If you’ve ever eaten a hamburger at a fast-food restaurant, White Castle deserves at least some of the credit. White Castle is a fast-food chain with a small footprint in the Midwest and Northeast. It’s famous for small, cheap burgers and its appearance in the movie “Harold and Kumar Go To White Castle.” But you might not know that White Castle is widely thought of as the first fast-food hamburger chain in the United States. It also played a key role in making the hamburger synonymous with American cuisine. An American classic, White Castle Slider, doesn’t get any better. White Castle started in 1921 in Wichita Kansas, decades before McDonald’s or Burger King opened. By 1961, it says it was the first fast-food hamburger chain to sell over a billion burgers in the U.S. But odds are, there isn’t even a White Castle in your neighborhood. As of 2019, White Castle has around 370 locations in 13 states, a practically unchanged store count for the last 20 years. Compared to big fast-food chains, White Castle’s footprint is tiny. So why is it that with a highly loyal customer base and a nearly 30-year head start on the competition, White Castle hasn’t become a global fast-food chain like McDonald’s or Burger King. Why did the chain stay small? White Castle has remained a family-owned, privately held company since it started in 1921. Fry cook Walter Andersen started a food stand in 1916, that grew to four successful but small hamburger stands in Wichita Kansas. As legend has it, one day while Anderson was still a short-order cook in a local Wichita diner, he got frustrated that the meatballs he was cooking stuck to the grill, so he smashed one with his spatula. Customers loved the resulting thin patties, which were also faster to cook, meaning that he could sell more of them. In 1921, Anderson met insurance and real estate businessman Edgar Waldo “Billy” Ingram. The two partnered and Ingram rebranded Anderson’s business as White Castle. Almost 100 years later, Ingram’s great granddaughter is now running White Castle. Before White Castle, hamburgers had a negative reputation in the early 20th century. Famous exposes published in that era raised public suspicion of unsanitary practices in the ground meat industry. Ingram knew changing the public’s mind about ground beef was integral to White Castle’s success. That’s why every aspect of the first White Castles were designed with cleanliness in mind–even down to the name. “White” signified purity and cleanliness and “Castle” represented strength and stability. And it worked–White Castle grew quickly expanding throughout the Midwest in the 1920s. White Castle played a key role in making the hamburger an acceptable part of the American diet which helped pave the way for other rivals. Before White Castle, many burgers sold at fairs and outside factories were just meatballs placed between slices of bread. The flat patties and buns made popular by White Castle set the stage for the modern burger. White Castle grew rapidly in the 1920s and even weathered the Great Depression in the ’30s because its founders streamlined the business, which included buying out Anderson’s half of the company and relocating its headquarters to its geographic center in Columbus Ohio. But when the U.S. entered World War 2 in 1941, White Castle suffered from food shortages and labor scarcity that hindered its growth. White Castle’s profits fell significantly. In 1954, Burger King was founded. A year later, in 1955, the first McDonald’s opened in Illinois. Through franchising, these companies grew to be national and then international brands in a matter of decades. A White Castle historian called McDonald’s the only “life-and-death threat to White Castle” because its system was faster and extremely popular. For the 25 years after McDonald’s emerged as a competitor, White Castle grew —but slowly. Over time, its footprint actually shrank–from having restaurants in 14 cities in 1930 but only 10 cities by 1979. In the 1980s, despite being much smaller than rival national chains, White Castle reclaimed its position as a leading fast food hamburger chain, expanding to about 300 restaurants in new markets. The bulk of its restaurants have remained in the Midwest and Northeast. Its U.S. sales in fiscal year 2018 were $556.1 million. For comparison, McDonald’s U.S. revenue was nearly 14 times that, at about $7.7 billion. But that’s exactly what White Castle’s founder intended. White Castle didn’t franchise or go public, two mechanisms that fueled the expansion of other fast-food chains. Without pressure from shareholders or franchisees, White Castle has had more freedom to experiment than a corporation that has to show profits and growth every quarter. Founder Billy Ingram also held out on franchising because he wanted to keep complete control over every aspect of the business, right down to the type of porcelain the original white castles were built with. There are certainly other models out there. That would allow you to grow faster but you have to give up control and you have to give up the ownership of the customer and the ownership of the team member and that’s just not something that we have ever really been interested in doing. And so each generation–we’re in the fourth generation now– has really, you know, certainly studied all the different models and we still keep coming back to that this model has worked well for us for almost 100 years and that we believe it’s a good model for us to continue into the future. But it’s traditional expansion strategy might be changing. White Castle is now showing signs that it’s ready to expand beyond the Midwest. Starting in 2014, White Castle has set its sights west–moving away from its Midwestern stronghold. White Castle has had a strong presence in cities like Chicago and St. Louis. Now it’s taking on Las Vegas and Scottsdale, Arizona. It has multiple stores in Las Vegas, and open one in Arizona