every single rule. They don't franchise, they don't advertise, but yet still their average store out-earns your typical McDonald's. Story of a chain that refuses every single thing business school tells you to do, and they're killing it. The reason behind this isn't about the cult fans or the secret menu. It's about some things that nobody talks about. And that is the subject of this here video. Let's dig in. To why In-N-Out Burger is so dominant. Oh, and by the way, thanks to Fora for sponsoring this video.

More on them later.

Story actually starts back in 1948 in Baldwin Park, California, at the intersection of two streets, one of which is now called Interstate 10. And at this corner is a burger shack opened by Harry and Esther Snyder the same year they got married. He uses a speaker box, Harry does, in order that people can drive up and speak their order to the kitchen and not have to walk around. It's one of the first drive-throughs in the entirety of California, if not the country. And it's where In-N-Out come. You come in, you speak, and you get out. While other folks like the McDonald's brothers were focused on speed and efficiency, Harry was focused on something entirely different: freshness. Beef was never frozen from day one. In fact, Harry would personally inspect the beef that would come from their suppliers. They did the same thing with potatoes that they used to make the french fries in store. The whole store had 4 items: hamburger, cheeseburger, fries, and shakes. It's easy to think the tiny menu was laziness. Turns out it was entirely strategic and key to their success that we'll see later on in this video. When Harry died 28 years later in 1976, they were still a tiny chain. McDonald's at this point had over 4,000 stores. In-N-Out, just 16. It was the same era, post-war boom America, and Ray Kroc was betting and going big, franchising and pushing hard. And the concept for it and In-N-Out Burger and McDonald's had both emanated out of California, just taking two very different paths. It took a while, as you can you can tell from the movie they did about the story, The Founder, uh, Ray Kroc eventually understood that McDonald's wasn't in the burger business. They were in the land business. Today, McDonald's makes most of its profits by owning the land underneath its franchisees, and it works. But In-N-Out did exactly the opposite. They quietly controlled everything from the land to the stores to basically every single part of the supply chain. They are the most asset-controlled quick-service restaurant chain in America. Everybody else uses other people's money, or at least leases their spaces. In-N-Out, totally different. While most people in the burger business were franchising, and so every burger sold helped those franchisees make more money, here In-N-Out did something different. Every burger sold was building the family's balance sheet. Harry dies, the whole thing passes to his son, Rich Snyder, who's 24 years old at the time. For the next 17 years, Rich would run his dad's playbook, quietly building them out to over 90 stores. He just kept doing the same thing that Dad had been doing and taking it a little further, making things better by running a, basically equivalent of a burger university, and even starting to put Bible verses on the cups. Rich was the very first person to prove two things for In-N-Out. One, that the whole thing could survive generational change, but the second was that you can scale a business like In-N-Out Burger without ruining it. Then on December 1993, something horrible would happen that would change everything. The plane that he was in returning from one of their new store openings, it would crash before it landed at John Wayne Airport in Southern California. And here, by any measure, he was a visionary. Where he had proven that the company could grow without selling out. And here he was, taken too soon. It's an interesting question to ask what would happen if Rich had lived for another 20 years? Would he have gone down the path of franchising as we've seen from other, like, basically stories on this channel, like Din Tai Fung, where the next generation eventually decides to change things? Or would he have just kept going? We don't know. But Rich's older brother Guy steps up. And there was a problem with Guy. But before we get into that, I wanna talk about today's video sponsor, Fora.

