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IN-N-OUT BURGER

Building Them Better

In-N-Out Burger seems like a modest enterprise—only four food items on the menu and little to no advertising. So, how has this West Coast chain achieved near-cult status among regular Joes and foodies alike? For more than 60 years, In-N-Out has wooed customers by providing them just the basics—fresh, well-cooked food served quickly in a sparkling clean environment. Its hallmarks are consistency and quality. E.J. Baumeister Jr./Alamy Gordon Ramsay is not an easy man to satisfy. The celebrity chef and star of Hell’s Kitchen is well known for his culinary prowess, perfectionism, and earth-shaking, profanity-strewn tantrums. He is infamous for finding fault with simple and extravagant dishes alike. So it came as a shock to many when Ramsay revealed his affinity for a darling of West Coast fast food. “In-N-Out Burgers [are] extraordinary,” Ramsay says, recounting a recent visit. “I was so bad: I sat in the restaurant, had my double cheeseburger, then minutes later I drove back round and got the same thing again.”

Simple Formula for Success

Walk into any In-N-Out Burger location and you’ll only find four food items on the menu: Hamburger, Cheeseburger, Double- Double, and French Fries. You can wash those down with a Coke or a milk shake. In addition, there’s . . . nothing else. That’s the entire menu. Or so In-N-Out would have you think. Stand next to the ordering counter long enough, and you’ll hear customers recite a litany of curious requests. None are on the menu, but sure enough, the cashier rings each one up with a smile: Animal Style (a mustard-cooked patty with extra pickles, extra spread, and grilled onions), Flying Dutchman (two patties, two slices of cheese, no bun or garnish), Protein Style (heavy on the fixings, wrapped in lettuce instead of a bun), or any permutation of patties and cheese slices up to a 4 3 4 (four patties and four slices of cheese barely contained in one bun). It’s as if you’ve gone through the looking glass, and the menu is not what it seems. But the open secret of the secret menu is only part of what keeps customers coming back for more. In-N-Out’s motto is clear: “Give customers the freshest, highest quality foods you can buy and provide them with friendly service in a sparkling clean environment.” So is the chain’s formula for success: Make only a few food items, consistently make them well, and earn the trust of customers by not deviating from this premise.

All in the Family

Harry Snyder and his wife Esther opened the first In-N-Out Burger in Baldwin Park, California, in 1948. Unlike other carhop- oriented fast-food restaurants of the era, Harry installed a two- way speaker through which drivers could order without leaving their car, creating California’s first drive-thru hamburger stand. He brought sons Rich and Guy to work at an early age, where the boys learned their father’s insistence on complementing fresh, promptly cooked food with great customer service. The Snyders’ second restaurant opened three years later, and franchising continued slowly until 1976, when Rich took over after his father’s death. Although he was only 24 when he became CEO, Rich Snyder expanded In-N-Out into new cities but still retained stringent control. Unlike his dad, who hoped employees would transfer skills learned at In-N-Out to a “better” job, Rich thought: “Why let good people move on when you can use them to help your company grow?” Knowing that his expansion plans would require a pool of talented and loyal store managers, he opened In-N-Out University. Store associates had to please hungry diners, show initiative, and exhibit strong decision-making skills for at least one year before being invited to attend the management training program. Reasoning that the same high- tech tools for performance analysis employed by pro sports teams could also improve his team, Rich videotaped trainees to analyze their performance and produced training films.

Entrepreneurship Under Control

The chain’s founding family is fiercely entrepreneurial, and they maintain strict control over the franchisees. Their influence shows everywhere from the sock-hop décor to the secret menu to its treatment of employees as long-term partners rather than as low-cost, disposable resources. They followed their own formula for success instead of chasing, or copying, the competition. They’ve also avoided the temptations of selling the firm through an IPO. A posting on the firm’s website states: “In-N-Out remains privately owned and the Snyder family has no plans to take the company public or franchise any units.”