in October 2019. The Las Vegas locations, the first of which opened in 2015, represent a shift for the company. After more than 90 years of refusing to franchise in the United States, White Castle partnered with its first licensee ever to open stores in Las Vegas. The licensee got White Castle prime real estate on the Las Vegas strip in the Casino Royale. There’s another family business that’s based there and they reached out to us and our standard response is always no, we don’t franchise, we don’t license. They were so persuasive and so compelling. And we realized they shared a lot of the same values in terms of being a family-owned business. And when they told us they could get us a presence on the Las Vegas Strip at a really, really highly visible location, we thought as we change from third generation and fourth generation leadership, why not try something new. But White Castle says this relationship is the exception, not the rule. The company doesn’t plan to use licensing as a model for growth in the future. We have chosen to do all of our stores company-owned so we don’t grow as fast as other brands, we’re very purposeful about where we want to grow. You won’t see us opening 100 in one year. But you will see us being very very thoughtful about where we open and when we open. These expansions actually come as White Castle’s overall footprint has grown smaller. From 2009 to 2013, it closed net 44 stores, as it shutters less profitable restaurants. But its total revenue has stayed roughly flat over those 10 years, hovering between $540 million to $5645 million, so the restaurants the company has kept open are more profitable. We have definitely closed some locations as time has gone on. Some of the locations we had in the 1930s and 1940s just aren’t as viable in terms of how many people live in that area or what changes have been made to local walkways and expressways that have been built. You know, a mile away, there aren’t as many cars going by as they were. So we’ve been able to steadily grow revenue and meet our targets as we reimagine the landscape a little bit. In 2009 White Castle’s 418 restaurants had average sales per restaurant of $1.3 million dollars. That’s an important indicator in the restaurant industry. Fast forward to fiscal year 2018, and thanks in part to its small footprint, menu innovation and price increases, White Castle sales per unit were up nearly 14 percent. White Castle says it’s growing very intentionally and choosing new markets carefully. In the past, White Castle expanded by entering a city en masse, opening between five and 10 locations in a new city. In the 80s and 90s, White Castle expanded to four new markets at once–Philadelphia, Kansas City, Nashville and Dayton. They weren’t successful. White Castle didn’t adapt its operating model to fit the individual cities and it poured too much money into setting up new stores and building the supply chain. White Castle realized that flooding a new market with lots of restaurants wasn’t working. Opening lots of stores at once was expensive. So we’ve been more selective and thought about the restaurant growth as; hey let’s find locations that really can be just really, really ultra successful and great locations, easy to find and kind of, you know, their own oasis in new markets especially. Having lots of stores close together also led to another common problem: cannibalizing sales. The big brands try to get in and dominate a market and go in and have the ability to get on media and have enough locations to support that media spend. And I think with White Castle, because it’s such a unique brand and it is a destination because of the types of products and the way people use it, that they’re less inclined to have to do that. You know, penetration in markets doesn’t hurt but I don’t think it’s critical for every brand particularly if you’re more of a destination. White Castle wouldn’t say which state it would expand to next, but they did share with CNBC that it’s always considering new markets–even internationally. White Castle opened two restaurants in Shanghai in 2017 through a partnership with a Chinese private equity firm. It was White Castle’s first entrance into China, a popular destination for American chains looking to expand. Basically the way they describe it is a really well-run private equity group in China approached them. They had a love for the brand they had really good ideas and White Castle said, why not? They had really nothing to lose and it’s a pretty good opportunity for the company if it works out. White Castle’s presence in Shanghai has grown to four stores as of October 2019. White Castle leadership says the stores have steadily grown in sales and exceeded expectations, but wouldn’t give specifics. This isn’t the first time White Castle has tried to expand internationally. In the 80s and 90s, White Castle tried–and failed–to open stores abroad. By 1989 White Castle had opened six restaurants in Japan. It also opened six more restaurants across Malaysia and Singapore to beef up the company’s presence in Asia. But the expansion stopped and the stores closed just a few years after opening due to low demand. In looking at the failure what we realize is we weren’t strategic about it that really we were opportunistic so someone came to us and said they were interested from a different country and it seemed like they had good resources. We said yes without really thoughtfully discerning whether we might be successful there or not. One mistake White Castle made in its attempt to expand abroad was that it didn’t take enough time to research local tastes and customize its menu. A menu that works in the U.S. doesn’t always work in international markets. With the Shanghai restaurants that opened in 2017, White Castle tailored its menu to local tastes. Customers can get a Peking duck slider made with duck breast slices and cucumber or a Mapo Tofu beef