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He loved thrill sports, including motor racing, and that had caused him to have injuries that would turn into a painkiller addiction. Even still, he continued to grow the chain, playing the same playbook his brother had run and before that, his dad and mom. He grew it to 140 stores. And then come 1999, basically something horrible would happen. Guy would die at 48 of an accidental overdose made worse by having a heart condition. In 6 years, both of the founder's sons are gone. So all that's left at that point is the matriarch, Esther. She steps in over the next 7 years and runs the chain alongside trusted advisors. Yeah, girl power. Pretty awesome. When she would die in 2006, there would only be one Snyder left standing. The daughter, Lindsey. Before we get into what happens with her in the 2000s, which is super interesting, let's talk about what the internet says about In-N-Out Burger. And most people look at the social media and the way people talk about the chain and think the cult following is about the special menu and the little games they they play in the kitschy kind of decor. But it turns out that's the symptom, not the actual cause. Because they made the decision that the beef is always fresh and never frozen, and the lettuce always comes from their own commissary, that means their expansion is limited. Each store has to be within a day's drive of one of their distribution centers. In fact, In-N-Out takes it to such an extent that they want to control their ingredients and customer experience that no third party ever touches any of their ingredients. Run their own produce systems, their own distributorships and tech, even processing their own beef sometimes. This trade-off means they have a limitation. They physically cannot open a store without a driving distance of one of these distribution centers. The second choice they made was inside the stores themselves. There are no microwaves and no heat lamps. Means you can't cheat even if you want to. You can't make something and have it sit there under a heat lamp tasting worse and worse minute after minute. At the same time, the ingredients that go into it, I mean, you only have one choice. Make it fresh in the store when the customer orders and make it good. A few weeks ago, I did a story on this channel about Taco Bell. They brought in a big MBA, basically like spreadsheet jockey to take a look at the spread— the Taco Bell organization in the '80s and '90s. And basically his insight was that Taco Bell was in the food assembly business, not in the cooking business. If that same guy would walk into an In-N-Out Burger, he'd see a million ways that they could cut inefficiencies out of what they're doing. Everything from adding microwaves and heat lamps to freezing the beef and preparing it someplace else. When somebody that's one of these spreadsheet jockeys would look at In-N-Out Burger, they would think they have a cost problem. When In-N-Out Burger looks at this situation, they see a feature of their operation that sets them apart. But ultimately, this becomes a moat around their business. People cannot compete with In-N-Out Burger because they're just not set up and they haven't made any of these decisions that In-N-Out Burger has. Going to a McDonald's, it looks like you're buying a burger from a factory. Go to an In-N-Out Burger, it looks like a kitchen. Even if McDonald's or Burger King or Wendy's wanted to compete with In-N-Out Burger on freshness and taste, they can't. It's just impossible. They'd have to change everything about their business. At the same time, while somebody who's franchising like crazy, like a Burger King or a McDonald's, can expand crazily by geography because they don't have to be near distribution centers, the decisions that In-N-Out Burger have made means they can only expand slowly. If you go look at advertisements for McDonald's routinely, they'll be telling you about how the McRib is only available for a certain time. They have to create it through marketing. In-N-Out Burger designed their whole business around being scarce and hard to come by. Now, if you look at some things like Chick-fil-A or In-N-Out Burger, who have high average sales per store, one of the things McDonald's franchisees or people who are in the loop with these other companies will tell you is they— McDonald's, for example, doesn't let their individual stores get as much sales per store as an In-N-Out Burger does. That's because, well, they'll just open a new store. They've discovered that gets them more total revenue. That's the franchise model for you. On the other end of the spectrum, In-N-Out Burger owns everything, including the stores themselves, so they're happy to have highly producing pieces of real estate, why would they have to buy another one? They can just have one more producing a lot more profit for them. So they're very happy. The benefit of this is a crazy thing, which is there's typically lines out the door at an In-N-Out Burger because there's not as many In-N-Out