Quality Drives Future Plans

In-N-Out Burger is now led by Guy’s daughter Linzi Snyder Torres who is committed to following the Snyder family’s strategy by not changing what already works so well. The firm continues to get rave reviews for making only a handful of items with great attention to quality. Vice President of Planning and Development Carl Van Fleet says: “At In-N-Out Burger, we make all of our hamburger patties ourselves and deliver them fresh to all of our restaurants with our own delivery vehicles. Nothing is ever frozen. Our new restaurant locations are limited by the distance we can travel from our patty making facilities and distribution centers.” How did this family-owned burger chain with roadside diner roots inspire such a passionate following?

Case Analysis Questions

  1. Rich Snyder was 24 years old when his father passed away and he assumed leadership of In-N-Out. Was his young age an asset or a liability for leadership of the company? After answering, take a position on this question: Does age really matter in entrepreneurship?
  2. In an era of fusion cuisine and extreme fajitas, is In-N-Out’s strategy of offering only four simple food items still on track? How about the firm’s approach to employees? Does it give them an edge over the fast-food competition?

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HARLEY-DAVIDSON Style and Strategy with a Global Reach Harley-Davidson’s American success story began in 1903 when two friends— William Harley and Arthur Davidson—built a motorized bicycle in a machine shop in Milwaukee, Wisconsin. The progeny of that first machine now travel the world—with speed and style. Now the Harley Hog is going electric. Harley’s Roots When Harley-Davidson was founded it was one of more than 100 firms producing motorcycles in the United States. By the 1950s, it was the only remaining American manufacturer. But in the 1960s, Honda began sales in the United States and Harley had difficulty competing against the Japanese firm’s smaller bikes. The American Machine and Foundry Co. (AMF) bought Harley in 1969 and quickly increased production. However, this rapid expansion led to significant problems with quality, and the better-built Japanese motorcycles began to take over the market. A group of 13 managers bought Harley-Davidson back from AMF in 1981 and began a turn around with the rallying cry “The Eagle Soars Alone.” Richard Teerlink, former CEO of Harley, explained: “The solution was to get back to detail. The key was to know the business, know the customer, and pay attention to detail.” The goals driving this turn around were increasing quality and improving service to customers and dealers. Consolidation and Renewal In 1983 Harley-Davidson asked the International Trade Com- mission (ITC) for tariff protection on the basis that Japanese manufacturers, including Honda, were stockpiling inventory in the United States and providing unfair competition. The request was granted. Harley was confident enough in 1987 to petition the ITC to have the tariff lifted because the company had improved its ability to compete with foreign imports. Once Harley’s image had been restored, the company began to increase production and open new facilities. The average Harley customer in the 1980s was male, late thirties, with an average household income above $40,000. Teerlink said: “Our customers want the sense of adventure that they get on our bikes. . . . Harley-Davidson doesn’t sell transportation, we sell transformation. We sell excitement, a way of life.” The company created a line of Harley accessories available online, by catalog, or through dealers, all adorned with the Harley-Davidson logo. These jackets, caps, T-shirts, and other items became popular with nonbikers as well. In fact, the clothing and parts had a higher profit margin than the motorcycles; nonbike products made up as much as half of sales at some dealerships. Global Expansion Although Harley had been exporting motorcycles ever since it was founded, it was not until the late 1980s that management invested seriously in international markets. Traditionally, the company’s ads had been translated word for word into foreign languages. Now, new ads were developed specifically for different markets and Harley rallies were adapted to fit local customs. Harley actively recruited dealers in Europe and Japan, built a large parts warehouse in Germany, and purchased a Japanese distribution company. Harley’s management learned a great deal from these early international activities. Recognizing, for example, that German motorcyclists rode at high speeds—often more than 100 mph— the company began studying ways to give Harleys a smoother ride and emphasizing accessories that would give riders more protection. Its Japanese subsidiary adapted the company’s marketing to fit local tastes, even producing shinier and more complete toolkits than those available in the