case study Cafferky 2 – The Burger War: In-N-Out Burger

Read the case study Cafferky 2 – The Burger War: In-N-Out Burger and provide an initial response to the study (300-word minimum) covering the following at a minimum:•Valuable business practices•Practices or ideas you disagree with•Case Study Discussion Questions •Reflections on management principles found within the information presentedIdentify the trade-offs that In-N-Out is making with its strategy, as well as any likely long term ramifications associated with that strategy.Cafferky, M. E. (2012). Management: A faith based perspective.Boston, MA: Pearson. ISBN: 978-0-13-605834-2The Burger War: In-N-Out BurgerIt is late afternoon in early May 1948 somewhere near Baldwin Park, California, a suburb of Los Angeles. The school year is almost over and you can’t wait for summer. Your high school principal has just done something that “sticks in your craw” (makes you angry). One of your friends “got the shaft” (received severe and unfair treatment) after a “punk” (rebellious person) opened his “big yap” (mouth) about something that happened in the locker room after gym class. But what can you do about it except study for those final tests coming up in a few days?In L.A. County in 1948 there’s a lot to do. First, you need to get with your friends to talk about old principal “What’s His Name” and that punk who should have been minding his own business. You could hang out with the “cool cats” who are walking around downtown—hipsters who “dig” (enjoy) jazz music. Or, because you “got your boots on” (know what is happening),and want to “make the scene” (show up at the popular place),you put on your cool “threads” (popular clothes) that everyone will be wearing, comb your hair into a ducktail (for guys) or a pageboy (for girls), borrow your parents’ car, and tell them that you need some “bread” (money). If they give you money and the car, you can “fade” (leave home for a while), pick up your friends, and drive them down to the Snack Shack “hop” or “joint” (fast-food restaurant) for some good food. At the drive-in hop you crank up the volume on the car radio to hear the new musical sensations that later would come to be known as Rock ’n Roll. Songs such as “Guitar Boogie” by Arthur Smith and the Crackerjacks and “We’re Gonna Rock. We’re Gonna Roll” by Bill Moore entertain your friends. Hop servers wheel around your car on roller skates carrying car window trays as they fill orders for customers seated in their cars. History and Strategy. In 1948, times are changing but the owners of drive-in hop restaurants across the country don’t realize it yet. In southern California, the soon-to-be-epicenter for the fast-food industry,consumers are becoming increasingly dependent on cars to commute farther and farther away from home to work. Down the street in the city of Baldwin Park, Harry and Esther Snyder are opening what may be the nation’s first drive-through fast-food restaurant, which they name In-N-Out Burger. That same year, not too many miles away in San Bernardino, another entrepreneur is experimenting with a similar idea at a restaurant he calls McDonald’s. Customers order at a menu board and a two-way speaker system and then drive to the pick-up window to pay and receive their food. The In-N-Out menu offers only a few choices—a tradition that continues for decades. Its menu is still the narrowest of all its competitors. The atmosphere is clean and bright. The food is clean, fresh, and tasty. Each burger is made to order with 100% fresh ground beef—no freezers, no microwave ovens. Lettuce and vine-ripened tomatoes are delivered fresh daily, washed, and prepared by employees. Burger buns are baked fresh daily. Potatoes are shipped to each In-N-Out facility in burlap bags. Employees manually clean and slice the potatoes, which are then fried in vegetable oil. Preparing fresh food takes a little extra time but customers don’t seem to mind waiting in line a couple of extra minutes. Harry and Esther do not rush to open more stores immediately even though the idea of drive-throughs was catching on not only in the fast-food business but in other types of retail stores, too. Three years pass before the Snyders decide to open a second In-N-Out Burger. They decide to maintain private ownership of their company instead of forming a franchise organization—the opposite strategy compared to the strategy pursued by the McDonald’s chain. It is not that they didn’t have opportunities for franchising. It’s that they turned down all the requests. They maintained their staunch resistance to franchising to control product quality. The practical reality of this meant that at first they could expand only in southern California, managing the growth slowly enough to maintain the level of quality that drive-through customers came to expect. This philosophy rubbed off on the mindset of the Snyder’s two sons Guy and Rich, who were also involved with the family business.But grow they did. By 1976 the family owned 18 drive-throughs. In that year Harry Snyder passes away from cancer. Their son Rich, only 24 years old, assumes the role of president, and his older brother, Guy, becomes vice president. Esther continues as the accountant. The In-N-Out menu consists of just three types of burgers: the traditional hamburger, the cheeseburger, and the Double-Double, which