The popular burger chain Five Guys has fallen on hard times. With mounting financial losses, supply chain challenges, and changing consumer preferences, the company has closed all its locations worldwide. This news comes as a shock for the legions of loyal Five Guys fans.
How could the once rapidly expanding brand fall so far? In this article, we’ll examine Five Guys’ history, the factors that led to its downfall, and what the future could hold for the company. While the closures mark the end of an era, the Five Guys story is far from over.
Background on Five Guys
History and growth
The first Five Guys restaurant opened in Arlington, Virginia, in 1986. Founded by the Murrell family, the chain prided itself on simple, fresh burgers cooked to order. Over the next few decades, Five Guys exploded in popularity through word-of-mouth and strategic franchise partnerships.
At its peak, there were over 1,500 locations worldwide. Five Guys cultivated a devoted fanbase with its juicy burgers, boardwalk fries, and free peanuts while you wait. It carved out a niche in the booming fast-casual segment.
Menu and offerings
While the menu remained simple, focusing on burgers, hot dogs, and fries, customers loved the endless customization options. The burgers were just beef – no fillers or preservatives. The fries were hand-cut daily and cooked in peanut oil. You could top your burger or hot dog with 15 free toppings. This simplicity and flexibility were Five Guys’ trademark.
Instead of company-owned locations, Five Guys relied on a franchise model. Local entrepreneurs bought into the brand, helping fuel rapid nationwide and international expansion. However, this also meant challenges like supply chain logistics were decentralized. The model worked well when Five Guys ascended but would prove difficult to manage amid the turmoil.
Recent Challenges for Five Guys
Supply chain issues
The COVID-19 pandemic wreaked havoc on supply chains across the restaurant industry. Five Guys relies heavily on fresh ingredients like ground beef and potatoes. Disruptions made it difficult and expensive to procure the volume they needed.
The war in Ukraine further strained global food supplies and caused price spikes. With hundreds of franchisees ordering independently, logistics became increasingly complex and costly.
Inflation and costs
Even as supply became less reliable, inflation drove up prices. The conflict in Ukraine sent commodity costs soaring. Beef prices jumped as much as 20% in 2022 alone. Rising minimum wages and labor shortages also made hiring more expensive. While competitors streamlined menus or processes, Five Guys’ meticulous recipes resisted cost-cutting. Franchisees struggled to offset double-digit cost inflation.
Competition in the market
Finally, consumers had more options than ever for high-quality burgers and fries. Chains like Shake Shack, In-N-Out, and Wendy’s have innovated with new menus and digital experiences. Fast casual brands took off in urban markets where Five Guys thrived.
After years of trailing behind Five Guys, competitors caught up while Five Guys rested on its laurels. People looking for a better burger suddenly had their pick of options vying for their attention and dollars.
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The decision to close all stores
Ultimately, the biggest factor was unsustainable financial losses. While exact figures are undisclosed, it’s estimated Five Guys lost hundreds of millions in 2022 alone as costs soared but sales stagnated. Many locations were bleeding money, with costs exceeding revenues. The losses were projected to continue without systemic changes the brand was unable or unwilling to make.
Unsustainability of the business model
The franchise model let Five Guys expand rapidly but made implementing solutions quickly difficult. Five Guys corporate had little control, with nearly all restaurants run by independent owners.
They couldn’t force franchisees to update menus, hours, wages, or suppliers. So Five Guys could neither control costs nor react nimbly to market changes at a systemic level. The decentralized structure that facilitated its rise became its Achilles heel.
Closing all stores was likely a last resort after pursuing other options. They could have tried renegotiating with franchisees or suppliers. Corporate may have considered acquiring locations and restructuring.
But with heavy losses across hundreds of owners, a sweeping overhaul would have been extremely challenging to implement in time to reverse the damage. Ultimately, the plug needed to be pulled.
Impact of the closures
Closing means disaster for many Five Guys employees. Estimates indicate at least 15,000 people, both corporate and restaurant staff, will lose their jobs. Hourly team members will be most affected, like those hand-cutting potatoes and grilling burgers.
For them, the closures mean immediate unemployment unless they can transfer within their franchisee’s portfolio. Corporate layoffs will follow soon after. Though inevitable given the losses, these layoffs still represent thousands of livelihoods upended.
Franchisees, too, will bear the brunt financially. Most franchise owners took out huge loans and invested their savings to open a Five Guys location. The corporate entity filing bankruptcy provides them little protection or recourse to recoup their multi-million dollar investments.
Many will be forced to declare personal bankruptcy or face financial ruin through no direct fault. They trusted the Five Guys brand, just like customers and employees. For them, the closures leave uncertainty and financial trauma.
Customers and brand loyalty
Five Guys super fans helped the brand thrive through word-of-mouth marketing and repeat visits. To them, Five Guys was an indelible part of the burger experience.
The bold move to close all locations risks severing brand loyalty. However, the customer passion may remain, ripe to be reignited if Five Guys eventually reemerges in some form. A nostalgic customer base for their signature burgers could prove a valuable asset.
What’s next for Five Guys
Assets and intellectual property
After the bankruptcy and closure dust settles, Five Guys must determine what to do with any remaining assets. This includes corporate and intellectual property like trademarks, brand names, logos, and proprietary recipes. Liquidating tangible assets can raise capital, while intangible IP retains potential value.
The company could license or sell its brands and recipes to another chain. Burger fans would undoubtedly line up to taste an “official” Five Guys burger again.
With strong brand recognition and fan loyalty, Five Guys is an ideal acquisition target, especially at a bankruptcy discount. A larger chain could purchase Five Guys and integrate the brand into its portfolio, opening new Five Guys locations alongside existing ones.
This would leverage built-up name recognition while benefiting from economies of scale. Of course, Five Guys would have to determine if being purchased aligns with its identity after this bankruptcy.
Future of the brand
Ideally, Five Guys can eventually make a slimmed-down, strategic return, possibly starting with several corporately owned locations. After the misstep of aggressive franchising, a reset may let Five Guys reclaim what made it successful – quality burgers and customer obsession.
With core fans still out there, Five Guys could rise like a phoenix if they stick to their roots. After all, people ultimately just want a better burger.
The shocking decision to close all Five Guys locations marks the end of an era. Though the chain grew rapidly by focusing on quality and simplicity, challenges with rising costs, supply chain woes, and market competition ultimately brought the house of burgers down.
Employees, franchisees, and customers trusted the brand and must now all move forward. But the Five Guys story may not be over yet. With strong brand loyalty and intellectual property waiting to be leveraged, fans may enjoy those perfect boardwalk fries again. For now, we say bon appétit and au revoir to Five Guys.
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What will happen to the remaining company assets?
Leftover corporate assets and intangible intellectual property like trademarks and recipes will likely be liquidated or sold. This can provide some revenue after bankruptcy.
Who decided to close all Five Guys locations?
While franchisees independently run their restaurants, the corporate entity ultimately called for a full closure after reviewing financial losses across all locations.
Could Five Guys restaurants reopen under new ownership?
Potentially. A new owner could theoretically revive the Five Guys brand and open new locations if purchased out of bankruptcy.
What will Five Guys employees do now?
Hourly restaurant employees will, unfortunately, face immediate unemployment unless they can transfer to other locations run by multi-brand franchisees. Corporate staff will likely receive severance packages.
Will customers get a chance to say goodbye?
Unfortunately, spontaneous closure means patrons won’t get a chance for farewell visits. But Five Guys may someday return in smaller form, letting devotees reunite with their beloved burgers.