Formal Business Report on In-N-Out Burgers, Inc.

INTRODUCTION

In 1972, Burger Ranch opened its first fast-food store in Ben Yehuda, Tel Aviv, Israel.  After 37 years of existence, it now has 72 restaurants with more than 1,500 employees in Israel.  In 1993, McDonald’s opened its first store in Ramat-Gan, Tel Aviv.  It now has 120 restaurants in Israel.  According to the Israel Business Today (1994), the opening of the first McDonald’s restaurant in Israel helped increase the sales of its oldest and biggest local competitor Burger Ranch by 60% in 1994.  McDonald’s arrival also triggered further development and growth of the local consumer food service (CFS) industry. 

With the recovery of Israel’s consumer food service from its recession from 2001 to 2003, Israel’s food service industry is thriving.  The falafel snack shops which feature pita bread with chick pea fried balls and fresh vegetable which once dominated the restaurant scene in Israel are slowly giving way to the modern, trendy and fast-pace Western-style fast-food.  With this development, Israel offers a big market for corporate expansion for American fast food restaurants.  This study aims to find out whether the corporate culture, values, and business philosophy of In-N-Out Burgers Inc., a fast food restaurant with stores in California, Arizona and Nevada, may thrive in Israel. 

BACKGROUND

A. IN-N-OUT BURGERS, INC.

In-N-Out Burgers, Inc. is a private and family-run fast-food chain which has 232 stores in California, Arizona, and Nevada (Matthew Scott, 2009, p.1).  Since the company was first founded in 1948, it has been known for its made-to-order hamburgers, fresh ingredients, efficient service and exemplary treatment to its employees.  According to Matthew Scott (2009), these ingredients propelled the fast food restaurant to earn an estimated $420 million in revenues in 2008 which includes per-store sales of $1l94 million and to become a success.

Harry and Esther Snyder first founded the In-N-Out Burgers, Inc. in 1948.  At the time the first store was opened, the business philosophy was quite simple: “Give customers the freshest, highest quality foods you can buy and provide them with friendly service in a sparkling clean environment.”  After three years of service, the company opened its second store.  By the year 1976, it already had 18 drive-thru locations. 

When Harry Snyder died, Rich Snyder took over as President.  Under Rich Snyder’s leadership In-N-Out Burger grew to a total of 93 stores but the company’s core philosophy remained the same.  When Harry died, Guy Snyder served as Chairman of the Board and CEO who continued his father’s business philosophy.  The business empire likewise continued to spread throughout California, Nevada and Arizona. 

Until now, In-N-Out Burgers, Inc. continues to offer the same burger, fries and drinks which it has been known to serve.  The food is still being served made to order.  There is still no microwave or freezers in its stores. The burgers are still made fresh and 100% beef.  There is still no additive or filler or preservative in the food being served. In an interview with Harry Snyder when he was still the president of the company, he revealed that the secret to making to best burgers is to go to the meat purveyors and stand over the butcher’s shoulder to get the right quality of meat (Matthew Scott, p.1).  In-N-Out Burgers Inc. continues with the same practice until today.

In-N-Out Burgers Inc. still remains privately owned and operated by Snyder family which is a testament to its commitment to make its service as personal as possible.  Unlike other companies which have allowed their stores to be operated by franchisees, In-N-Out Burgers remains committed to the family tradition.  For the Snyder family, franchises will affect the quality of service it provides to its customers and they do not want it to happen.  Moreover, In-N-Out Burgers Inc. remains committed to viewing employees as its family members.  It calls its employees as associates and provides them with salaries one step above that of the other fast food restaurants.  According to a study, it pays its associates $6/hour which is more than what the employees in other fast-food restaurants are getting.

Aside from refusing to franchise its stored and its good treatment to its employees, In-N-Out Burgers Inc. also stands out from its competitors because it does not rely on expensive commercial advertisements to attract and maintain its customers.  It was able to get a loyal customer base simply by using carefully-placed billboards, bumper stickers, and T-shirts (Stacy Perman, 2009, p.1).  It also effectively uses its company website which gives its customers directions on how to get from one place to another and at the same time informs them of the In-N-Burgers stores which they may find along the way. 

In sum, In-N-Out Burgers Inc. has become a success and continues to become a success because of its adherence to six basic principles: to keep a relentless focus on quality; to listen to customers; they treat employees well; to keep things simple and consistent; to expand slowly and under the right conditions; and to define its own level of success.

B. FACTS ABOUT ISRAEL

Israel is a Middle East county located between Egypt and Lebanon.  Its land area is 21,642 sq. km and water area is 430 sq. km for a combined land area of 22,072 sq. km.  Its climate is described as relatively hot with a rainy season during the months of November to April.  As of July 2009, its population has reached a total of 7,233,701.  The age structure of Israel’s population is relatively young with 0-14 years of age composing 27.9% of its entire population while 15-64 years of age composes 62.3% of its entire population and 65 years of age and over comprises 9.9% of its entire population.  Its median age is 29.1 years with the male median age at 28.4 and the female median age at 29.8. 