slider, in addition to the same classic sliders available in the U.S.. CNBC went to one of White Castle’s restaurants in Shanghai to see how the American chain was resonating with locals. It’s too soon to say whether White Castle will catch on in China. But one thing is clear — in China, White Castle doesn’t have the low cost reputation that has helped it succeed in the States. In 1987 White Castle started selling some of its menu items in retail stores. At the time this was unprecedented. It was one of the first restaurant brands ever to try it. Retail remains one big difference between White Castle and its competitors like McDonald’s. Those chains don’t sell their burgers in the freezer aisle. Retail has been a huge boon for business. Retail sales make up about 20 percent of White Castle’s total sales and that number is growing. According to euromonitor estimates, in 2018, the retail business had sales of one hundred and ninety nine million dollars. That’s a 40 percent increase from 2013. It’s rank in the frozen ready meals category is also on the rise. Plus, it’s been huge for building brand awareness. The company says by offering its products in grocery stores across the U.S., Canada and military bases, White Castle has become a national, not just regional brand. Outside of the retail business, White Castle has also used unique marketing and branding strategies to spread its name across the country. It is, after all, the restaurant that agreed to be featured as a destination for hungry stoners in the 2004 classic, Harold and Kumar Go To White Castle. While some brands might have avoided association with a movie about stoners and marijuana, White Castle embraced the film. It helped White Castle connect to a new generation of customers — and the company told CNBC that sales hit an all-time record the week after the movie was released. White Castle continues to embrace this image as a late-night stop. We made a conscious decision to be open 24 hours and to be there for all of our customers morning noon or night. So sometimes that’s when someone’s just ended work on a shift. Sometimes it’s after a night out with friends and we haven’t ran away from that at all. Its cameo in Harold and Kumar is just one example of the company’s eccentric marketing strategies. White Castle has tried selling wine pairings with its sliders and offers table service dinners for Valentine’s Day. It was the first fast food chain to sell the Impossible burger and worked with Wu Tang Clan to produce a series about the hip hop group eating the vegan sliders in space. You find your niche from a marketing and branding perspective and then you go with it, strong. It’s fun and different and kind of kitschy and not taking themselves too seriously. The marketing and retail strategies seem to have worked. White Castle is at the top of the list in the burger “cult” status which measures devotion to a brand. It beats out McDonald’s in and out and Burger King in that category, which shows that its fans are highly loyal to the point of fanaticism. In 2014, Time magazine deemed the two by two inch White Castle Slider the most “influential burger of all time.” White Castle may rank high in hamburger loyalty but it falls short in customer service ratings, ranking behind the big burger brands. Family-owned businesses have a high rate of failure, with about 70 percent of family owned businesses failing or being sold before the second generation takes over. Just 10 percent make it to third generation leadership. That is one of the reasons why White Castle, now entering its fourth generation of leadership, is so unique. White Castle’s current CEO, Lisa Ingram, became the president of White Castle in 2013 and took over as CEO in 2016 after her father stepped down. Ingram says her legacy at White Castle will be innovation and cultural change. How do we become a more nimble organization, how do we experiment more, how do we have fun more. How do we embrace, you know, who we are more. And how do we do it in a way that’s inclusive and allows all of our team members to feel like they’re a part of something really fun and really big. Ingram represents a shift for White Castle — she has an MBA in operations from The Ohio State University and worked in the tech industry at large companies before joining the family business. She broke from tradition by hiring three executives from outside of White Castle to join her leadership team. Ingram’s experience working for other businesses made her realize the company needed leaders with fresh eyes. That’s always a real challenge. I think with family businesses because family business can be very insular. And you can listen to a lot of people that have been around for a long time, and they offer great insight and you want to make sure that you never lose that. One of the things that I have done though. Having worked outside in other industries and in other companies, I really felt like we needed to have some outside voices at the table as well. And so three of my executive team, I hired from the outside, which we did not do a lot of previously and they have brought a very different perspective which is fabulous. White Castle’s sales at U.S. restaurants are up about eight percent since Ingram was appointed to company president in 2013. She took over as CEO in 2016. Yeah I think she represents all the things you want to see in the restaurant industry. She represents leadership. Someone who went out and did things outside of the restaurant industry and got executive leadership training and education. White Castle doesn’t share much financial information but company leadership says it has three goals to reach by its 100th birthday in 2021 — being a best place to work hitting one billion dollars in revenue and hitting a specific profit goal. As it expands domestically and internationally, it’s clear that White Castle thinks it has quite a lot of room to grow.