Burgers per capita. And suddenly, if you're like me and you drive past an In-N-Out Burger and you wonder, man, why is that line so long? It's because it's all designed that way. That line is part of their marketing budget, basically. So one of the tough things in making this video was actually getting real numbers. If you look at a McDonald's or a Burger King or even, you know, any one of the other kind of burger, Five Guys, or any of that stuff out there, a lot of stuff's publicly available. It's either in franchise disclosure documents or you can find it basically through public filings, through analysts talking and that sort of thing. With In-N-Out Burger, well, it's hard. So a lot of the numbers I have for this are from Restaurant Business magazine and stuff like that, and analysts kind of making some educated guesses, having talked to managers or just standing outside of an In-N-Out Burger counting cars. But here's what we do know. In 2023, your typical In-N-Out Burger was doing $5.3 million in sales per location. That number was growing again. In 2024 to closer to 6. A US McDonald's might do $3.8 million in revenue per store. A Five Guys, well, you can check my video on them. Not good. $1.5 million. McDonald's will run about 100 different combinations of menu items per store. A typical In-N-Out Burger, 4. And across the 400 locations of In-N-Out Burger in 2023, they did $4.1 billion in sales, plus or minus. McDonald's, on the other hand, spends over $1 billion a year on advertising. Everything from the Super Bowl to, well, Hey guys, McDonald's, if you want to advertise on a YouTube channel, I will gladly take your money. Meanwhile, In-N-Out Burger, well, they don't spend hardly anything on advertising. It all goes back into product and people. In-N-Out Burger pays their people really well, $22 to $23 as starting wages, above even the recently legislated minimums in California. Typical manager of an In-N-Out Burger can make $180,000 or more, plus profit sharing. And how do we know that? Well, Lindsey included it in her book. Traditional wisdom says you can't charge low prices and pay people well. But In-N-Out Burger, they buck that wisdom. While a typical fast food restaurant turnover might be 130-150% per year, In-N-Out Burger has people stay for decades, if not longer. This is similar to what you see with Chick-fil-A, right? Their managers get paid incredibly well, but they work super long hours. And basically In-N-Out Burger has realized they can do the same thing. Higher wages attract better people, which means better customer service, which means happier customers, which means you sell more. And the whole cycle goes on. Of course, the whole secret menu thing plays into the cult aspect of this, but none of it would matter if the product wasn't great and the service wasn't terrific. And whether In-N-Out Burger knows it or not, this secret menu, Animal Style, the 4x4, all that kind of stuff, it's actually an initiation ritual to encourage you or me to feel like we're part of the club that, well, is part of the internal family of In-N-Out Burger. And we get it. This menu actually turns into something beautiful in the era of social media, in which people are going out and sharing with their friends, "Hey, like, get the animal style, like, this is the one I get," and then going out on social media and posting about it, sharing it with their friends. Suddenly customers feel like they're initiated into a secret club rather than just being a, well, customer. And remember how Harry back in 1948 had designed the entire menu with just 4 items? Well, that makes it easier to train employees, and fewer items means it's easier to prepare them all really, really well. Let's go back to Lindsay. Remember, she had been the third choice after her brothers, and then her mom took over. And it's easy to think that she should have been underestimated. But the founders, the Snyders, they saw this coming and actually put her ownership in a trust. She would unlock it as she spent time at the company and aged up. She got 50% at age 30 and more of it as she turned 35. Lindsay could have cashed out, but it was impossible for her to do that because of this creative estate planning. Here were the Snyders over and over again since 1948 thinking long term. And, you know, after their death, they will continue to do that. If you walked in tomorrow and said, hey, I own In-N-Out Burger and I want to take it public or cash out and sell it to private equity, those bankers would have fallen over themselves more than they did on Elon Musk's recent SpaceX IPO. Shake Shack had gone public back in 2015. The Five Guys stuff had sold out as well. You could see my video on that. People hate Five Guys prices, just by the way. And Whataburger did the same. They sold out to private equity in 2019. Located here in San Antonio, by the way, just like my hat. I'll give credit to Lynsi. She said no to all of it. She lost her brother in a plane crash, her parents were gone, and her other brother had died because of, well, drugs. Arguably, any of