Its population is composed of 76.4% Jewish, 16% Muslim, 1.7% Arab Christians.  The languages spoken in Israel are Hebrew, which is the official language, Arabic and English.  Israel’s economy is described as technologically advance with substantial government participation.  It exports machinery and equipment, software, cut diamonds, agricultural products, chemicals, textiles and apparel.  It imports raw materials, grain, rough diamonds, and fuels. 

           

Israel’s industry is mainly devoted to high-technology projects which include aviation, communications, computer-aided design and manufacturers, medical electronics, fiber optics, wood and paper products, potash and phosphates, food, beverages, and tobacco, cement, construction, metal products, chemical products, plastics, diamond cutting, textiles and footwear.

Israel’s labor force is about 2,957,000.  Israel’s labor force is divided into several categories: agriculture sector which is 2%, industry sector which is 16% and service sector which is 82%.  In 2008, its unemployment rate is at 6.1%.  In 2005, at least 21.6% of its population is below poverty line which means that this portion of the population is earning below $7.30 per person per day. 

A review of the consumer preferences and food choices in Israel will reveal that consumer preferences have slowly changed since the past decades.  With the influx of different cultures in Israel, consumer preferences have changed as reflected in its cuisine.  Currently, Israel is the home to thousand of immigrants that come from different countries all over the world.  As a result, food choices have also varied from the traditional Jewish cuisine to cuisines heavily influenced by the Middle Eastern, Mediterranean, Spanish, German and Eastern European culinary styles.  It is therefore not surprising to see Mediterranean, European, Eastern, Western, Oriental and Continental food and restaurants in Israel. In Jerusalem, for instance, there are a number of American restaurants that cater not only to foreigners but even to local customers.  The expansion of consumer preferences in Israel towards hamburgers and fries is a business opportunity that In-N-Out Burgers, Inc may take advantage of.  

DISCUSSION

In-N-Out Burgers, Inc. has continued to serve the American market for decades.  It has earned a loyal customer base who appreciates the quality food and service it provides to its customers.  It is time for the company to meet the challenges of the global economy.  In-N-Out Burgers Inc. must take advantage of the emerging markets overseas as an opportunity for growth.  Growth, however, does not necessarily mean that In-N-Out Burgers, Inc. will forget its roots.  It is possible for the company to expand without sacrificing its company philosophy.  Based on the available data, one emerging market for American-style fast-food is Israel.

A. CHANGING CONSUMER PREFERENCES FOR WESTERN PRODUCTS

Israel is also called a nation of immigrants.  The influence of the immigrants to Israel is evident in the changes on consumer preferences towards Western products.  It has been the tradition in Jewish community which composes ¾ of the entire population of Israel to require that the food they buy in the supermarket has a “kosher certificate.”  The same is true in restaurants, hotels and banquet halls which are expected to have “kosher certificates.”  Kosher is a special Jewish religious standard indicating that the food product being served pure.

According to Ministry of Foreign Affairs of Denmark, there has been a dramatic change in the Israeli market for food products.  At present, more than 60% of the entire population no longer adheres to the kosher certificate requirement which offers a good opportunity for companies offering non-kosher products.   Even the grocery stores are now selling non-kosher products in the supermarket.  Thus, at present, customers in Israel can be divided into four groups: 1) the Orthodox segment consists of 5 to 15% of the population and is characterized by its purchase of Kosher only products in smaller local stores; 2) the Arab segment which is around 20% of the population spends around 50% of their income on food products, and the tendency for buying mostly traditional Arab products has changed to a more western behavior pattern; 3) the immigrants from Russia and Eastern Europe which are about one million and 4) the largest consumer segment which is most comparable to Danish consumers.

B. INCREASING POPULARITY OF FAST-FOOD PRODUCTS

The second reason why In-N-Out Burger Inc. may thrive in Israel is the increasing popularity of burgers and fast food restaurants.  In 1972 Burger Ranch first opened a fast food store in Tel Aviv.  After more than thirty years of operation, it now has over 80 stores in Israel which is a testament that the Israeli market loves burgers and fast food.  In 1982, Charles Bernstein said that while falafel and pizza remain as the most popular foods, burgers are gradually gaining more recognition (p.1).  Burgers even gained more popularity with the opening of a McDonald’s store in 1993 and Burger King in 1994.  Burger King’s fist 50 restaurants however did not become a success.  But the competition between the two companies led to the growth of the fast food industry (“McDonald's outlets increasing Burger Ranch sales” 1). Israel is indeed a young market which is ideally suited for the business philosophy of In-N-Out Burgers, Inc.