United States. Harley bikes are now symbols of prestige in Japan, and many enthusiasts see themselves as rebels on wheels. The company has also made inroads into the previously elusive Chinese market. It partnered with China’s Zongshen Motorcycle Group, which makes more than 4 million small-engine motorcycles each year. Despite China’s growing disposable income, the new store has several hurdles ahead of it, including riding restrictions imposed by the government in urban areas. The Future The U.S. market still represents almost 75% of Harley’s sales. Executives attribute Harley’s success to loyal customers and the Harley-Davidson name. “It is a unique brand that is built on personal relationship and deep connections with customers, un- matched riding experiences, and proud history,” said Jim Ziemer, Harley’s former president and chief executive. CEO Keith E. Wandell seeks to increase growth by focusing effort and resources on the unique strengths of the Harley- Davidson brand. He also plans to enhance productivity and profitability through continuous improvement. Part of his approach focuses company resources on Harley-Davidson products and experiences, demographic outreach, commitment to core customers, and even more global growth. The latest innovation is the electric Hog, now in prototype and soon on the highways of the world. A Harley spokesperson says: We anticipate it’s going to appeal to a younger, more urban demographic” and that it is part of Harley’s commitment to “preserving the riding environment.” Case Analysis Questions 1. If you were CEO of Harley-Davidson, how would you compare the advantages and disadvantages of using exports, joint ventures, and foreign subsidiaries as ways of expanding international sales? 2. In America, Harley has shifted the positioning of its products away from simply motorcycles and more toward being status symbols of a particular lifestyle. What are the implications of cultural factors for positioning in other countries that Harley has targeted for growth— ones like Japan, China, France, and Brazil? TRADER JOE’S Keeping a Cool Edge The average Trader Joe’s stocks only a small percentage of the products of local supermarkets in a space little larger than a corner store. How did this neighborhood market grow to major status, garner superior ratings, and become a model of management? Take a walk down the aisles of Trader Joe’s and learn how sharp attention to fundamentals of management made this chain more than the average Joe. From Corner Store to Foodie Mecca All across the United States hundreds of thousands of customers are treasure hunting. Driven by gourmet tastes but hungering for deals, they are led by cheerful guides in Hawaiian shirts who point them to culinary discoveries such as Ahi jerky, ginger granola, and baked jalapeño cheese crunchies. It’s just an average day at Trader Joe’s, the gourmet, specialty, and natural-foods store. Foodies, hipsters, and recessionistas alike are attracted to the chain’s charming blend of tasty treats and laid-back but enthusiastic customer service. Shopping at Trader Joe’s is less a chore than it is immersion into another culture. Crew members and managers wear smiles and are quick to engage in a friendly chat. Chalkboards unabashedly announce slogans such as, “You don’t have to join a club, carry a card, or clip coupons to get a good deal.” “When you look at food retailers,” says Richard George, professor of food marketing at St. Joseph’s University, “there is the low end, the big middle, and then there is the cool edge—that’s Trader Joe’s.” But how does Trader Joe’s compare with other stores with an edge, such as Whole Foods? Both source locally and around the world. Each values employees and strives to offer the highest quality. However, Trader Joe’s has a cozy and intimate atmosphere that its rival lacks. Trader Joe’s limits its stock and sells quality products at low prices—about twice as much per square foot than other supermarkets. But this scarcity benefits both Trader Joe’s and its customers. According to Swarthmore professor Barry Schwartz, author of The Paradox of Choice: Why Less Is More, “Giving people too much choice can result in paralysis . . . Research shows that the more options you offer, the less likely people are to choose any.” Founder “Trader” Joe Coulombe opened the first Trader Joe’s store over 50 years ago in Pasadena, California. Its success led to expansion into a bona-fide chain, as Trader Joe’s stores became known as oases of value that replaced humdrum sundries with exotic, one-of-a-kind foods priced persuasively below those of any reasonable competitor. Coulombe eventually sold the chain to the Albrecht family, German billionaires and owners of Aldi markets in the United States, Europe, and Australia. Cost Control Trader Joe’s prides itself on its thriftiness and cost-saving measures, proclaiming, “Every penny we save is a penny you