is essentially a double cheeseburger. They also sell French fries and three flavors of milkshakes—made with real ice cream. Other beverages sold include milk, coffee, lemonade, and flavored sodas. A few years after the company was established the only change to the menu is the addition of “The Animal”—a Double-Double with grilled onions and extra sauce. While most fast-food restaurants change their menu options to attract customers away from competitors, In-N-Out keeps its menu simple and relatively unchanged. During the early years of its history, McDonald’s also maintained a simple menu but that changed in the 1990s when the burger wars broke out. Since1955, McDonald’s has added over 30 new menu items. In the late1990s, McDonald’s experimented with making custom orders, but this proved to be very difficult to accomplish across more than 13,000 facilities nationwide for a franchise that is built on speed and pre-made food. In-N-Out stays with its simple-menu, fresh ingredients, and cooked-to-order strategy. In essence, it trades off menu choices for consistency of quality and inventory control, not to mention complete control over the entire business. This reliability became something that its customer base could count on. Over the years In-N-Out Burger has developed what some call a “cult following.” This has helped it avoid several temptations that other fast-food chains have caved in to: price wars, trying to be all things to all people, and, consequently, menu development wars. As a result, In-N-Out’s customer loyalty has remained strong (or increased) and its profits have grown. It doesn’t have a kid’s menu; its products are as unhealthy(in terms of saturated fats) as the next burger joint. But it sells tasty burgers with the freshest ingredients. The simple menu doesn’t mean that customers have only three choices of burgers, though. In-N-Out Burger managers became trained to offer customers customized versions of the standard menu—a responsiveness that has contributed to customer loyalty. A secret code or hidden menu has developed between In-N-Out facilities and their customers that, in essence, expanded the menu options for sandwiches several times with-out changing the basic ingredients needed. Knowledge about these hidden menu items are passed through word of mouth. For example, carbohydrate-conscious customers can order the“Flying Dutchman,” which is two 100% ground beef patties and two slices of cheese but no bun. Customers also can order the “Veggie Burger” (a.k.a., “The Wish Burger”), which is just lettuce, tomato, and spread on a burger bun but no burger. If you want two beef patties and four pieces of cheese and the rest of the fixings, then just order the “2 by 4.” A grilled-cheese sandwich is not on the menu, but you can order that, too. In-N-Out Burger developed a reputation for treating its employees with respect and dignity. Most jobs are entry level, but in spite of this the company pays above minimum wages. The fast-food industry is known for its high turnover rates, and while In-N-Out faces this same challenge, some employees have remained with the company for as long as 20 years, and some entry-level employees stay on and work their way up to managerial positions. With the expansion of stores and the growth in popularity of the fast-food market among consumers, Rich and Guy needed to make some changes that would contribute to better efficiency. Soon after becoming the new leaders after their father’s death, they established a fresh-food receiving and distribution facility (“commissary”) located in Baldwin Park that serviced all of their retail locations. In 1983 they created the In-N-Out University, an intensive training program for employees.Better trained employees and its own distribution facility for food products enabled In-N-Out Burger to serve more customers faster. But the increased volume of customers served at each facility had an unintended consequence: The line of traffic could get so long that in some locations it created traffic jams that became a problem for city officials. As word got around from city to city about the success of In-N-Out Burger, city officials became more hesitant to issue building permits for new In-N-Out stores. One result of this, other than keeping the growth curve slow, was that Rich and Guy decided to build facilities with small parking lots and offer inside and outside seating for customers who did not want to wait in line in their cars.These efforts paid off. By 1990, the family owned and operated 55 facilities in Los Angeles and the surrounding counties. Between 1990 and December 1993, 38 more facilities were added in other parts of California. In December of that same year, Rich Snyder and several other high-ranking company leaders died when their private plane crashed at John Wayne Airport in Orange County. After his brother’s death, Guy Snyder took over the leadership of the company and moved the corporate headquarters to Irvine, California, a move that had already been planned. Guy headed the company until his death in 1999. By 2003, the chain had grown to over 170 locations in a few Western states and was still growing. In 2003, average annual gross revenue per facility was $1.6 million dollars, which is twice as great as other similar fast-food chain stores generate. Total annual gross revenue is over $200 million dollars. McDonald’s earned $40 billion dollars the same year.In the mid-1980s Rich Snyder, who was deeply religious, instituted the practice of printing Bible verses on product packaging. There are four different verses printed in different places:•Soda cups: John 3:16 “For God so loved the world, that he gave his only begotten Son, that whosoever believeth in him should not perish, but have everlasting life.”