The answer is: If we become dissatisfied with the management of the brand we have a asset to sell-its a business-(instead of the option to quit a job) the value that we have built is ours to keep-it doesn't belong to the franchisor

I see your point.

In the end, I guess someone needs to make sure it is a company they can live with and they are doing something they love.

OP, who does 5G management believe their direct competitors are?

You mentioned earlier in the thread you were paying 2x your competitor's cost for the buns. Who is that competitor?

If you asked each of the founders what the scarcest resource in the operation of a restaurant is, what do you think some of the responses would be?

I think they would mention the shake shack guys, In N Out, chipotle, red robin even. I think they understand that we are ultimately in competition with the entire fast casual segment that includes panera and other concepts as well.

I was using the high cost of buns as an example-I have local chain competitors(more of a regional group) mention their costs in conversation (.12-.18)-I don't have direct cost information for anyone-I can only use what I see at places like costco and sams club-I see buns as low as .12-.12.5 which we are a multiple of-I can only speculate that a Wendy's is paying around .18 for the new pretzel bun or ciabatta-It was not a specific reference to any one brand however. (McD's might be paying .08 for all I know)

The answer to that is always going to be a good crew. Everything that comes from Jerry on down is about the crew and how important they are to the success of the brand. For us it has been the most challenging part of the business-and really I think we have done well. We could probably fill an entire thread with the stories that could be told about the things that have happened....An example: when were in our first weeks of the first store I hired a gentleman that had a problem with a dui and was not driving currently-but he seemed earnest in his desires to do right.. A week passed almost before one afternoon he showed up for his shift and I noticed that he was, to put it bluntly, hammered. I pulled him off of the line to the back of the house and asked him,

"Have you been drinking?"

Ill never forget his answer.....he looked at me earnestly and said,

"yeah, I stopped at the bar down the street on the way here and had a couple of long island iced teas,....is that a problem?"

"No man thats no problem, you go right on back out there and stand over those 350 degree fryers and fall right on in-"

and he actually starts to walk back out on the line-I have to stop him and say

"no-I was joking, you have to go"

"really,.......uh, am I fired?"

I'm not kidding-this really happened

So your bun cost is 24 to 36 cents per unit? Is that correct?

Just ate at one today because of this thread. Last time I was at 5G was a few years ago and I was super drunk. I remembered a delicious burger and was expecting to be disappointed with such a high standard from my memory. However, the burger and fries I got today we're better than the ones I remembered, so delicious. I also got some shelled peanuts to eat that was an extra bonus that I didn't remember the other 5Gs having. Overall 5* from my experience today.

your in the range-why is this important?

Good to hear-All locations should have peanuts-thanks for the visit!

I don't know if this is what he is getting at, but I find it a little strange you are worried about a 2¢ per unit increase in the cost of the bag if they branded it yet you are paying 24 to 36 cents per unit for buns.

On an unrelated note, what kind of bacon do you use?

because we eat the buns, not the paper-and we are talking about all of the costs being in the product-not the ancillary service items

we use Patrick Cudahy applewood smoked bacon (the product is actually smoked-not cured with chemicals)

Given 5G has a BLT, I know where I am eating lunch.

I always found the peanuts weird. Is there any story about how they came up with that. Have they looked into how much having them around helps. I can't imagine that someone would go (or not go) because of the peanuts, but I would expect that 5G has some sort of data on this.

It's really more basic than that-back in the day when the Murrell brothers were working in the original location it was very small, and people just stood around and stared at the guys while they were cooking orders-they thought the peanuts would give people something to do while they waited on their food.....it stuck, and today its tradition to have peanuts while waiting on your order at FG

Thanks for a great AMA. On this question, I may have a bit to add to your reply, as I very regularly ate at one of the original three. They were certainly smaller but it was more that the attitude was a bit different. As an example, the floor was pretty much covered in peanut shells as that is simply what one did with the shells. A decade later I was quite confused about what to with my shells when dining in the new "antiseptic" style 5G in some exurb of DC.

One needs to understand that the original was pretty much a hole in the wall that had great burgers way before the gourmet burger craze was even a flicker in anyone's eye. I would go with colleagues because the quality was just so much better than anything else and we were not alone so you ended up with a bunch of 20-40 year old men in a crowded space, hungry and wanting their damn burgers and fries - the source of the latter written on a board by the register. Thus the placating of the masses with a barrel of peanuts and a floor of shells was the norm.

Good times, thanks for bringing me back to those days OP

The free peanuts came from one of the HOJOs chains in the 1960s-70s that had a good presence on the east cost.

At any of your locations have you had a strong competitor open very close to your location? How much would it impact sales ? Say Smashburger or In-n-Out opened across the street.

After reading this thread I decided to check out the five guys in Islington, London. It was properly awful. The bun was soaked in grease, the bacon was really hard, the patties were tasteless and the fries were overcooked. I was really looking forward to a great burger, but for £15 it was really poor.

I'm sorry you were disappointed-call the toll free number on your receipt and let them know about your experience-I'm interested to know the response you will get (in our market we would refund your money)

Of course this is going to be different in each market-and will depend on the relative strengths of the local operators, but in our market Smashburger has already come and gone. In-n-out is a different story, as all stores are company operated, and generally they do an excellent job. They are not in our market as yet.

That being said-we are generally not concerned with our competitors being located close to our locations.