save” and “Our CEO doesn’t even have a secretary.” Its strongest weapon is a deliciously simple approach to stocking stores: (1) search out tasty, unusual foods from all around the world; (2) contract directly with manufacturers; (3) label each product under one of several catchy house brands; and, (4) maintain a small stock, making each product fight for its place on the shelf. Most Trader Joe’s products are sold under a variant of their house brand—dried pasta under the “Trader Giotto’s” moniker, frozen enchiladas under the “Trader Jose’s” label, vitamins under “Trader Darwin’s,” and so on. But these store brands don’t sacrifice quality—readers of Consumer Reports award Trader Joe’s house brands top marks. The house brand success is no accident. According to Trader Joe’s [former] president, Doug Rauch, “the company pursued the strategy to put our destiny in our own hands.” Customer Connection Ten to 15 new products debut each week at Trader Joe’s—and the company maintains a strict “one in, one out” policy. Items that sell poorly or whose cost rises get the heave-ho in favor of new blood, something the company calls the “gangway factor.” If customers don’t like something about a product, out it goes— count spinach and garlic from China among the rejected losers. “Our customers have voiced their concerns about products from this region and we have listened,” the company said. Discontinued items may be brought back if customers complain. “We feel really close to our customers,” says Audrey O’Connell, vice president of marketing for Trader Joe’s East. “When we want to know what’s on their minds, we don’t need to put them in a sterile room with a swinging bulb. We like to think of Trader Joe’s as an economic food democracy.” In return, customers keep talking and recruit new converts. Word-of-mouth advertising has lowered the corporation’s advertising budget to a fraction of that spent by supermarkets. Trader Joe’s culture of product knowledge and customer involvement is carefully cultivated among new hires and exist- ing employees. Everyone is encouraged to taste and learn about the products and to engage customers to share what they’ve experienced. Most shoppers recall instances when helpful crew members took the time to locate or recommend particular items. Job descriptions highlight desired soft skills, such as “ambitious and adventurous, enjoy smiling and have a strong sense of values.” They count as much as actual retail experience. Strength from Within A responsible, knowledgeable, and friendly “crew” is a natural extension of the firm’s promote-from-within philosophy. And crew members earn more than their counterparts at other chain grocers, sometimes by as much as 20%. Starting bene- fits include medical, dental, and vision insurance; company paid retirement; paid vacation; and a 10% employee dis- count. Assistant store managers earn a compensation pack- age averaging $70,0001 a year (including salary and cash bonus) while the store managers’ packages average $109,000. Future leaders enroll in training programs such as Trader Joe’s University that foster in them the loyalty necessary to run stores according to both company and customer expectations. The program teaches managers to imbue their part- timers with the customer-focused attitude shoppers have come to expect. What does the future hold? Will Trader Joe’s allure of cosmopolitan food at provincial prices continue to tempt new consumers? Will management practices continue to attract the talent Trader Joe’s needs to maintain its culture and customer focus as the competition heats up? Case Analysis Questions 1. In what ways does Trader Joe’s demonstrate the importance of each responsibility in the management process—planning, organizing, leading, and controlling? 2. What lessons does the Trader Joe’s story offer to aspiring entrepreneurs who want to get off to a good start in any industry? IN-N-OUT BURGER Building Them Better In-N-Out Burger seems like a modest enterprise—only four food items on the menu and little to no advertising. So, how has this West Coast chain achieved near-cult status among regular Joes and foodies alike? For more than 60 years, In-N-Out has wooed customers by providing them just the basics— fresh, well-cooked food served quickly in a sparkling clean environment. Its hallmarks are consistency and quality. E.J. Baumeister Jr./Alamy Gordon Ramsay is not an easy man to satisfy. The celebrity chef and star of Hell’s Kitchen is well known for his culinary prowess, perfectionism, and earthshaking, profanity-strewn tantrums. He is infamous for finding fault with simple and extravagant dishes alike. So it came as a shock to many when Ramsay revealed his affinity for a darling of West Coast fast food. “In-N-Out Burgers [are] extraordinary,” Ramsay says, recounting a recent visit. “I was so bad: I sat in the restaurant, had my double cheeseburger, then minutes later I drove back