those other choices that the other burger brands had made would have arguably ruined In-N-Out Burger. Franchising would have meant a loss of control of quality and a pressure to expand even faster. Private equity would have meant cost pressure and eventually things like frozen beef and old lettuce. It's not just that going public or selling would have changed you know, the company itself, it would have changed the burgers. To some extent, that's why In-N-Out Burger just works. But I know what you're thinking. Michael, if In-N-Out Burger does all this owning the restaurants, I heard Chick-fil-A also franchises. What's the difference? Turns out Chick-fil-A operates a lot like In-N-Out Burger does because their franchising model doesn't operate like everybody else's. McDonald's, the franchisee owns the bur— the building, the equipment, all the labor, takes all the risk. At a Chick-fil-A, it's very different. Chick-fil-A just asks the managers and the franchisees to put in $10,000 and they're partners in individual— each individual location. While Chick-fil-A puts up all the money, just like In-N-Out does. But just like In-N-Out Burger treats the managers like partners, so does Chick-fil-A. They can only own one particular restaurant as a franchisee and they can't pass it on to their kids. That's why Chick-fil-A legally is a franchise system. But in practice it operates much more like a business partnership or with an employee who has upside on what happens in each individual location with some strict limits. And look, it works for Chick-fil-A. They're at $21 billion plus or minus in sales. But in the end, they're just a different flavor of what In-N-Out Burger is doing. And together, both of them show the power of what happens when the people working in the business think and feel like they're owners. Both Chick-fil-A and In-N-Out Burger make their store managers feel like owners. And they get paid for it. They just did it in different structures. Two, two sides of the same coin, basically. Lindsay, by all matters, has run the chain incredibly well. She doubled the store count to nearly 400, and in 2023 did something pretty amazing. She announced that she was moving the company headquarters near one of their supply hubs in Nashville, Tennessee, a far push away from where it all started back in 1948 in California, where the company had been headquartered since then. Tennessee's gain was California's loss. But it's important to note how Lindsay did this. It wasn't like moving to Tennessee and expanding there, just like they did recently here in Texas in the past few years, was any different than had been done before. Methodical and continuing the model just the way her parents had set it all out back in 1948. A lot of this also ties back to how her brother had been putting Bible verses on the cups. Lindsay herself is also very conservative. In fact, those Bible verses are still on the cups. John 3:16. And that brother who had died from drug addiction, those Bible verses, and the way the company approached everything, including Lindsey's politics, well, they're woven into the entire way In-N-Out Burger operates. Lindsey had had every opportunity in the world to cash out, reinvent the company, rethink what her ancestors had done. But instead, the smartest thing she did, perhaps, was just continue to do things the way that it always worked. The entire story of In-N-Out Burger is basically going against every bit of common wisdom that modern business thinking tells you to do. Maximizing debt, selling out, using other people's money, cutting out and thinking for the short term rather than the long term. And some people may say the move by In-N-Out Burger to Nashville was about saving taxes. The tax rate is lower in Tennessee. But the interesting thing about conservatism and where the word comes from is actually you want to conserve values and ways of doing things from the past rather than, you know, push forward. There's some things in the era of conservatism or thinking about conservatism worth maintaining and keeping around. And ironically, this idea of conservatism may be just what makes In-N-Out Burger totally work. Refusal to steadfastly change from things that have always worked for this particular family. The reality is one of the most difficult things to do when you're a passionate entrepreneur is to not meddle with things that are absolutely working. If something's going great, your job is not to make it better. A lot of times it's just not to screw it up. In other words, just doing more of what works really well rather than just chase the next shiny object. And that's perhaps the genius of Lindsey Snyder. All right, if you're a fan of In-N-Out Burger, let me know in the comments below. And if you enjoyed this, also let me know in the comments. It'll encourage me to make more. See ya. Oh hey, one more thing. I realize I may have accidentally referred to Lindsey as the daughter of the founders. She's Guy's daughter. So sorry about that. I was thinking, oh man, I should correct that. So here you go.