Wednesday, April 17, 2013

Franchising Not an Option for In and Out Burger


            Our next focus of discussion will be about In and Out Burger. On February 25th, 2013, In and Out Burger president Lynsi Torres had made the announcement that she has decided not to expand her restaurants nationally. In and Out Burger restaurants are only opened in the western part of the US and spark controversy for those on the east side. There are two reasons why she has decided not to franchise.

According to Lynsi, “…In-N-Out doesn't franchise any of its stores, which the chain argues helps it maintain control over food quality, restaurant cleanliness and its overall image... Second, none of the restaurants have freezers or microwaves, so all of its food comes fresh from two distribution facilities, one in California and one in Texas. Opening up locations in areas that are farther away would result in a need for more distribution facilities and a big change to In-N-Out's supply chain.” (Huffingtonpost, 2013). In and Out Burger has been established for about 65 years and is well known throughout the US, but only 6 states get to experience the tender bliss of their burgers (Texas, California, Utah, Arizona, Nevada, and Washington). Along with their history of operations, In and Out Burger’s menu has remained relatively stagnant as well. What’s even more fascinating is not only is she a 30 year old billionaire (America’s youngest female billionaire), she has no college education, and she does not have any formal training or experience in basic management (constructing a business proposal, developing balance sheets, etc.) For Lynsi to have this large responsibility of running a mutli-billion dollar restaurant chain, with no experience, is truly a rarity of its own.

In my opinion, her strategy can be positive or the strategy will produce unfavorable results. The good thing is that she has recognized that one of the big pitfalls of franchising a business is the loss of control. If she were to franchise her restaurant, she would have to develop more distribution centers in order to keep up with demand and reduce transportation/distribution costs. Changing up the value chain or distribution channel can be internally costly. Having to purchase land and construction of distribution centers, increase in machinery costs, and an increase in overhead (raw materials, labor, etc) is a hefty bill to take on. Also the quality of the burgers would be lower due to the increase mass customization of the burgers to again keep up with demand. In and Out Burger has the reputation of serving good quality burgers, which is competitive advantage that is costly to imitate for their competitors. To lose credibility in their reputation would put In and Out Burger on a steady downfall in sales and potentially claim for bankruptcy (worse case scenario).

The one negative of not franchising their store is the increase in competition. In and Out Burger’s major competitors are 5 Guys Burgers and Fries and Shake Shack’s strategy is the exact opposite. Rather than opening stores that are relatively close to their original location, they choose to franchise and expand their brand name on both a national and international basis. For In and Out Burger to not fully exploit their brand is giving their potential customers to their competitors. If In and Out Burger’s competitors influence consumers to gain a larger perceived value from their products, in comparison to In and Out Burgers products, consumers are less inclined to purchase an In and Out Burger if their competitor’s restaurant is relatively close to the consumers’ location. In addition, if there are more restaurants of In and Out Burger’s competitors than In and Out Burgers, along with the point mentioned earlier, then In and Out Burger will lose sales.

Congratulations to Lysni Torres for being the youngest female billionaire in the US. I believe that this marketing strategy is a great short term strategy. If keeping up, beating, or not being overshadowed by competitors is a priority for In and Out Burger, then franchising may be a option that should be considered.

5 comments:

  1. Good reflection. At this point it is probably more important to maintain the quality and brand instead of growing to fast in other markets unless they can solve their supply chain problem. It's interesting to see that 5 Guys Burgers is following the opposite strategy. I wonder how they control the quality of its franchises.

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  2. I think that 5 Guys is in the experimenting phase since they are a relatively new fast food chain. So far their marketing and expanding strategy is working out in their favor. in terms of quality control, I do not believe it's as good as In ad Out Burger because In and Out Burger heavily focuses their attention on the quality of all of their burgers and other menu items.

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  3. Franchising a brand for business is important as branding is one of the most important factors that one should consider when it comes to business. The brand serves as an impression to every individual. Having a good brand is a plus factor for franchising because of its customer relations. A franchise can be of any kind; sports teams, video games, even clothes are also considered to be a franchise; just like these long standing restaurants with multiple stores and branches.

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    1. I completely agree with you. I feel that Lyndsi should really consider the positives out of building a franchise. In and Out Burger has the reputation of designing and serving good quality burgers. If she decides to expand her brand on a national and possibly an international scale, then the quality of their burgers will inevitably go down in order to keep up with the rise in demand from consumers. That is what she's afraid; the loss of control. When thinking about expansion on the macro level, she would be able to provide people with more jobs from the restaurants and distribution sectors of the business and potentially contribute to the positive boost in the slowly developing economic growth. So there is a lot to think about when wanting to franchise a restaurant. This will take time. In my opinion, I think she's fine the way she is. She's already successful, making billions of dollars off of her grandparent's business. So y expand when she has more money than she could ever spend?

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  4. It's easier to maintain product quality if you don't allow franchise stores. However, it's also better to expand your market. They can adjust and add their facilities to realize this. If they have problems with storage and delivery, I'm pretty sure they can adjust, if not to increase their sales. :)

    FreshAndHealthyBrands.com

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