Five Guys

Mar 13, 2020 | Report Announcements

Five Guys is best known for quality burgers and even better fries which come loaded in a brown bag. The brand has developed a cult-like following along the Eastern seaboard and into the Midwest including a strong presence in DC where the chain started in 1986. All its ingredients are delivered fresh and there are no freezers in the store. Quality is reflected by use of: 80% lean beef; slow-growing, relatively expensive Idaho potatoes; lettuce “torn-out”, not cut; bread products prepared at company owned bakeries; and buns toasted on a grill (not a toaster) in order to produce a caramelized taste. Five Guys’ open kitchen has the look and feel of a mom-and-pop short order kitchen with cooks relying on experience rather than timers to know when the burger is just right. The chain’s practice of making customized food to order in front of the customer adds to the perception of quality and variety while its flat burger pricing allows customers to add fresh & flavorful toppings for free, including an “All The Way” option. This customization option appeals to Millennials and distinguishes Five Guys from QSR competitors. An innovative mystery shop staff bonus program drives service excellence and compliments word-of-mouth marketing strategy (which includes growing emphasis on social media). Notably, after a long period of comp challenges, sales rebounded in 2018 and through the first 3 quarters of 2019, reflecting the benefit of delivery. Having said all this, it is important to remember that sales pressure from 2012 – 2017 reflected: the brand’s high price points & price hikes during a long period of economic stagnation and increased burger competition from QSR, fast casual & casual; a 7-minute order prep time; capacity constraints at lunch (especially considering the lack of drive-thru capabilities); and excess development leading to the cannibalization of existing stores. Five Guys’ average check is significantly higher than the QSR sandwich segment and, despite the use of more expensive ingredients, its food costs outperform by a very significant margin, thus revealing a material value gap. In conclusion, the key questions for Five Guys remain: Could lower menu prices drive more traffic and incremental sales? If so, can operations handle a higher traffic load? Is the current sales boost from delivery sufficient to compensate for the brand’s value gap? Should Five Guys consider increasing its required marketing contribution to fund traditional advertising?

Restaurant Research

Email Sign-up

15 Second Posts

What is the Federal Government’s Job?

A couple of weeks ago we conducted a thought experiment in which the government became a nonprofit, and this week we propose another thought experiment in which the government becomes a public corporation. We suggest that this could provide very useful input into the debt ceiling debate.

The Importance of the Balance Sheet in Financial Analysis

While most investors are focused on sales growth & margins, they would be well served to further consider the strength of a company’s balance sheet. We look at BlackRock’s financial condition as an illustrative point.

The Importance of Free Cash Flow in Financial Analysis

Cash represents the lifeblood of all business enterprises which is why it is important to analyze free cash flow which we define as operating cash flow minus capex, dividends, and stock buybacks. We illustrate DoorDash as an example of why cash flow analysis is so important. 

Lessons From Tucker Carlson

There are many theories about why Fox booted Tucker Carlson, but it may be a very simple reason which can instruct everyone involved in the consumer retail segment.

It is Imperative that Climate Change Regs Incorporate Economic Reality

This week we spotlight efforts by international agencies to lower the earth’s temperature by imposing onerous regulations on energy producers. We suggest it will be better to: begin a process of implementing continuous improvements designed to support both economic & climate progress; and use international organizations to share tech & best practices as opposed to providing them with regulatory powers best left to individual nation-states.   

Part 3 – It’s Nice for the US to Save the Climate, But What About the Rest of the World?

In our last 2 posts, we outlined the probability that the UN’s push to lower the world’s temperature by -2 degrees Celsius could drive significant U.S. energy price hikes & shortages. How is this going to help as Asia ramps up the use of coal? Can humans lower the earth’s temperature anyhow?

Part 2: Who is Left to Make Investments in Fossil Fuels & Clean Energy?

There is not a lot of incentive for profit-seeking companies to invest in demonized fossil fuels or in clean energy projects lacking ROI. This points to substantially higher energy prices and supply shortages that will have a profound economic impact.

Part 1: Ramping Energy Demand Clashes with UN’s Environmental Goals

From 2021 to 2050, ExxonMobil forecasts that 85% of the population growth will be driven by developing countries, which in turn, will drive a +15% increase in energy demand.

What if the Federal Government Was Turned into a 501c3 Non-Profit?

Given all the focus on the debt ceiling, we propose a thought experiment in which all 100 federal agencies must compete for charitable donations. If taxpayers get to choose for themselves what to fund, what might we learn? 

Like Sinatra Croons: “So you see it’s all up to you, you can be better than you are.”

The top-paid hourly workers are currently enjoying the fastest wage growth, indicative of the current challenge to recruit & retain a skilled labor force.

Digital Marketing Opportunities
Restaurant Research

A Restaurant Research LLC Company