Anyone with concerns about the state of restaurant franchising should spend a little time with Greg Flynn.

The founder, chair, and CEO of San Francisco-based Flynn Restaurant Group is pretty optimistic about the future of restaurant franchising.

“Omicron is going to fade. There’s immense savings rates. There’s still pent-up demand,” he said. “I still think we’re facing the Roaring ’20s.”

Of course, Flynn is no small franchisee. His company is very likely the third-largest operator of restaurants in the world, after Starbucks and Chipotle Mexican Grill. Flynn Restaurant Group is the largest restaurant franchise operation globally (not including Yum China Holdings Inc., which is a licensee and owner of about 11,415 restaurants in Asia), now with six brands and 2,355 units, generating annual sales that have topped $3.7 billion.

It began in 1999 with the casual-dining brand Applebee’s; Flynn’s Apple American Group division has since grown to 442 units. He began to diversify in 2013 with the acquisition of a Taco Bell franchise company, and Bell American is now that brand’s second-largest franchisee with 280 units.

Panera Bread joined the family in 2015, and Flynn’s Pan American division today operates 133 bakery-cafes. Arby’s joined in 2018; RB American operates 367 units.

But the biggest deal so far came in 2021, when Flynn Restaurant Group acquired 937 Pizza Hut and 194 Wendy’s units from NPC International out of bankruptcy, roughly doubling the group’s overall restaurant count. The group’s Hut American is now Pizza Hut’s largest franchisee and Wend American is the fifth largest for Wendy’s.

NPC’s restaurants were a massive batch to absorb, but it was also Flynn’s 25th acquisition, so he said it went surprisingly well.

“The biggest technical glitch we had is we lost a bit of web and mobile ordering from Pizza Hut in the first week because of transition issues,” he said. “And actually, Pizza Hut was unbelievable in the way they stepped up, got a whole swat team on it, and ultimately made us whole — they were great. And they’ve been incredible partners through this whole thing.”

Eggs in more baskets

Now, as Flynn looks back on two years that took such a toll on much of the restaurant industry, he points to a good decision made a decade earlier: the decision to diversify.

Like many QSRs during the pandemic, Flynn Restaurant Group’s quick-service restaurants had banner years in 2020 and 2021, he said. The two Flynn brands that suffered from dining-room closures — Applebee’s and Panera — were able to build strong off-premises sales that have continued after dining rooms reopened, and now sales are outperforming 2019 levels.

“The benefits of diversification were demonstrated so clearly during COVID,” said Flynn. “If all you were was Applebee’s, it was a lot harder than if you were any quick-service restaurant. But the fact is, this year Applebee’s is outperforming our QSRs and everything else. You never know which one will be favored, and diversification helps you benefit from whatever’s performing best at the time.”

Flynn said other early decisions also helped his restaurants avoid the labor challenges many in the industry are feeling now. Flynn Restaurant Group has roughly 73,000 employees across the six brands, and he said almost all of his restaurants are fully open.

“We are running limited hours almost nowhere in our whole portfolio right now, and it’s a real competitive advantage,” he said. “Just frankly being open when a lot of people aren’t open, you win sales.”

The virtuous circle

Flynn credits the fact that the group didn’t close any restaurants when COVID hit. There were no layoffs, though some workers were furloughed. The group maintained employee benefits and kept workers on the payroll. And those workers were brought back and given full hours as quickly as possible, he said. Managers who were asked to take pay cuts were paid back every dollar deferred.

And, because the company leans on profit sharing, the strong results help create what Flynn calls a virtuous circle in which restaurants are open and generating revenue and servers and managers are making money, which helps boost performance. Flynn sees others take the opposite approach of cutting hours and lowering profits, so they cut back even further. “It could go either way,” he said.

For Flynn, the mantra has long been running great restaurants. That becomes a greater challenge as organizations grow in size. But he credits the group’s decentralized organizational structure, which helps leaders “think small,” he said.

“Think of us as a constellation of more autonomous operating units all supported centrally, and all aligned in direction and economics,” he said. “It goes a long way toward addressing the problem of executing well over diverse geographies and now over multiple brands.”

Flynn sees the group as having local owner/operators with great support from the group as the parent company. “The problem with local owner/operators is they can almost never attract and afford great support, right?” he said. “So we’re trying to get the best of both worlds.”

Buy or build

The franchising industry will no doubt continue to see consolidation, a trend that began before the pandemic but was accelerated by COVID. It was a share-gain moment for larger full-service chains, Flynn said, and QSR proved its extreme resilience.

“We’ve seen capital focus more on quick service and values going up, and I think that’s going to be something which lasts,” he said.

To franchise operators large and small, Flynn said the most important thing is to “run your restaurants well each and every day. That’s the most determinative factor in your outcome — more than anything a franchisor will do or any external factor. If you’ve nailed that one, your success is more likely than otherwise.”

And, despite the challenges of the economic climate, Flynn said franchisees shouldn’t be afraid to take risks if they want to grow.

“If you are a great operator, there is plenty of capital available, both debt and equity, to build new units, and your franchisors are crazy for everyone to build new units right now, and you can do that,” he said. “And then, of course, there are always opportunities to acquire on a single unit basis or on a portfolio basis, and that’s often a good way to go too. In fact, sometimes you can buy cheaper than you can build and there’s more certainty around what you’re getting.”

Flynn Restaurant Group remains open to acquisition opportunities but plans to continue to grow existing brands, he said. There are whole categories Flynn has yet to get involved in, like breakfast or fine dining or steak, he said.

“There are lots of places we can go,” said Flynn. “We love building restaurants and buying restaurants. The most important thing is running our restaurants well, so we’ll be totally focused on that.”  — Source: NRN