Manage for the long term, no matter who is pulling the strings

Sam Chamberlain, left, with Five Guys head of international Bill Peecher, center, and RB Editor-in-Chief Jonathan Maze. | Photo by W. Scott Mitchell Photography.

At the Global Restaurant Leadership Conference in Barcelona this week, Sam Chamberlain, the president of Five Guys, told a story of the company’s attempt to expand into the Philippines. 

“We got all the way to the finish line with a partner in the Philippines, and at the end of the day, we couldn’t get the potato we wanted, so we just decided not to do it,” he said.

When we asked why the fast-casual burger chain would opt against expansion in a market over the source of potatoes, Chamberlain replied simply, “It’s the beauty of being private.” 

To be sure, there is private, and then there is private. Plenty of privately-held chains, owned by private-equity firms hell-bent on their exit strategy, or owned by people with loose sets of morals who have little problem skirting morals, would make a different decision. 

And there are public companies that will make long-term investments in their brands, believing that it is for their ultimate good. Management foresight and decision-making, far more than ownership style, is more important in a company’s ultimate strategy than simply whether its investors get their ownership stake by placing an order on a computer or not.

But Chamberlain’s point is that he is free of the demands of public investors who have an insatiable demand for growth, and for bettering quarterly expectations, which puts pressure on executives to make compromises. That enables the company to sacrifice potential revenue and profits in the name of defending the brand’s global reputation.

Companies are better off when executives are free to make choices that benefit the brand over the long term. That might be an investment in a new technology or it could be eschewing growth when it’s not right for the brand’s overall health.

The most successful companies over the long-term make these choices, and the ones that fail do not. And plenty of brands have deliberately traded quality for revenue or profits. Franchises, for instance, will frequently sell stores aggressively to anybody who will buy them, knowing that many of those operators won’t work out, because they want the cash flow now. 

That includes international markets, where U.S. chains fall all over themselves to grow in certain high-population areas simply because they feel the need to be there, regardless of the compromises that such expansion requires. 

China is a perfect example. Many of the biggest U.S. brands are pushing aggressively there, shuffling through operators despite the market’s enormous headaches and its questionable trademark practices, because they feel a need to be in the market. But as more than one restaurant company told me this week, sometimes that kind of expansion simply isn’t worth it. 

Of course, simply “going private” doesn’t rescue such companies from danger. In 2017, the investment firm JAB Holding took private Panera Bread for $7.5 billion. Ron Shaich, the CEO of Panera, could not stop talking about how awful it was to be public, citing investor questions about the company’s technology investments.

But JAB in the years since took what had been a thriving brand and then, as sales struggled, started cutting labor costs and compromised on food quality. And that’s not us saying it, but the current CEO engineering a turnaround plan. As we said, management is more important than ownership style.

It’s not as if Five Guys doesn’t or won’t push extreme growth. This is the brand that sold out of franchise rights in the U.S. within three years and was the fastest-growing chain coming out of the Great Recession. 

But the winner of our Global Restaurant Leader of the Year award built its business through an almost obsessive attention to product quality, even when it drives up the cost of its burgers, or keeps the company from opening in a new market. CEO Jerry Murrell’s five sons act as the keeper of that quality, and to this day they test all the ingredients used for its menu. 

During GRLC, Chamberlain told the story of the company’s head of supply chain, who once suggested using a different pickle when a supplier ran out. One of the brothers came to the office with a jar of one of those wrong pickles and demanded that the head of supply chain eat all of them. “We don’t operate like a normal corporation,” Chamberlain said. 

To the company, that attention to detail is more important than a single market expansion, because its reputation for quality has driven the brand’s success to this point. And the fact that the founding family remains heavily involved and doesn’t have to answer to a private-equity firm or public-equity investors, enables them to maintain that attention. 

Restaurant Business Editor-in-Chief Jonathan Maze is a longtime industry journalist who writes about restaurant finance, mergers and acquisitions and the economy, with a particular focus on quick-service restaurants.

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