Five Guys franchisees learn to coexist on LI

For the guys running Five Guys Burgers and Fries on Long Island, fast expansion comes with a side of precaution: Don't steal the fries off your neighbor's plate.

Jonathan Magri and his brother have the rights to open Five Guys franchises in Nassau County. Bill Gellert and his partners have the rights to Suffolk County. And because they're ultimately working for the same company, they have to be especially careful not to crowd in on each other's turf.

The Five Guys franchise has seen tremendous growth in the last five years: The Virginia-based burger joint chain started franchising in 2003 and now has about 900 locations, emphasizing simple food prepared with fresh ingredients. The average Five Guys store brings in $1.2 million in revenue each year, according to a company spokesman.

Although many franchises grant ownership rights on a store-by-store basis, Five Guys decided to grant rights to regions.

Matt Haller, a spokesman for the International Franchise Association, says more than 50 percent of franchisees own multiple units. An increasing number of franchisers are moving toward a regional model, he says, partly because it's easier to access financing for franchisees who have several locations.

The Island poses challenges
Five Guys says the regional approach to franchise rights is easy to implement in sprawling areas, where someone with the rights to, say, the region around Kansas City doesn't have to worry about a nearby competitor. But it can pose challenges in more densely populated regions, like Long Island.

"It's a very tough dynamic," says Gellert, who signed up for the rights to Suffolk in spring of 2008. He and his partners also own the rights to Five Guys locations in the Hudson Valley and Union County, N.J. In total, they've got 11 of the restaurants open so far, with five in Suffolk and a sixth on the way in Commack. "The answer is to move fast."

But moving fast doesn't always work: Opening a location just for the sake of claiming territory isn't always a good business decision, as Gellert learned.

Jonathan Magri and his brother, Clifford, who signed on with Five Guys at the end of 2005, had been in discussions with a landlord about opening a location on Sunrise Highway in Massapequa. They ultimately decided against the spot. But when the Magri brothers passed, Gellert snapped up a space in nearby Amityville, just over the county line.

Jonathan Magri says it was a "good decision" to avoid the location: The Sunrise Highway spot that he and his brother had been considering has seen two other burger restaurants come and go recently, he says. And even Gellert admits that the Amityville location is one of his worst performers.

Just before Gellert signed up for the rights to his New Jersey region, a neighboring Five Guys owner opened a restaurant just outside his own jurisdiction -- and inside what came to be Gellert's turf. "I was disappointed, but there was nothing I could do, because I had no standing," he says.

Checking with franchiser
Even if it's not near the county line, the Magri brothers and Gellert have to check with Five Guys before picking a new location to make sure it won't cannibalize an existing one.

"You don't want to compete against yourself," says Magri, who with his brother has five Five Guys locations in Nassau County and is opening a sixth across from Roosevelt Field mall.

Although he hasn't had Five Guys turn down a location yet, Magri acknowledges the fast-growing burger empires could start bumping up against each other soon. "The challenge will probably be doing the next six stores," he says.

Both Magri and Gellert say they've got a good working relationship. And in a pinch, they say, they can rely on Five Guys to serve as referee.

"Invariably you're going to have conflicts," Gellert says. "The key is not to take it personally . . . You go through the proper channels, move on and get over it."