round and got the same thing again.” Simple Formula for Success Walk into any In-N-Out Burger location and you’ll only find four food items on the menu: Hamburger, Cheeseburger, Double- Double, and French Fries. You can wash those down with a Coke or a milk shake. In addition, there’s . . . nothing else. That’s the entire menu. Or so In-N-Out would have you think. Stand next to the ordering counter long enough, and you’ll hear customers recite a litany of curious requests. None are on the menu, but sure enough, the cashier rings each one up with a smile: Animal Style (a mustard-cooked patty with extra pickles, extra spread, and grilled onions), Flying Dutchman (two patties, two slices of cheese, no bun or garnish), Protein Style (heavy on the fixings, wrapped in lettuce instead of a bun), or any permutation of patties and cheese slices up to a 4 3 4 (four patties and four slices of cheese barely contained in one bun). It’s as if you’ve gone through the looking glass, and the menu is not what it seems. But the open secret of the secret menu is only part of what keeps customers coming back for more. In-N-Out’s motto is clear: “Give customers the freshest, highest quality foods you can buy and provide them with friendly service in a sparkling clean environment.” So is the chain’s formula for success: Make only a few food items, consistently make them well, and earn the trust of customers by not deviating from this premise. All in the Family Harry Snyder and his wife Esther opened the first In-N-Out Burger in Baldwin Park, California, in 1948. Unlike other carhop- oriented fast-food restaurants of the era, Harry installed a two- way speaker through which drivers could order without leaving their car, creating California’s first drive-thru hamburger stand. He brought sons Rich and Guy to work at an early age, where the boys learned their father’s insistence on complementing fresh, promptly cooked food with great customer service. The Snyders’ second restaurant opened three years later, and franchising continued slowly until 1976, when Rich took over after his father’s death. Although he was only 24 when he became CEO, Rich Snyder expanded In-N-Out into new cities but still retained stringent control. Unlike his dad, who hoped employees would transfer skills learned at In-N-Out to a “better” job, Rich thought: “Why let good people move on when you can use them to help your company grow?” Knowing that his expansion plans would require a pool of talented and loyal store managers, he opened In-N-Out University. Store associates had to please hungry diners, show initiative, and exhibit strong decision-making skills for at least one year before being invited to attend the management training program. Reasoning that the same high- tech tools for performance analysis employed by pro sports teams could also improve his team, Rich videotaped trainees to analyze their performance and produced training films. Entrepreneurship Under Control The chain’s founding family is fiercely entrepreneurial, and they maintain strict control over the franchisees. Their influence shows everywhere from the sockhop décor to the secret menu to its treatment of employees as long-term partners rather than as low-cost, disposable resources. They followed their own formula for success instead of chasing, or copying, the competition. They’ve also avoided the temptations of selling the firm through an IPO. A posting on the firm’s website states: “In-N-Out remains privately owned and the Snyder family has no plans to take the company public or franchise any units.” Quality Drives Future Plans In-N-Out Burger is now led by Guy’s daughter Linzi Snyder Torres who is committed to following the Snyder family’s strategy by not changing what already works so well. The firm continues to get rave reviews for making only a handful of items with great attention to quality. Vice President of Planning and Development Carl Van Fleet says: “At In-N-Out Burger, we make all of our hamburger patties ourselves and deliver them fresh to all of our restaurants with our own delivery vehicles. Nothing is ever frozen. Our new restaurant locations are limited by the distance we can travel from our patty making facilities and distribution centers.” How did this family-owned burger chain with roadside diner roots inspire such a passionate following? Case Analysis Questions 1. Rich Snyder was 24 years old when his father passed away and he assumed leadership of In-N-Out. Was his young age an asset or a liability for leadership of the company? After answering, take a position on this question: Does age really matter in entrepreneurship? 2. In an era of fusion cuisine and extreme fajitas, is In-N-Out’s strategy of offering only four simple food items still on track? How about the firm’s approach to employees? Does it give them an edge over the fast-food competition? 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