In n Out Burger

MBA 688 Business Strategy and Stakeholders responsibility Prof C. G. Matton Amit Patel

Summary The total revenue of In and Out burger for the year 2003 was $223 million. The company had a total pre-tax income of $15.61 million with a total of 171 outlets across California, Nevada and Arizona.

Recommendations In and Out burger grew at a rate of about 9% over the recent years. The company has always been careful in selecting its expansion sites. In and Out burger had scored highest points in a survey carried out in 2002. The burger chain had always emphasized on food quality, which was its main competitive edge. In another survey called Quick-Track awards of excellence for fast food chains (2001-2002), In and out burger received best ranks in taste, cleanliness, ingredients, friendliness, etc. This resulted in an avid customer base and many customers were waiting to see more locations across the country. The consistency of taste throughout the chain stores and quality ingredients lead to the burger chain getting one of the highest ranks in the fast food hamburger chain industry. With emphasis on taste and quality, it spent less on advertising as compared to the competitors. Despite the minimal advertising budget, the company had a loyal base of customers, some of whom were willing to travel as far as 40 min drive each way. There are huge number of positive feedbacks and reviews from the customers across the media. Since the stores were not too closely located and the company had an extremely loyal customer base, there stands a reason why it should go for expansion in other states. With the help of the brand image that it has generated, it could take advantage of the new areas surrounding

California, Arizona and Nevada. Moreover, the company only has 7 stores in Arizona and 8 in Nevada. There is a good scope for expansion in these two states to begin with. With pre-tax income of $15.61 million in 2003, the company can afford some expansion. Even if it does not go public, it can afford expansion of some stores in the near future. The cost of opening a new store is around $ 1.5 million therefore it definitely has a room for some new stores.

Calculations and Assumptions Revenue and Income calculations It is known that McDonalds revenue was 75 times that of In and Outs revenue. McDonalds revenue for 2002 was $ 15,406 mn (exhibit 10). Therefore In and Outs revenue comes out to be 1/75th of 15,406 i.e $ 205 mn for the year 2002. It is also known that In and out had an annual growth of about 8% to 10% over past few years. Therefore its 2003 revenue comes out to be 1.09 * 205 = $ 223 mn. Various costs can be calculated using the industry averages from exhibit 9.

Sales Food sales Beverage sales Costs Cost of food sold

% Total Sales 95 5

Assumed % 95 5

32

32

Cost of beverages sold Salaries and wages Employee benefits Restaurant occupancy cost Other Pre-tax income

3 28 3 8 19 7

3 31 4 8 15 7

The assumed values are more than industrial values for salaries and wages because it is known that In and Out burgers paid $8.25 to $9.25 per hour to its employees, almost $1.5 to $2.50 more than Californias minimum wage, and they received benefits that paid vacations, a 401(K) retirement plan with matching company contributions and many other benefits. There was an additional annual compensation of about $85,000 for managers. The same is the reason for the difference in employee benefit values. The assumed values of other costs are less than the industry values because it is known that In and Out burger spends less on advertising (about $1 million only). The pre-tax income for the year 2003 would therefore be 223*0.07 = $15.61