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    The Runaway Hit

  • In just one year, Five Guys catapulted 12 spots on the QSR 50, from No. 42 in 2010 to No. 30 this year.

    Between its 1986 founding and 2002, the year it started franchising, Five Guys Burgers and Fries opened six locations, all in the Washington, D.C.-metro area near its home base in Arlington, Virginia.

    Since 2002, Five Guys has opened more than 750 locations and is now mentioned in the same breath as chain-restaurant titans McDonald’s, Burger King, and Subway.

    The obvious question: How did these guys do it?

    “The only thing we did right was stick to our guns,” says Jerry Murrell, founder and patriarch, whose five sons—the Five Guys—all help run the company.

    By way of example, Murrell once refused to deliver 15 burgers—or any burgers, for that matter—to the Pentagon. Never mind that the U.S. military industrial complex operates out of the building, that it is the symbol of American might, or, more to the point, that the collective appetite of its 26,000 employees keeps many Beltway restaurants afloat.

    Five Guys doesn’t deliver. To anyone. Not even to the biggest office building in the world.

    “We’ve never had a delivery service,” Murrell says. “We don’t believe in it. We think it cheapens the product.”

    After a Pentagon employee told Murrell Five Guys would never make it if it didn’t deliver, he put up a big banner outside of his Arlington location that said “Absolutely No Delivery.”

    The outcome? Five Guys’ strict no-delivery policy has paid off in spades. Pentagon business went up 20 percent after posting the banner, Murrell says, and in 2009 President Obama picked up a cheeseburger in person, a visit that made headlines around the country.

    “When the President of the United States wanted to get Five Guys, he had to go get it himself,” Murrell says. “We really lucked out there.”

    Indeed, it was a dream marketing coup for a company that does not spend a single penny on marketing or advertising. Instead of pouring money into commercials, Five Guys pays for two third-party audits every week at each of its locations and gives monetary bonuses to the crews that get the highest marks.

    “We believe the best salesperson we’ve got is the customer standing right in front of us,” Murrell says. “If we treat him right, then he’ll go out and tell everybody about it. That’s marketing to us.”

    Restaurant marketing analyst Joel Cohen calls it “secret marketing.”

    “I think they do spend money on marketing,” says Cohen, who lists Five Guys’ prime locations, huge portions, and in-store “Best of” posters as part of the company’s marketing strategy. “You just don’t see it.”

    It may be an unorthodox approach, but it would be hard to argue that it’s hindering Five Guys’ success. In 2010, the company had $625 million in sales, a 38 percent increase over the previous year, making it the fastest-growing chain with sales over $200 million, according to a report by Chicago-based consultancy Technomic. No. 2 on the list was Jimmy John’s Gourmet Sandwich Shop, which had higher absolute sales figures but trailed Five Guys in percent change by 16 points.

    Then there’s Five Guys’ expansion from six to more than 750 stores in the last decade. The chain grew by about five stores per week over the last three years—including 2008, the nadir of the Great Recession—and is growing by almost six stores per week now. Within eight months, Murrell says, Five Guys will celebrate the big 1,000.

    “They likely have more people who would like to be a franchisee than they have franchises available,” Technomic executive vice president Darren Tristano says.

    The numbers suggest Murrell did more right in the company’s early years than just stick to his guns. The decision to franchise, in fact, was made by ignoring his gut instinct.

    “Most franchises that I see have a tendency to have that goal right from the beginning,” Murrell says. “We had no intention to be a franchise company. We just wanted to be a good hamburger company.

    “People were asking us to franchise years and years before we did, and we kept saying no,” he says. “We didn’t think we could transfer the culture.”

    The culture of Five Guys comes down to meat and potatoes and loyalty. The company has been getting its beef from the same supplier for more years than Murrell can remember (literally), and it chooses to use Idaho potatoes for its fries rather than faster-growing, cheaper crops in Florida and California for the simple reason that, in Murrell’s opinion, “they taste better.”

    Five Guys’ loyalty extends to its identity as a burger joint as much as to its suppliers. In an age of expanding menus, when even so iconic a brand as McDonald’s is as well known for its salads, coffee, and wraps as for its Quarter Pounder, Five Guys’ menu reads like one of Gertrude Stein’s minimalistic poems: Hamburger/ Cheeseburger/ Bacon Burger/ Bacon Cheeseburger.

    While the chain also serves hotdogs, it has ignored steady customer demand for milkshakes, the historic Ying to the hamburger’s Yang. The reason, Murrell says, is that Five Guys would have to make its own ice cream. “Nothing Frozen” accompanies “No Delivery” on the chain’s list of incontrovertible policies.

    While not giving customers everything they want would seem a recipe for spectacular failure, it has served Five Guys well since the early days.

    “What we all decided in the beginning was that if we were going to make it, we were going to do it the way we wanted to do it,” Murrell says. “If we just cooked hamburgers and fries and could make it doing that, we’d be alright.

    “There was a lot of temptation along the way to do milkshakes and to advertise and to do a lot of things that we did not want to do,” he says. “Our philosophy was to stick within our own four walls and have the food do the talking for us.”

    And for 16 years, that’s how the Murrell family ran Five Guys, overseeing their small cluster of stores and personally making sure everything went according to plan. Then, in 2002, the desire to expand and the inability to fund expansion internally combined to overcome Murrell’s trepidation about the franchise model.