Access To Fresh Beef, Not Demand, Driving In-N-Out Expansion Strategy

In-N-Out, the beloved California burger chain, has been slow to expand, despite die-hard fans loudly clamoring for more across the country. But that is because In-N-Out's new store openings are dictated by quality control rather than demand and demographics.

What does that mean as it starts to build out in Texas?

This year, In-N-Out announced its entry in Houston after years of teasing the possibility. The undisclosed location will join 34 others elsewhere in Texas. 

Quality control, not lack of interest, is holding back In-N-Out's expansion plans. There are not any freezers or microwaves at its restaurants because there is a strict policy of only serving fresh food. Every new location must be close to the company's distribution centers, which are in Baldwin Park, Calif., and Dallas. 

"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," In-N-Out vice president of planning and development Carl Van Fleet told Business Insider. "Nothing is ever frozen. Our new restaurant locations are limited by the distance we can travel from our patty-making facilities and distribution centers."

The company's policy is to be within 500 miles of a distribution center, though a location in Utah is 685 miles away. That means In-N-Out could theoretically expand to 13 states from its Texas operations center. Currently, the company has no plans to open another distribution center.

The business structure of In-N-Out is also holding it back in the burger battles raging across the country. Texas, where In-N-Out is beginning to take on state favorite Whataburger, is a prime example of what sets In-N-Out apart.

Whataburger operates as a franchise system, giving the company more opportunity to expand rapidly. In-N-Out is a family-owned company that does not believe in franchising. A large-scale expansion to compete with the likes of Whataburger without franchising would require a massive amount of upfront capital from the company.

"In-N-Out remains privately owned and the Snyder family has no plans to take the company public or franchise any units," the company affirms on its website.

Still, In-N-Out manages to pull in over $750M a year, with a per-store average of over $2M, beating most other high-profile burger chains. The company's success had made the heir to the chain, Lynsi Torres, the country's youngest female billionaire. 

In-N-Out faces a major hurdle in Texas: It is not from Texas. Although the restaurant prints Bible verses on the inside of its cups, a move likely to appeal to Texan diners, Texans have an unprecedented allegiance to homegrown businesses. Business leaders have noted the unique advantage branding their products for Texas specifically has offered in the state. Whataburger is uniquely Texan. In-N-Out is almost as uniquely Californian.

But that has not kept the burger chain from succeeding. Though its Texas locations are consistently rated lower on Yelp than all other locations, every new store is met with lines around the building. 

In Texas, In-N-Out has been helped by the mass migrations of Californians to the state. Between 2009 and 2012, Silicon Valley lost roughly 1,430 households to Texas. 

Can In-N-Out successfully make that migration as well? It will be a slow and deliberate process to find out.