Five Guys Franchise Disclosure Document Analysis

Mandatory Affiliate Purchases Create Substantial Cost and Rebate Exposure

Franchisees must purchase all hamburger and hotdog buns exclusively from Five Guys Bakery, LLC, a franchisor affiliate, with no ability to seek alternative suppliers. The franchisor and its affiliates also receive rebates of 1–5% from other designated suppliers.

Source: p.30

Total Mandatory Fee Burden Reaches Minimum Ten Percent of Gross Sales

The combined royalty (6%), Creative Fund contribution (2%), and local advertising requirement (2%) impose a mandatory floor of 10% of Gross Sales in ongoing fee obligations, rising to 12% in Alaska, Hawaii, and Puerto Rico, before factoring in any cost of goods, labor, or rent.

Source: p.18

System Unit Decline Shows Weak-to-Negative Franchised Outlet Growth

Franchised outlet count declined from 1,008 at the start of 2020 to 899 at year-end 2022, a net reduction of 109 franchised locations over three years, driven substantially by franchisor reacquisitions. Company-owned outlet count rose from 499 to 578 over the same period.

Source: p.62