Five Guys Case Study

• Architectural/Engineering:
The costs of hiring architectural, design and engineering services necessary for the construction of the franchise restaurant, which must be according to Five Guys’ prototypical plans and specifications, may estimate between $7,000 to $25,000.

• Leasehold Improvements:
The cost of adapting the franchisor’s prototypical architectural and design plans to remodel the restaurant, along with other leasehold improvements, would be around $100,000 to $300,000. This cost may significantly vary in different localities, with cheaper infrastructure and labour costs in some regions.

• Business Licenses, Permits, Utility Deposits, Etc. (for first year)
Acquiring business licenses, permits, utility deposits etc. would
cost around $5,000 to $15,000. These figures are not inclusive of the occupancy and construction permits which were included in the leasehold improvement costs.

• Training:
Where the franchisee is an individual, he must perform the obligations of the Operating Principal.
If the franchisee is a corporation, partnership or any other form of entity, the Operating Principal must be one of the “Controlling Principals.” The initial training to the Operating Principal, general manager, and one assistant manager would be given free of charge for a period of two weeks. It may, however, extend to six weeks. The general manager must satisfy Five Guys’ educational and business criteria as provided in the Manuals or other written instructions, and must be individually acceptable to Five Guys. Any additional training requested by the franchisee would cost around $1,500 per person. At the opening of the restaurant, a Five Guys trained representative will provide on-site pre-opening and opening training, supervision, and management assistance for 10 days. If further on-site remedial training is required, Five Guys will provide the restaurant with additional trained representatives at a total cost of
$5,000.

• Equipment Cost:
The cost of utilizing the equipment that meets the franchisor’s specifications would be around $55,000 to 105,000. This includes basic kitchen equipment such as cooking grills, tables, shelves, oven stand proofer, ice machine, and other smallwares.

• Initial Inventory:
The initial cost for inventory of food supplies and paper goods for use in the first three months of operating the restaurant may estimate between $10,000 to $15,000.
This amount also includes the cost of $350 for the proprietary hamburger and hot dog buns a franchisee must purchase from the franchisor’s affiliate.

• Electronic Machines:
The franchisee is required to use the point-of-sale system that the franchisor specifies, have high speed internet access, and an email account to receive communications. The cost of an electronic cash register system would estimate between $15,000 to $25,000, while a facsimile machine would cost around $350 to $500. If the franchisee wishes to upgrade the cash register system, he would incur an additional cost of $5,000.

• Business Supplies:
The franchisee may also have to spend between $4000 to $8500 to purchase business cards, gift cards, brochures, memorabilia, and other written materials that may be used in the restaurant. These materials may be bought from the franchisor or any independent vendor that it has approved, and the given cost may cover material expenses for up to six months.

• Signage:
The cost of menu boards, menu panels, neon logo, and other descriptive signs may be range between $6,500 to $20,000.

• Inspection, Testing and Equipment
Approval:
The cost of inspecting, testing, reviewing and approving vendor equipment would amount to $10,000.

• Delivery and Catering Expenses:
Catering and delivery services is not mandatory. However, if the franchisee wishes, and the franchisor approves, the former would incur an additional cost of $1,000 for purchasing and fuelling vehicles, along with any other incidental expenses.

• Additional Funds:
Any additional items that may need to be purchased or leased such as telephone system, music system, floor mats, in store training, uniforms, etc. would cost between $20,000 to $25,000.

• Unauthorised Products or Services:
The franchisee must comply with high quality standards and specifications relating to the purchase of food and beverage items, ingredients, supplies, materials, utensils and other kitchen products used or sold at the restaurant. The penalty for using unauthorised products or services would amount to a fine of $250 per day.

• Transfer Fee:
Where the franchisee wishes to transfer the restaurant to a different site, he would incur a cost of $5,000. This fee reimburses Five Guys for the reasonable costs and expenses incurred in reviewing the transfer application.

• Public Offering:
Where the franchisee wishes to offer shares of the restaurant to the public, he would incur a cost of $5,000. This fee reimburses Five Guys for the reasonable costs and expenses incurred in reviewing the proposed securities offering.
• Late Payment:
The penalty for late payment or late reporting would be $50 per day.

• Total Initial Investment:
The overall initial investment cost for a single restaurant would range between $306,200 - $641,250.