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How Five Guys Got Us Eating Its Burgers

"We're fortunate in the fact that we don't have to keep remaking ourselves. We've got the same menu since 1986," he says. That keeps it simple. "We're not doing any vertical integration. We don't have our own trucking company or our own meat companies. We're using big national companies that can do that for us."

There are plenty of players looking to make their mark in the better burger segment. Besides Five Guys and In-N-Out Burger, small establishments such as Smashburger, Elevation Burger and Mooyah are growing exponentially.

"We think there is room on a national level for two or three major players in the better burger category," Smashburger CEO Dave Prokupek says.

Smashburger has opened more than 100 units in 30 states in four years. The company plans to open another 80 stores this year. Prokupek says product aside (the company also emphasizes its freshness), the ability to open franchises efficiently will fuel the company's growth.

"There's not that many fast-casual food concepts whose build-out cost is $400,000 to $450,000," which includes smaller-square-footage stores and cost-effective marketing that incorporates a social media strategy, he says.

Investors are looking for ways to place bets on the segment, but at least one observer worries about the sustainability of growth at franchised companies such as Five Guys.

"Sometimes when you're getting in on a concept that is rapid growth, you're buying because other people are buying. It's kind of like the stock market. Franchisees should make sure they didn't just have some good stuff in the beginning," says Doug Schadle, a veteran to the franchise industry and CEO of Rhino 7 Franchise Development.

According to Murrell, Five Guys' stores average nearly $1.3 million in annual revenue, with some of the newer stores hitting more than $2.5 million per year.

Outside investors are encouraging the company to expand internationally, but they are also looking to back franchisees.

To expand in Europe or Asia, "we're not sure if we want to do it with another investor or if we want to do it on our own," Murrell says. "The nice thing about it is, we don't have to go. We've got enough room to expand in the U.S. for quite a while. We've only sold 3,000 franchised stores, and I think we can sell another 2,000."

Chatter around whether the company should go public is heating up. The idea, while not on the table, is not completely off, Murrell says.

"I would consider it if I could figure out a way to protect the franchisees and the brand," Murrell says.

-- Written by Laurie Kulikowski in New York.

To follow Laurie Kulikowski on Twitter, go to: http://twitter.com/#!/LKulikowski

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.
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