C. CHANGE IN CONSUMER BUYING HABITS

In-N-Our Burgers Inc. can take advantage of the rapid change in the consumer buying habits.  Research shows that Israel imported $2.79 billion worth of food and agricultural products in 2006.  This represents a 12% increase in 2005.  The European Union is the biggest supplier of foods in Israel to the tune of $1.19 billion or 42.6% of Israel’s imports.  Other suppliers are Brazil, Argentina and Colombia.  Moreover, research shows that the Israelis are choosing to eat out more and choose premium foods at their restaurants, coffee shops, cafeteria, kiosks, pubs and bars.  In fact, demand for important food products even increase during special Jewish holidays. 

As a result, pizza outlets and fast-food restaurants have thrived in Israel.  According to the Untied States Department of Agriculture Foreign Agricultural Service (2006), sales of pizza outlets have ballooned to at least $94 million with major players like Pizza Domino, Sbaro, Domino’s, and Pizza Hut as the major players. 

These changes only mean that In-N-Out Burgers Inc has a chance to compete with companies like McDonald’s and Burger Ranch in this location.  With the continued influx of immigrants coupled with the change in consumer preferences, In-N-Out Burgers Inc. may thrive in this business environment.

D. ISRAEL’S YOUNG POPULATION AND URBAN LIFESTYLE

           

The Central Bureau of Statistics report showed that Israel has a young population.  In 2007, the report showed that 28.4% of Israel’s population was below the age of 14 as compared to 17% in Western countries (“Latest Population Figures for Israel”, 2009).  Based on the same study, 9.8% of Israel’s population is aged 65 years and above as compared to 15% in Western countries (“Latest Population Figures for Israel”, 2009).  The young population in Israel is another opportunity that In-N-Out Burgers, Inc can take advantage of.  In addition, around 90% of Israel’s inhabitants live in urban centers.  The Israelis also find pleasure in spending time with their family and friends inside shops, cafes, and restaurants.  The young Israeli population may actually be dictating the consumer food preferences.  It is the teen-agers who are more likely to go to fast-food restaurants and order burgers, fries and sodas.  It is also the young population who are more likely to visit In-N-Out Burgers, Inc.

D. NECESSITY FOR POLICY ADJUSTMENTS

However, just like any business organization, the expansion of In-N-Out Burgers, Inc. overseas requires careful study and consideration.  The success of one business organization in one business environment does not necessarily mean that other business environment offering the same products will also be a hit.  In-N-Out Burgers, Inc. needs to take into account the existing business environment to be able to compete with Burger Ranch and McDonald’s – the two most established fast food restaurants in Israel. 

In-N-Out Burgers Inc., however, needs to learn from the mistakes of businesses like Burger King and Starbucks whose businesses did not take off despite having a globally recognized brand.  The common mistake of these two companies is that they were in a rush to recover their investment immediately.  In the case of Starbucks it started firing its employees after only six months of operation.  Based on the track record of In-N-Out Burgers Inc. it is not likely to commit the same mistakes as the other business organizations.  The business philosophy of In-N-Out Burgers Inc. is geared towards simplicity, proper treatment of employees, and slow but controlled expansion.  These qualities protect it from making the same mistakes as the other business organizations. 

Worth giving due consideration is the requirement of kosher certificates.  While there has been a change in consumer preferences towards a more Western-style food choices, compliance with kosher certificates is still a must for business organizations.  For instance, in 2006 McDonald’s the fast food industry giant, was forced to make changes in its world-recognized yellow and red signs and replaced it with the McDonald’s name in blue and white in Hebrew with the word “kosher” alongside it  (Chris McGreal, 2006, p.1).   The change was made in view of the pressure from the chief rabbi of Tel Aviv, Israel who refused to sign kosher certificates for some of McDonald’s branches in the city.  According to the rabbi, the change in McDonald’s sign was made to distinguish the McDonald’s branches which serve kosher and those which do not.  He said that “I was mainly concerned that tourists or adolescents who visit one kosher branch may jump to the conclusion that all McDonald's branches in Israel are kosher" (Chris McGreal, 2006, p.1).

CONCLUSION AND RECOMMENDATION

           

In-N-Out Burgers Inc. needs to meet the challenge of the global economy.  It has established its presence in the United States and there is no other option but to grow.  It now has to make its presence felt internationally.  Israel’s emerging market for fast-food products is a good starting point for international expansion.  The Israeli’s changing consumer preferences towards burgers, fries and other fast-food meals and urban lifestyle make it a strong candidate for opening a store therein.  In-N-Out Burgers Inc which adheres to fresh and quality burgers, proper treatment of its customers and family-style approach to business are significant advantages in Israel.  Its corporate philosophy also protects it from making the same mistakes which Starbucks and Burger King committed. 

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