Greg Flynn Owns 1,245 Restaurants and Makes $2 Billion A Year. Here’s How He Did It.
Crunchy tacos? Four-cheese soufflé? A house salad with a side of double-crunch bone-in wings? How about a beef-and-cheddar sandwich served with zesty Red Ranch dressing on an onion roll?
Lunchtime for Greg Flynn means more than 1,245 restaurants to choose from. Conveniently, they’re all his: 283 Taco Bell units, 135 Panera Bread, 458 Applebee’s, and — his latest addition as of December — 369 Arby’s. Sitting in his skyscraper office in San Francisco’s financial district, the founder and CEO of the Flynn Restaurant Group (FRG) picks at a salad from none of the above.
“My goal was to finish this bite before you finished your question,” Flynn jokes as we talk about how he got to here.
There are multi-unit franchisees, mega-franchisees, and then there’s Greg Flynn — a category all his own. Trim with gray-flecked hair, the Marin county native has built an alimentary archipelago that employs nearly 50,000 people across 33 states. Along the way, he has defined a whole new stratosphere of franchise ownership and remains its highest-grossing player. (Competitor NPC International owns 1,599 Pizza Hut and Wendy’s units, but FRG’s yearly sales of $2.3 billion was more than double NPC’s most recently reported revenue.) According to the Franchise Times, FRG is the first privately held franchise company to surpass the $2 billion mark. To put it mildly, Flynn is the guy who broke the mold.
How does one man with a handful of franchises go on to transform the entire industry? “It’s as simple as running each of your restaurants well each day, every day, everywhere,” says Flynn, looking up from his greens. “And that’s not simple at all.”
Gobbling up franchises wasn’t originally in Flynn’s plans. He studied at Brown University as an undergrad, got a master’s degree in American history at Yale, and then went on to Stanford Graduate School of Business. After earning his MBA, he started a real estate equity fund, buying properties in Seattle — a business he still runs, as well as managing investments in boutique hotel properties. Around the same time, a friend started a restaurant called World Wrapps that caught Flynn’s interest. It was the 1990s, and fusion cuisine was all the rage. Figuring he’d ride the wave, he partnered with his buddy to develop the Seattle market, opening 14 branches there. In 1997, USA Today trumpeted wraps as “the sizzling fast-food trend.” But as it turned out, the more accurate adjective would have been fizzling. Not long after, the fad passed and World Wrapps tanked.
“There’s a public perception that the restaurant industry is very risky, and that’s correct,” says Flynn. “The riskiest end is onesie, twosie mom-and-pop startups. That’s how I got into the business.” But World Wrapps’ failure didn’t make Flynn bail on the industry. He liked restaurants. His father had owned two Burger Kings in San Francisco, which had been successful. So he took a step back and surveyed the whole foodservice spectrum. If dabbling in the “hot and trendy” extreme hadn’t panned out, what if he looked into the boring but dependable? “The biggest, baddest, oldest chains,” he says, “are the least risky. My conclusion was that you ought to play on this end.”
By “play” he didn’t mean play around. He had big eyes. Dusting himself off, Flynn bought his first eight Applebee’s franchises in 1999, purchasing them for $14 million after cold-calling their owner. Two years later, he bought an additional 62 stores, financing much of the purchase with money borrowed from Goldman Sachs. At the time, it was a bold move. The prospect of Flynn growing into a major stakeholder, potentially altering the balance of power between franchisee and franchisor, set off alarm bells with Applebee’s chairman, Lloyd Hill, who negotiated a deal to keep Flynn from owning any more than 11 percent of the company’s franchises.
By 2007, however, the brand was struggling. IHOP purchased Applebee’s and embarked on a refranchising strategy, off-loading company-owned restaurants at attractive prices to Flynn. “He’s almost the Warren Buffett of franchise restaurants,” says industry strategist Aaron Allen, referring to Flynn’s value-investing tactics of buying, holding, and improving units in turnaround. “He’s picking them up for pennies and able to operate in such a way that he keeps brands going that might otherwise be on the closure list.”
As the Great Recession hit, Flynn kept scooping up more Applebee’s units, often at a steep discount, buying from franchisees with smaller numbers of restaurants, who were struggling. “Cash flow,” says Flynn, “is one of the beautiful things about this business. Once it gets going, and going well, it throws off enough cash to sustain some growth.” Between 2008 and 2010, he paid an average of a half-million dollars for Applebee’s restaurants that would have each cost $1.8 million to build. As for that 11 percent cap? “Not only did they waive the limit, they just deleted it — they realized our growth was good for the system,” says Flynn, who now sits on Applebee’s Franchise Business Council and has input on brand decisions. “I often pick up the phone and call Greg to discuss business,” says Applebee’s president, John Cywinski. “As a group, we work through challenges and strategy together, and the partnership is simply outstanding.”
Flynn, meanwhile, was disrupting the franchise world with the unusual corporate structure he’d created. He’d set up his company on the premise that when it came to the day-to-day running of hundreds of restaurants across the country, he wasn’t the guy. What did he know about Pittsburgh diners versus customers in Kansas City? Or the hurdles of producing endless double-crunch bone-in wings in St. Paul, Minn.? “What we need to avoid is having someone like me,” says Flynn, “who doesn’t know that restaurant, doesn’t know the people, doesn’t know the specific competitive landscape, making decisions for that restaurant.”