•Burger and cheeseburger wrappers: Revelation 3:20“Behold, I stand at the door, and knock: if any man hear my voice, and open the door, I will come in to him, and will sup with him, and he with me.”•Milkshake cups: Proverbs 3:5 “Trust in the Lord with all thine heart; and lean not unto thine own understanding.”•Double-Double wrapper: Nahum 1:7 “The Lord is good, a strong hold in the day of trouble; and he knoweth them that trust in him.”After Rich died in 1993 the company continued the practice out of respect for him. Other traditions have continued, too. Most In-N-Out Burger facilities present two crossed palm trees on the property. Employees use large safety pins to hold their aprons in place. This is a holdover from the early days when Harry Snyder ran the restaurant and used large safety pins on his apron. They are used today to remind employees of the heritage and the valuest hat Harry stood for. By 2006 In-N-Out Burger owned and operated 202 restaurants. But in January that year, Richard Boyd, vice president of real estate and one of the members of the Snyder family trust, filed suit against Lynsi Martinez, the 23-year-old granddaughter of Esther Snyder and sole surviving descendant of Harry Snyder. Boyd had been asked to resign in 2005, but he refused. Then in September 2005 he was given written notice that his employment agreement would not be renewed. Boyd claimed in his lawsuit that Martinez was trying to remove him to gain control of the family business. Allegedly, one reason Martinez wants to gain control of the firm is so she can take the iconic brand national. If she did this, then she would be taking the company in a direction that was directly against the wishes of the Snyder family and in particular Esther Snyder, who by now was in her 80s. When Lynsi Martinez turns 35, she stands to gain control of the family trust valued at over $450 million. Among other things, Boyd claimed that In-N-Out Burger leaders told company employees that Boyd was “a thief and unethical.” Further, he alleged that they had excluded him from management meetings and denied him access to company security clearances and company documents. Company officials allegedly hired an outside accounting firm to investigate the finances of Boyd’s department. In his lawsuit Boyd sought monetary damages, reinstatement of his employment agreement, renewal of security clearances, and access to company documents. He also sought an injunction prohibiting company executives from excluding him from trustee meetings and from paying company vendors discount prices for personal projects. In a countersuit, In-N-Out Burger executives charged Boyd with fraud, embezzlement of company funds, and disclosing confidential company information in his lawsuit. On April 5,2006, a Los Angeles court judge ruled that two of the In-N-Out countersuit claims—breach of contract and breach of fiduciary duty—violated Boyd’s free speech rights.In May 2006, both parties came to a secret settlement over the dispute. Whether the allegations are true will never be known because both parties agreed not to talk about the details to the public. Under the terms of the settlement, Boyd will no longer be involved in the company or the Snyder family trusts. Vice President Mark Taylor (also one of the Synder family trustees and Lynsi Martinez’s brother-in-law) stated after the settlement was reached that the company’s strategy is to continue its slow growth by adding 10 to 12 new stores each year for the next 5 years. Industry experts believe that the lawsuit will not have a lasting effect on the company’s future. They cite the company’s strong cult-like customer loyalty as one of the reasons for this.Case Study Discussion Questions.1.Comparing McDonald’s and In-N-Out Burger, which company is likely to have the fewest supply-chain management headaches to deal with? Why?2.Evaluate In-N-Out’s long-term strategy. Should it develop a franchise program to expand nationally?3.What are some of the trade-offs In-N-Out is making with its strategy?4.Evaluate the company’s strategy to express the faith of Rich Snyder. How effective is it? What alternatives exist for expressing faith at work at the corporate level?5. After the death of the founder and his sons, how likely is it that the corporate culture that supports Rich Snyder’s religious values will continue?6.Why is it that customers don’t seem to be offended by the openly religious theme used on product packaging?7.After the death of a key family member and leader of a private company, what do company leaders need to do to continue the company culture?8.Under what circumstances would company disunity harm the firm’s ability to pursue its economic strategy?9.Under what circumstances would company disunity weaken the firm’s ability to pursue its religious faith strategy? More information regarding In-N-Out Burger can be obtained at the company website, http://www.in-n-out.com