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The Best Company I've Ever Seen

Tim Beyers
July 2, 2008

Ask my eldest son what he liked most about our recent vacation to California, and you'll get none of the usual responses. Disneyland? Sure. Legoland? Yeah, but it would have been nice to actually use his Lego gift card. Sea World? Cool dolphins -- but where are the sea turtles?

And, really, what's the deal with mixing a beer garden with a giant fish tank? What, no chips and tartar sauce? (Whoops, that's me.)

What our 8-year-old most enjoyed about our trip was the frequent stops at In-N-Out Burger. Me, too -- because In-N-Out is the best company I've ever seen.

Quality your portfolio can taste
So what's so special about In-N-Out Burger? Let me count the ways:

  1. It's family-owned. Since 1948, when Harry and Esther Snyder founded the first drive-through in Baldwin Park, Calif., In-N-Out's owners have maintained control over the business. Burger King (NYSE: BKC  ) -- home of the Whopper and the creepy mascot -- is 99% owned by institutional investors such as Goldman Sachs.
  2. It follows a disciplined growth strategy. In-N-Out insists on using fresh ingredients for its burgers and fries. All 200-plus locations are within trucking range of its Baldwin Park beef commissary. Expansion beyond southwest Utah would require freezing and, from management's view, damage the brand. Krispy Kreme's (NYSE: KKD  ) disastrous franchising strategy is all the evidence I need to agree.
  3. It attracts insanely loyal customers. Plenty of novelty restaurants have merchandise. Even Starbucks (Nasdaq: SBUX  ) does. But would you really wear a Starbucks shirt or show off your Starbucks mug in public -- even when you're not jonesing for what's inside? Perhaps a few of you would, but not to the degree that In-N-Out's customers do. Branded T-shirts from the restaurant are everywhere in southern California. Try to take mine, and you'll end up with a fistful of get-your-filthy-hands-off. Few companies short of Apple (Nasdaq: AAPL  ) command similar brand loyalty.
  4. It's different. Go back to that bit about fresh ingredients. In-N-Out likes to say that it sells "quality you can taste." I'll grant that there's no perfect method for testing such a claim. But on a personal note, I find it instructive and thrilling that my food-allergic son -- who can't ingest protein or most preservatives -- can eat fries from In-N-Out. They aren't loaded with the same junk served by McDonald's (NYSE: MCD  ) , Wendy's (NYSE: WEN  ) , or Yum! Brands (NYSE: YUM