The way FRG works is this: Flynn sets general standards around issues like store cleanliness and food safety, but he doesn’t run the franchises; his 40 regional operators do that. They each oversee dozens of restaurants as if they were the franchisee. In fact, they are compensated, equity included, based on what they could expect if they did own those franchises. Although these operators report to FRG executives, they make all the day-to-day decisions for their restaurants, working with the individual general managers, handling hiring, firing, and capital expenditures. When they need support, FRG has an office in Independence, Ohio, which houses 150 staffers who assist with human resources, technology, financing, payroll, training, and real estate.
Compared with many of his Stanford peers who went to work for Silicon Valley tech firms, Flynn has taken a different path. But the way he has structured FRG is not so far from how Google and Uber have prospered — by building a platform rather than a product. It’s his group’s operators who are responsible for delivering the “content,” while Flynn concentrates on the structure that allows them to work at efficient — and massive — economies of scale.
That strategy helped lead to the recent Arby’s deal in December, in which Flynn acquired U.S. Beef, a family-run business headquartered in Tulsa, the nation’s largest Arby’s franchisee at the time. “I’ve got Arby’s sauce in my blood,” says Bo Davis, whose stepfather and grandfather founded U.S. Beef. He started working at the age of four in their restaurants, picking up cigarette butts off the floor with his sisters. At the time of the sale, he was U.S. Beef’s COO, after which he joined FRG’s RB American Group as a senior vice president. “To leave a family business and go work for somebody you don’t really know? I couldn’t draw up a better scenario,” Davis says. He’s still adjusting but is already impressed with Flynn’s economies-of-scale model: “Pennies and seconds matter. When you have 1,245 restaurants, finding a way to save 10 bucks a store per day adds up to big numbers.”
What does a franchisee mogul like Flynn actually do? The typical day starts for him around 6:45 with an hour devoted to clearing his email box. Then he has breakfast and exercises. “From there it gets a little more unpredictable,” he says. About half his time is spent in the office, working with franchisors, operators, vendors, lenders and equity partners, and development issues. The other half, he’s on the road. Although he leaves the on-the-ground decisions to his operators, he wants to know the lay of the land. “There’s no substitute for being in a restaurant,” he says.
On a recent trip after the Arby’s acquisition, Flynn visited Denver to roll up his sleeves with Robert Willis, one of RB American’s directors of operations, who oversees 29 locations in Colorado. “I got a full standard orientation. I worked the stations. From the ground up, I needed to learn how it runs as a crew member,” says Flynn. Willis was impressed. “I spent three days with him making roast beef sandwiches,” he says. “I’ve got a picture of him with a hairnet on. I’ve never done that with the guy who signs our paychecks.”
The Arby’s deal was many years in the making. Around 2011, once Applebee’s stabilized, Flynn was ready to expand his platform with other brands — but which? He’d crystallized a strategy: Look for what he calls “differentiated” products. Not hamburger chains, for example; he doesn’t see much difference between them. But Taco Bell? That’s synonymous with Mexican food. How about Panera? Bread bowls. (He now owns 4.8 percent and 10 percent of the domestic franchises of those two brands, respectively.) And then for something new — something else that stood alone — he thought: roast beef sandwiches. “No one is exactly like Arby’s,” he says.
Diversifying his portfolio was also a good hedge against risk — aside from having different geographical distributions, the quick-service restaurants (QSR) serve as a backstop against Applebee’s in the case of another downturn. “If we hit a recession, we may lose some guests,” Flynn says, “but we may gain as many as we lose, because value becomes that much more important.” Plus the QSR segment is profitable: In 2019, sales will reach $247 billion, up 3.2 percent from 2018, the National Restaurant Association estimates.
Flynn’s weight, and the relationships he’s built with his franchisors, has allowed him to experiment. He’s put tablets on his Applebee’s tables and electronic kiosks at Taco Bell, and is attempting to gamify the Arby’s drive-through with leaderboards that compare one store’s performance with others. Mostly though, Flynn focuses on the grind of selling food, one meal at a time — and since its founding 20 years ago, FRG has enjoyed a 30 percent annual growth rate.
“Kids these days” — Flynn pauses and gives a knowing laugh at the cliché — “are so enamored of the highly publicized tech successes that many of them don’t have the patience for a strategy of slow growth that accumulates over time into something substantial. But if you do have the patience for it, it is a very viable way to go and much-lower-risk,” he says.
What’s next? It’s uncharted territory. To continue at this pace, Flynn may have to keep buying franchises, but how big can he get? And how many brands out there meet his “differentiated” criteria? I point out that Dunkin’ Donuts is in the middle of a turnaround plan under CEO Nigel Travis. Would that be a possibility? “Coffee — yes and no,” he says, thinking out loud. “It’s a pretty generic commodity, except that coffee brands have an incredible stickiness to them. If you like Starbucks, you’re unlikely to like Peet’s. They are not substitutes for each other.”
Whatever direction he takes, though, Flynn isn’t done yet. “Sometimes I look at our platform and say, ‘I don’t know where we are going, but it feels like there is something more we can do,’” he says. “I can’t tell you exactly what that’s going to be, but it’s a great launching pad for any number of different directions. And it’s been a really fun ride along the way.”