Five Guys vs. In-N-Out Burger: Can You Guess Which Is the Better Business?
Anyone who's ever lived in Southern California can tell you that the world's best burger is made by In-N-Out Burger, a family owned quick serve restaurant that started in 1948 as the region's first drive-thru burger stand.
I've been away from SoCal for going on 17 years now. Only during occasional trips back do I get a chance to enjoy In-N-Out's signature creation, the Double-Double: a two-patty cheeseburger decorated with lettuce, tomatoes, grilled onions, and a mouth-watering special sauce.
Local Colorado friends -- and more than a few at Fool HQ in suburban Washington, D.C., where the chain started -- say I'll be just as happy with Five Guys Burgers and Fries, which, unlike In-N-Out, now has several locations near me. I've yet to accept their invitation. Looking at the numbers, I wonder if they have a point.
Beyond the bun
According to QSR Magazine, Five Guys joins McDonald's , Burger King , and The Wendy's Co. as one of America's top-10 burger chains:
Jack in the Box
Steak & Shake
Give this list a close look and you'll notice three things:
Say what you will about the company falling apart before our eyes, McDonald's grosses four times as much as its closest peers.
Keeping a large network of quick serve restaurants is tough. Of the top four names, three closed more stores than they opened in 2013.
Franchising is volatile -- see point two -- but it's also the surest path to growth.
In-N-Out doesn't franchise. As a result, its $558.2 million in gross sales ranked 13th among burger joints last year and 44th on QSR's annual top 50 list. Contest over, right? Five Guys is not only bigger but it's also growing faster thanks to franchise leverage.
If only it were that simple. The size of Five Guys' empire isn't so important as the cost of expansion, and what each store is capable of earning.
A slow burn cooks better
How well does Five Guys do on a store-by-store level? Not as well as a potential investor might like. Last year's $1.027 million in per store sales not only trailed In-N-Out's $1.955 million, but it was also down from $1.049 million in 2012 and $1.156 million in 2011:
See the difference? While Five Guys has enjoyed bursts of growth, In-N-Out is expanding more predictably as the chain proves itself in new territories. In 2011, the company opened its first stand in Texas. There are now 25 locations either doing business or in development across the state as locals prove insatiable. Further expansion into surrounding states seems likely.
Knowing what we do about In-N-Out's history and strategy, chances are it will all be funded through excess cash generated by existing stores. That's a mark of a truly great business, and why I think In-N-Out should get the nod over Five Guys.
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The article Five Guys vs. In-N-Out Burger: Can You Guess Which Is the Better Business? originally appeared on Fool.com.Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+, Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.The Motley Fool recommends McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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