Is a Five Guys Franchise a Tasty Investment?

Who are the “Five Guys” behind the gourmet burger chain that is now one of the hottest restaurant franchises on the market? The Five Guys franchise actually originated with one guy, Jerry Murrell, who started the business as a single take-out shop in Arlington, VA back in 1986. His mother gave him the choice of starting a business or going to college.

“If you can give a good haircut or if you can serve a good drink at a bar or if you can serve a good hamburger, you can always make money in America,” Five Guys founder Jerry Murrell’s mother told him, according to the Five Guys website.

The burger business proved to be lucrative. Up until 2001, Murrell operated five restaurants in the D.C, metropolitan area. Murrell’s four sons joined him in running the burger business, earning the restaurant the moniker of “Five Guys.” Murrell also had a fifth son in the late 80s. In 2003, the Five Guys franchise concept was born. The restaurant initially sold options for 300 franchises in 18 months in Maryland and Virginia before opening franchising opportunities up to the rest of the country.

Five Guys restaurants operate in the “fast casual” dining category and specialize in hamburgers, French fries, and related food and beverages such as sandwiches and milkshakes. Restaurants are typically located in retail shopping centers and other urban locations, and could include sites such as train stations, sports arenas, airports, university campuses or other captive market spaces on a case-by-case basis, according to the Franchise Disclosure Document.

Five Guys are the newer guys on the fast food scene, but their popularity has made them one of the most recognized brands in the QSR segment, joining well known giants such as Burger King, Taco Bell, Wendy’s, Subway, Dunkin Donuts, and Chick-fil-A.

What makes Five Guys burgers special? Here are a few reasons, according to an article posted by an ABC affiliate in Chicago.

• There are no freezers at Five Guys, only coolers – which means burgers are cooked fresh daily
• You can order your burger your way — with up to 15 toppings added for free
• Fried in peanut oil, french fries are served crisp and in large quantities
• Famous people have proclaimed their love for Five Guys food—including former President Barack Obama

Five Guys Keeps on Growing

Photo from Five Guys Official Facebook Page

The chain shows no sign of slowing down after it first exploded in the Washington, D.C. area more than 30 years ago, according to its Franchise Disclosure Document.

• In 2018, Five Guys sold 1,643 franchise unit rights and 561 rights remain available for franchisees to develop franchise units under various development agreements in existence throughout the United States and Canada.
• The company operates 492 restaurants, and its franchisees operate 930 restaurants, respectively, throughout the United States and Canada.
• Expansion into the UK began in 2012 and has resulted in 88 restaurant locations.
• As of 2018, the company sold 154 franchise unit rights and 123 rights remain available for franchisees to develop franchise units under various development agreements in existence throughout the Middle East, Ireland, Switzerland, Luxembourg, and Italy. Under these agreements, 30 international franchise restaurants opened.
• There are 10 international stores. In December 2017, the first international company-owned store was opened in the Netherlands. As of December 31, 2018, the company opened seven more stores in the Netherlands, one store in Belgium, and one store in Hong Kong.

Five Guys Requires a Smaller Initial Investment than its Competitors

Opening a Five Guys franchise requires an initial investment ranging anywhere from $306,200 to $641,250, according to the Franchise Disclosure Document. However, this investment is much less than the initial investments other fast food powerhouses require of their franchisees. Although Dairy Queen requires a similar initial investment, other competitors such as Burger King and Wendy’s require up to four times as much money to launch a franchise.
Five Guys Franchise Fees & Costs

Competitors

 

	Franchise Fee	Initial Investment	Royalty
Five Guys	$25k	$306k to $641k	6% of gross sales, 8% in Alaska, Hawaii or Puerto Rico
Dairy Queen	$25k to $35k	$382k to $1.8m	4-5% of monthly gross sales
Taco Bell	$25k–$45k	$1.2M to $2.8M	5.5% of gross sales
KFC	n/a	$1.4M to $2.8M	4%–5% of gross revenue
Burger King	$15k–$50k	$1.9M to $3.3M	4.5% of monthly gross sale
Wendy’s	$40k	$2M to $3.7M	4% of gross sales
Chick-Fil-A	$10K	$342,990 – $1.982,225 Chick-Fil-A corporation will pay for land, construction and equipment for a restaurant, then rent it to the franchisee for 15% of sales plus 50% of pretax profit remaining.	Up to 3.25% in advertising fees as a percentage of gross monthly sales

 

Below is a breakdown of what your initial investment in a Five Guys franchise will cover and when you can expect to pay it, according to the Franchise Disclosure Document.

