The American casual dining chain is intent on expansion despite the pandemic
When John Eckbert came to Britain to study at the London School of Economics in 1989, the young American found himself a one-room basement studio in Westbourne Park. It wasn't the most glamorous accommodation, but it proved fortuitous.
"Upstairs was this guy who was selling computers for NEC and he and his sister invited me up for drinks one night. We became friends and that was Sir Charles Dunstone, long before he founded Carphone Warehouse."
They pretty much adopted me. I went with them to visit their parents on a weekend, went to Norfolk for long weekends and holidays. They were just so welcoming and I fell in love with London and with their family and said if I could ever come back with a better budget than a student's, I'd love to do it.
John Eckbert | Five Guys, CEO
He did, but not in the financial sector that he had set out in. Instead of banking, it was burgers that brought Eckbert back across the Atlantic, teaming up with his former neighbour to launch the Five Guys chain in Britain.
And it wasn't an immediate transition. After his year at LSE, Eckbert returned to America, where he continued to work in finance before founding a boutique bank. "I ran it for 12 years, then sold out to my shareholders and moved to London — without a plan. I didn't have any expectations or know what I wanted to do and Charles and I started talking. TalkTalk had just spun out of Carphone Warehouse and Charles was thinking about the next thing to do."
The pair settled on the food and beverage sector and, having talked to "every successful concept in America that wasn't already in the UK", they met the Murrell family, who had launched Five Guys in Virginia in 1986. "They were thinking about going international, so it was perfect timing. I structured the deal, made the introductions and I guess, being American, the Murrells thought I was a good person to run it."
Unusually, the British business was established as a 50-50 joint venture between the Murrells and Dunstone rather than the more usual franchise agreement, but Eckbert reckons that is one of the business's strengths. "There are no royalties. It's just a case of putting capital in and building the company as best we can. As a result, there are no tensions between someone who's getting a royalty stream and someone who's trying to make a profit. Everyone is trying to build a great business.
Having opened the first site — appropriately — on July 4, 2013, in Covent Garden, the chain reached 100 outlets in December 2019, while the joint venture had been extended to include France, Spain and Germany. Everything was going swimmingly, with group turnover that year of £263 million, an operating profit of £30 million and underlying earnings of about £50million. Then the pandemic hit and "things got pretty funky" as the group lost £30 million of sales and swung into the red.
Yet instead of retrenching, Five Guys kept the tills ringing during lockdown via delivery and kerbside collection, while pressing ahead with an ambitious opening programme. It notched up 23 openings last year, including ten in the UK, while this year 55 sites are due to come on stream, including 25 British outlets, as it takes advantage of the travails of the casual dining sector.
In Eckbert's view: "For those of us who have been fortunate enough to operate throughout and have the backing of their shareholders, it's an amazing opportunity. There will be great site opportunities over the next few years we probably would never have had. We're going to open a lot of sites this year. The pipelines are bursting and we have a very aggressive growth plan. At a cost of about £1.3 million per site, we're approaching £75 million investment this year." The chain has taken over sites that previously were part of Pizza Hut, Gourmet Burger Kitchen and Byron, as well as Carluccio's, Frankie & Benny's and even MOD Pizza, another brand that, until it went bust, was part of a joint venture between Dunstone and its American owners.
Today, Five Guys has a total of 175 outlets across the joint venture, of which 116 are in the UK, with 59 in its three continental territories. Its souped-up business plan envisages 40 to 45 new restaurants a year for at least the next two years and Eckbert reckons Britain, Germany and France each have scope for 250 restaurants, with Spain having capacity for perhaps half that.
Next on the menu is Portugal, which is also covered by the joint venture. "I'm working right now with my head of Spain on our Portuguese opening strategy. Whereas 18 months ago Portuguese landlords were difficult to crack, now we've been getting some calls about sites in really prime locations."
The Murrells also have separate franchise relationships in Europe, including Italy, Switzerland and Austria, and acquiring "adjacent opportunities" might make sense at some point. "We have a very good dialogue with those franchisees and, of course, if it made sense for them and the Murrells, we're certainly open to that."
When Five Guys first came to Britain, it acquired a reputation for paying over-the-top prices for the best sites and Eckbert doesn't demur. "We certainly did pay some premiums to get into the right locations and looking back I think it was a really important strategy, particularly from a brand-positioning perspective." Covent Garden was chosen as the first site because it "sent a message... That site was very important to us in terms of how we wanted to be seen and thought of in the UK. Sure enough, it became the No 1 Five Guys in the world, with the highest sales and the highest return."
Covent Garden has since been overtaken as the top-grossing outlet by a 10,000 sq ft site on the Champs-Élysées in Paris. "It's right between Abercrombie & Fitch's global flagship and Louis Vuitton's corporate headquarters. It's the biggest Five Guys in the world, with magnificent views of the Champs-Élysées. The rent is eye-watering, of course, but it says something about the brand, who we are, where we're located."
Five Guys' cheapest burger is £5 and the average ticket price is £15 to £18, which Eckbert acknowledges is "not cheap", but he says this chimes with the Murrells' thesis that "you should always put every penny you can into the quality of the product". Whereas "quick-serve" rivals such as McDonald's and Burger King prepare multiple burgers at a time and store them on a warming shelf, the "fast-casual" Five Guys custom-makes every burger in its open kitchens.
Given Dunstone's long experience of public companies, it seems pertinent to ask whether Five Guys could be floated. "It would certainly be of a size that you would say would be a good candidate for public trading, but whether they elect to or not has yet to be determined. The focus has been on creating a successful, profitable, growing, dynamic business. That's been my mandate."
