Looking to start a business but feel daunted by the competitive market? Investing in a franchise, particularly a fast food business might be the answer for you.
Why fast food? You might ask. Franchising a fast food chain is particularly lucrative. The global fast food industry was valued at USD 570 billion in 2018, is growing at a CAGR (Compound Annual Growth Rate) of 4.5%, and is projected to hit a whopping USD 998 billion in 2030. Now, you might think that running an In-N-Out Burger franchise would be a great investment, however, there are other factors to consider.
In this article, we are going to study and discuss In-N-Out Burger, its brand image, franchise opportunities, performance in market trends, and revenue generation.
Table of Contents
In-N-Out Burger- A Brief History
Overview
The mega popular In-N-Out Burger which is now a household name in the West Coast of the USA had humble beginnings. When the brand was founded by Harry and Esther Snyder in California in 1948, it was California’s first drive-thru burger stand operating in barely 10 square feet of space!
In-N-Out Burger has always prioritized the motto “quality is everything”. It is said that every day before dawn, Harry Snyder visited meat and produce markets to pick out products of the best quality, which he then prepared by hand. Even now, In-N-Out Burger pride themselves on their fresh ingredients and cooked-to-order food, and are famous for their “no frozen meat” policy.
The brand has been able to maintain a loyal customer base because of its consistency in quality. In fact, there was a four hour wait for food with news helicopters hovering above when one of their restaurants opened in Scottsdale, Arizona. Locals in Fisherman’s Wharf, San Francisco opposed every other chain restaurant except In-N-Out stating that they trusted the flavour of a decades-old, family-owned business.
Furthermore, the chain also has fans in a number of renowned chefs including Gordon Ramsay, Thomas Keller, Julia Child, Anthony Bourdain, Ina Garten, and Mario Batali.
Evolution and growth
Because of their dedication to quality, In-N-Out Burger gained the trust of the public and attained their well-deserved brand image. This helped the Snyders open five branches of their restaurants in just 10 years.
Until the 1970s, In-N-Out reminaned a regional brand in southern California; the reason behind this was that the Snyders wanted to closely manage their restaurants to ensure consistent quality. When Harry Snyder died in 1976, the restaurant was open in a staggering 18 locations, compared to their humble burger stand.
Presently, In-N-Out Burger’s annual revenue is USD 1.073 billion, and employs over 27,000 employees. The chain has expanded their business into more than 350 locations across California, Arizona, Nevada, Utah, Texas, Oregon, and Colorado, and is planning expansions into Idaho and Tennessee.
In the spirit of “what we do, we do well”, In-N-Out still maintains a simple menu of burgers made with the freshest meat, beverages and hand-cut fries. Unlike their major competitors, they have not expanded and diversified their menu to fit current popular trends. The chain may be worth billions of dollars today, but they have retained their original menu (with the exception of slight variations and inclusions) and preparation methods.
Significance in the fast food industry
Apart from being a major competitor, In-N-Out Burger has also made at least two noteworthy contributions to the development of the American fast food industry.
The drive-through system which is now an integral aspect of chain restaurants worldwide, was actually perfected and popularized by In-N-Out. Harry Snyder invented the two-way speaker mechanism and achieved his vision of serving customers without having them step out of their cars. This system revolutionized the fast food industry and is still used all over the globe by brands like Starbucks, McDonald’s, Wendy’s, and Dunkin Donuts.
In 1961, In-N-Out invented the ultra-famous “Animal Style” burger, which is now part of their “secret menu”. These burgers are prepared with the standard toppings but include extra spread and mustard fried into each meat patty. The Animal Style burger has become nothing short of a cultural icon as it has its own cult-following.
Buying an In-N-Out Burger Franchise
In-N-Out’s approach to franchising
Despite its size and reach, In-N-Out is still a family owned business. It is now owned by Lynsie Snyder, Harry and Esther’s only grandchild. Currently, In-N-Out Burger has chosen not to franchise or go public. It remains a privately owned business which has strict control over its business operations, and owns and manages the majority of its restaurants.
Cost of investing in an In-N-Out Burger franchise
As previously discussed, the brand does not offer franchise opportunities, so there are not costs associated with opening an In-N-Out franchise.