 

Expenditure	Estimated Amounts	When Payable	Method of Payment
Initial Franchise Fee	$25k	On signing Franchise Agreement	Lump Sum
Development Fee	$50k per Restaurant ($125k per Restaurant in Alaska, Hawaii and Puerto Rico)	On signing Development Agreement	Lump Sum
Leasehold Improvements)	$100k to $300k	As Arranged	As Invoiced
Lease Payments and other rental expenses	$7.5k to $20k	Monthly	Per Lease
Equipment	$55k to $105k	As Arranged	As Invoiced
Signage	$6.5k to $20k	As Arranged	As Invoiced
Initial Inventory	$10k to $15k	As Arranged	As Invoiced
Architectural/ Engineering	$7k to $25k	As Arranged	As Invoiced
Electronic Cash Register System with Modem	$15k to $25k	Lump Sum	As Invoiced
Travel, lodging and meals for initial training	$100 to $5k	As Incurred	As Incurred
Business Supplies (stationery, business cards, menus, gift cards, paper and other materials)	$4k to $8.5k	Lump Sum	As Invoiced
Business licenses, permits, utility deposits, etc. (for first year)	$5k to $15k	As Arranged	As Incurred
Insurance deposits and premiums	$750 to $1,250	As Arranged	As Invoiced
Additional Funds for first 3 months	$20k to $25k	As Arranged	As Incurred
TOTAL	$306,200 to $641,250 ($381,200 to $716,250 for Alaska, Hawaii and Puerto Rico)

 

Other fees include weekly gross payments of 6% and 2%, to cover royalty fees and creative fund advertising, respectively. Franchisees must also spend 2% of their gross annual sales on local advertising.

What Can You Expect to Make?

Photo from Five Guys Official Facebook Page

Five Guys states that they “can’t make any representations about future financial performance or the past financial performance of any company-owned or franchise units, nor can we authorize employees or representatives to make any such representations either orally or in writing.”

That said, Five Guys franchisees can reasonably expect to make as much as $1.18 million in annual sales, according to QSR.  While this is less than some of its competitors, its lower initial investment might make it a better entry point for some franchisees. Remember, sales does not equate to income, since you will have to deduct all of your operating costs and expenses before you pay yourself. According to the most recent Franchise Business Review data, the average median income for food franchise owners is $126, 866.

Why Owning a Five Guys Franchise Might Be Right for You…

Five Guys is one of the leading fast food chains in the country, known for its commitment to quality and customer experience. Adweek recently called it the “rarest of unicorns” in that its able to grow and maintain its popularity without spending big bucks on large-scale advertising.

Commitment to Quality: A delicious meal and awesome customer experience are so important to Five Guys that they spend five times as much investing in customer experience than they spend on advertising. While Five Guys does embrace digital advertising, it spends much more on secret shoppers, who visit locations twice a week to ensure employees are upholding the brand, according to Adweek.

Reputation for Tasty Food: The menu may be simple, but most loyal customers will tell you that Five Guys burgers and fries can’t be beat. A taste-tester from Business Insider recently tried signature burgers from McDonald’s, Burger King, Wendy’s, Shake Shack, and Five Guys—and Five Guys came out on top, thanks to its “overall ingredient quality” and “classic burger taste.”

Thorough Training: Once a franchisee’s application has been accepted, members of their team (including a general manager and operating principal, and assistant general manager) must undergo a comprehensive management training program at its corporate headquarters in Virginia for at least two weeks. For the opening of your first restaurant, Five Guys provides you with one of its trained representatives to provide on-site pre-opening and opening training, supervision, and management assistance to you for 10 days according to the Franchise Disclosure Document.

…And Why It Might Not

Photo from Five Guys Official Facebook Page

Although there are many advantages to investing in a Five Guys franchise, owning a burger franchise isn’t right for everyone. Five Guys, in particular, mandates some provisions that might make it the wrong fit for potential franchisees.

Significant Involvement: Be ready to be hands-on, particularly if you plan on running your Five Guys franchise as a sole proprietor. If you are running your store as an individual, you must perform all obligations of the Operating Principal, according to the Franchise Disclosure Document. This includes attending training and holding responsibility for all business operations. If you or one of your managers cannot serve as Operating Principal or you no longer qualify, you must designate a replacement within 15 days.

Expensive Burgers: Quality comes at a price. Depending on the market you wish to enter, the cost of Five Guys burgers and fries might pose a barrier to consumers. According to a story in Business Insider, individuals surveyed across several demographics said they couldn’t afford to eat there. A Five Guys cheeseburger costs $7.69, while a bacon and cheese Whopper at Burger King will set you back $5.19.