OP,
If you would prefer that your thread remained more casual/lc-ish I can ask a mod to delete this. I am going to cross-post it in my restaurant thread anyway. In the spirit of 2+2 I hope your cool with it staying in tho. There are some smart people on these boards who could inform the thread with good info. & there is plenty to learn from 5Gs.

I asked about the bun pricing because I am not yet sold on management although the founder seems like a pretty interesting person, kind of guy we all sat many a poker game with.

Variance. The leading cause of failure is success.
There is so little discussion about variance in these types of threads in BFI, yet positive & negative patches of variance have a definite impact in the world outside of poker A confluence of events led to the 5Gs explosion & little of that was informed by the abilities of the founders. I don't want to get into too much detail about that, but if you understand this business & listen to what they say, you are going to be scratching your head a bit.

System Contraction
We don't know what the natural rate is as 5Gs corp is pretty aggressive in buying back franchises, in some cases to keep from going completely dark in some top 50 DMAs. Here are some numbers to consider:

2009 91 Company Owned Stores 457 Franchise Units
2013 315 Company Owned Stores 805 Franchise Units

OP states in the thread that they are now up to 400 company owned stores. OP, what is going on in your imo?

I really doubt 5Gs founders/corp planned to open a company owned stores at a rate of >1 unit/per week during that period & franchisee's don't sell back their units because their pockets are too full. I am also doubtful that franchisees are selling these back to corp at a nice multiple. These are likely distressed deals where the franchise groups are relieving themselves of their present operations & obligations they have to open additional units. Recall that in the 5Gs franchise offerings you have to agree to open a min of 5 Stores (OP, please correct if it was not 5) & pay a dev for those stores. So when 5Gs does a buyback, they are also shrinking the expansion—unless they plan on re-franchising.

One of their largest franchise groups has reported it takes 2.5 years on avg to get a new store to break-even, so it is good to hear that you got there right away. How do you think you and your partners would have proceeded if your first store took 30months to break-even?

I have a few other thoughts to post when I have more time, but this likely already too tldr/de-rail-ish

Cliffs
I personally think 5G hit their top in the first half of 2014, some of the real smart money thinks it was last year, not convinced by management because they ran way, way above expectation & some of the better things they do came from outside the group,the numbers just don't look good & haven't for 5 years, differentiation in the segment is narrower than they care to admit etc...etc..

Does anyone have any experience with the marketing roadshow for a 5Gs like IPO or any retail IPO or maybe even private equity dealmaking re:retail? Would you mind coming into the thread & talk about how the founders might best get their money out, general thoughts on the type of offering & what they should or should not be doing in front of any exit to maximize their value? Or anything else you might want to inform the thread with.

I am estimating the family still controls 60-70% of the company with ~25% of that equity held by smart money. They have at least a 100million+ revolver & heard sold some preferred & maybe some more loans. I also think they may have pledged a % of their franchise royalties, a % of their supply chain & some of their upfront franchise fees etc..etc... It also looks like they have 400 corp locations, probably all leases, so there is that too

I'm curious how the five guys stores in California do where there are plenty of inn n outs? I have a few near me. I've only been to one of them and it wasn't drive thru so it's easier for me to go to inn n out.

This post says a lot-but is very vague in many details, also some of this just a general poke at the family, and I can't really speak to that. But generally you are saying you think the FG has jumped the shark, will begin to unravel at the edges and eventually fail. Yes FGO has acquired a couple of the larger markets in the last few years, but it was my understanding that they have always wanted to operate a large number of the stores, (they held markets like Chicago, and Pheonix among others) and felt the brand was not being properly represented in some of the markets. However, they seem to be continuing to develop any market they are taking over-so not significantly reducing the net long term store count. I don't think the contraction is as dramatic you make it seem. Your totals are not quite accurate. I estimated that they had around 400 to use a round number-its currently 387(of 1229) and this includes the store that opened today. So they are around 31% of the system now-but this growth includes the UK. Which top franchisee-and where did they say this? I'm not sure what break-even you mean-do you mean, break-even on the completed investment on the store or do you mean cash flow break even? You talk from both the inside and outside of the organization in your posts, saying things like "We need Management to" and "I just looked at plans today" but then act like you don't know the organization and quiz me on basic items like "what are your drink sizes?" You quiz me about the shakes and then inform me you have had the product, like you are testing me or something.

Also, your next post indicates that you believe that the family is most likely looking to cash out near term. You mention some very specific information about their financial situation, lines of credit, etc. information I that don't have access to(other than the 100M rotating line-this I have heard about) and they need an exit plan-

Apocolypse-I respect your demonstrated knowledge about the industry-but I have no idea where you are getting some of this information, and really don't know how you expect me to respond to this last group of posts-No, I don't think the brand is too narrowly differentiated, and I think any segment contraction will be good for the FG system because it is the most fundamentally sound in both product and process (whether they invented it or not). No of course I don't believe that the brand has peaked in either AUV's or in total unit counts. I have no knowledge of and have heard no rumors that the family is uncomfortable with their situation and looking to cash out-but I'm just a naive hillbilly out here working hard trying to build a business-so I could be completely wrong-all in all this is something that time will give us the answer to.

I don't know any of the California franchisees and as such, I haven't really followed sales in Cali. No FG has a drive through-our ticket times are really not conducive to Drive Through service

OP,
Just to be clear, I have zero affiliation with 5Gs. I have not done any work for them & don't think I know anyone who has. I asked a couple of simple questions in the thread because I was too lazy to look them up myself & in some cases wanted a franchisee's opinion. I don't have time for detailed response atm, but will try to get back into the thread in the next day or so.