rumor : In-N-Out burger chain expanding ......................................
May 26, 2010
In-N-Out burger chain expanding?
The joint with a cult following is growing slowly, but could still teach McDonald's and Burger King a thing or two.
Posted by InvestorPlace on Wednesday, May 26, 2010 11:13 AM
Consider it the Apple (AAPL) of burger chains. And it could be coming to a location near you.
In-N-Out Burger, a privately held West Coast fast-food chain with a rabid and almost cultlike following, has been slow to expand beyond California because of its rather unusual business practices. But the In-N-Out philosophy has also resulted in unmatched popularity that has current locations swamped. The only thing to do is open more stores.
And if the rumor mill has any truth to it, the next In-N-Out Burger location is due for Dallas -- a sign that the company may be reaching eastward and looking to take a bite out of McDonald’s (MCD), Burger King (BKC) and other fast-food stocks.
In-N-Out is a bit of an anomaly in today’s fast-paced fast-food world. The company focuses on fresh ingredients, and cuts its french fries every day before dipping them in hot oil to order. It also treats its staff as valued employees and not just as more part-time meat for the grinder.
In-N-Out actually pays its employees significantly more than state and federally mandated minimum wages. Those aren’t exactly ideas McDonald’s is going to embrace any time soon.
Though such moves may weigh on margins, they have resulted in high quality and tremendous customer loyalty. That’s something chains like Burger King could learn a thing or two from. On April 29, Burger King reported fiscal-third-quarter earnings showing that profits sank 13% year-over-year.
BK’s same-store sales also fell 3.7% in fiscal Q3. As a result of these troubles, BKC stock has gone nowhere in the past year or so (barring a brief spike and then drop-off in April) despite a huge rally on the rest of Wall Street.
Burger King has tried to stop the bleeding with a number of stunts. Burger King brunch is now being offered in test markets -- complete with mimosas on the menu. The company is also selling barbecue ribs at many locations nationwide in order to create higher margins and pricier receipts. And a recent BKC partnership with Starbucks coffee brand Seattle’s Best will bring premium java to BK locations this year.
But on a basic level, these are just gimmicks and not a change in the way BK does business, which means if these efforts fail the stock could slump further.
To be clear, Burger King and McDonald’s shouldn’t worry about their Texas sales evaporating just yet. In-N-Out execs have acknowledged eyeing the Dallas suburb of Garland for a restaurant, but have not made any clear commitments or offered specifics.
Regardless of where In-N-Out opens next, the big burger chains could learn a thing or two from this slow-growing company that has succeeded by putting high quality, happy employees and loyal customers above all else.
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