Standard Locations: Although its menu is flexible, Five Guys building standards are fairly uniform. You’ll never drive up to a Five Guys in a rural location or experience one with extra capacity. Each restaurant is typically between 2,000 and 3,000 square feet and is located in a retail shopping center or other urban location deemed acceptable by the franchisor. The Franchise Disclosure Document does mention that the chain will sometimes allow franchisees to consider train stations, sports arenas, airports, university campuses or other captive market spaces on a case-by-case basis.

No Financing: If you want help financing your restaurant, you will not be able to get it from Five Guys, as it does not offer, either directly or indirectly, any financing arrangements to franchisees. It also does not guarantee notes, leases or other obligations, according to the Financial Disclosure Document.

No Major Delivery Services: If you want a Five Guys burger and fries, you’ll have to drive to your nearest franchise to get them. Five Guys has not yet partnered with an official delivery service, although other chains have embraced delivery programs, such as DoorDash and Uber Eats, to reach as many hungry customers as possible. Recent data from NPD Group Market Research reveals that over half of restaurant takeout orders occur online. Restaurants are directly experiencing revenue growth from these services — up to a 20% increase across the entire industry, according to The NPD Group. By ignoring the takeout trend, Five Guys franchisees could be missing out on potential customers.

Consider These Tasty Alternatives

If you’re thinking of investing in a Five Guys franchise, but aren’t 100% sold, take a look at some of these alternatives from our FBR Top Food and Beverage Franchises list. The franchise opportunities listed below are all award-winning brands that have been rated highly by the franchisees that own them.

1. Kona Ice

Although shaved ice is a lighter alternative to burgers and fries, Kona Ice has been a top-ranked food franchise by Franchise Business Review for the past six years and has held the top spot for the past three years. Kona Ice receives high marks for its low initial investment cost — $125k–$148k — low overhead, quick startup, extensive corporate support and marketing, and more. “I would have never imagined that I could practically pay off my entire year’s royalty in one weekend,” said one franchisee. “I never thought I’d be able to do this full time, but after just a year in the business, I was able to make Kona my full-time job.”

• Low initial investment
• Rated number one for several years in a row on FBR’s Top Franchises List
• Extensive corporate support

Learn more about owning a Kona Ice franchise.

2. Culver’s

Founded in Prairie du Sac, WI in 1984, Culver’s — famous for its butter burgers and frozen custard — has been a Midwestern standby for the past 35 years. Culver’s initial franchising attempt in 1988 was less than successful, which is why the business’ franchising efforts didn’t begin in earnest until 1990. Since then, though, business has been booming: The average Culver’s generated approximately $2.2 million in sales per unit in 2017, placing it just behind McDonald’s and securing its spot at #6 on Entrepreneur’s 2019 Franchise 500 Ranking. Said one franchisee, “[Culver’s] was the perfect fit for us. We opened our first restaurant and our second in 2014. This decision was the best one we could have made for us and our family.”

• Strong unit sales
• Comprehensive training
• Additional support from opening and franchise teams

3. Donatos Pizza

Donatos Pizza has become an incredibly popular franchising option in recent years for its cost/benefit balance. For the relatively low initial investment cost of $375k–$700k, franchisees stand to make over $1M in average net sales per year, with some top-performing units earning over $2M per year. If those potential earnings weren’t appealing enough, Donatos also offers predictive intelligence capabilities for smarter delivery, flexible restaurant design options, a comprehensive training program, and more.

• Attractive cost/benefit balance
• Predictive intelligence capabilities for smarter delivery
• Comprehensive training program

Learn more about owning a Donatos Pizza franchise.

4. Checkers & Rally’s

Since 1986, Checkers & Rally’s has been serving mouth-watering American classics such as hot dogs, hamburgers, and milkshakes to millions of happy customers. In fact, Checkers & Rally’s food is so good that one franchisee listed it as a highlight of working with the brand, saying, “What excites me about the brand is the food — the bold flavors.” A Checkers & Rally’s franchise comes at a relatively low initial investment cost of $96k–$1.5M with a significant return on investment (up to 62%, according to the brand’s 2018 FDD report) and plenty of room to grow, with over seven years consecutive of same-store sales growth and counting.

• Franchise incentives for military veterans
• High return on investment
• Modular restaurant building for faster, more affordable development

Learn more about owning a Checkers & Rally’s franchise.

Ready to Join “The Guys”?

A Five Guys franchise has the potential to earn you a lucrative profit, but with so many franchise opportunities from which to choose, you should conduct your own research: compare different franchising options, weigh franchising costs relative to profits, ask for feedback from current franchise owners, and be honest with yourself about how much you’re able and willing to take on. Investing in a restaurant franchise requires a serious investment of both time and money, no matter how good the fries taste.