Explanation of In-N-Out’s decision not to franchise
Lynsi Snyder, In-N-Out Burger’s current owner and president has made several explanations as to why they don’t franchise.
Quality
Drawing upon her grandparent’s original ideology, Snyder has stated preservation of quality as one of the reasons. Franchising means more demand for supply, which could potentially compromise the quality.
Customer satisfaction
In-N-Out Burger is a customer-centric business. By localizing their business and having full control over it, they are able to maintain a good relationship with their customer base and maintain their loyal support.
Family owned business
In addition to not franchising, the brand has also not gone public, and has no future plans to do so. This might be because they want to continue the tradition of keeping the business in the family.
In-N-Out Burger – Revenue and Profit
As they are not a public company, In-N-Out Burger is not obligated to share their financial information publicly. Consequently, there are no official numbers on their revenue and profit.
Estimated profit
Even though the company hasn’t directly disclosed their profit numbers, there are some rough estimates on the revenue generated them based on market trends. A report from Wolf of Franchises estimates that the owner’s salary in In-N-Out Burger is about USD 4.5 million a year, which makes it more profitable than any other fast food business.
Alternatives to In-N-Out Burger
While In-N-Out Burger might not provide franchising opportunities, there are plenty of other equally successful fast food chains who do. Two of these alternatives are discussed below.
Five Guys
Five Guys is a privately-held American fast food chain which specializes in burgers, french fries and hot dogs. It is also one of the fastest growing food chains, its annual revenue being USD 1.71 billion. Similar to In-N-Out Burger, Five Guys has a “no frozen meat” policy and has a cult-following becasue of their high-quality food and signature feature which states that there are 250000 ways to customize a Five Guys burger.
Additionally, Five Guys is reputed to be a clean, family friendly despite most of its restaurants being franchise branches. With the help of its franchisees, the company has grown from just five restaurants to over 1500 in 16 countries. Franchising has been the key factor in Five Guys’ rapid growth and success rate.
How much does a Five Guys franchise make?
Since they are privately owned, Five Guys doesn’t post their financials. However, Wolf of Franchises has reported that existing owners of Five Guys franchises have revealed that the average revenue per restaurant ranges from USD 1 to 1.15 million.
How much does a Five Guys franchise cost?
If you are interested in owning a Five Guys franchise, here is a breakdown of the cost. The initial investment can range anywhere from $306,200 to $641,000.
Their one-time franchise fee is $25,000. In addition to the franchise fee, franchisees must also pay a royalty fee of 6% of gross sales and a marketing fee of 2% of gross sales.
The total cost of buying, owning and operating a Five Guys franchise is $306,200 to $716,250.
Smashburger
Smashburger is another American hamburger chain founded in 2007. They specialize in burgers, chicken sandwiches, salads, and sides. Despite being new to the party, they have more than 227 corporate and franchise-owned restaurants in 35 U.S. states and the District of Columbia and 2 Canadian provinces. Their annual revenue is estimated to range between USD 200 to 500 million.
As their name suggests, they are famous for their signature smashburgers which are made using their customized, metal smasher, designed to fit their patty size. Every burger is made using fresh meat, which is smashed onto a buttered, seasoned grill to caramelize the patty creating a burger like no other.
How much does a Smashburger franchise cost?
If you are interested in owning a Smashburger franchise, here is a breakdown of the cost. The initial investment can range anywhere from $941,000 to $2 million.
Smashburger’s franchise fee is $40,000, and in addition to that, you also need to pay an ongoing royalty fee of 5.5% of gross sales.
The total investment to open a Smashburger restaurant franchise ranges between $743,130 to $1,404,535.
Conclusion
As discussed earlier, the fast food industry is one of the fastest growing industries in the world. And gaining a foothold in the highly competitive market could be difficult. The franchise business could do away with those initial difficulties by giving you a head start by virtue of brand name and a loyal customer base.
Even though In-N-Out does not offer franchising options currently, it is important to note that business practices might change over time. Moreover, as exemplified by Five Guys and Smashburger, there is a plethora of growing fast food businesses to choose from.
