Flynn Restaurant Group L.P.’s acquisition Wednesday of 368 Arby’s from U.S. Beef Corp. will bring the San Francisco-based company’s annual sales to more than $2.3 billion, making it one the nation’s largest restaurant companies.
The deal through its wholly owned RB American Group LLC adds about $400 million in annual sales to the parent company, which now has 1,245 restaurants in 33 states, including casual-dining Applebee’s Neighborhood Grill & Bar, fast-casual Panera Bread and quick-service Taco Bell.
Greg Flynn, restaurant group founder, chairman and CEO, spoke Wednesday with Nation’s Restaurant News after closing the deal.
What does this deal mean for the Flynn Restaurant Group?
It means we have the meats. [Flynn laughs.]
When you were looking for a fourth concept, what about Arby’s drew your interest?
Going from the outside in, it’s QSR. And QSR is the largest segment in the industry. If we are going to have a balanced portfolio reflective of the industry, we needed a bigger footprint in QSR. QSR has the best unit economics in the industry. That was attractive. Second, and probably more importantly, is that Arby’s is just a great concept. Similar to Taco Bell and Panera, it’s sort of a “category of one.” It’s a highly differentiated player. There’s no one else who does exactly what it does. It doesn’t compete head-to-head on price. You compete with everyone, in a way, from McDonald’s and Wendy’s and Burger King. But if you want those hot meat sandwiches, there is only one place you are going to get them.
What about Arby’s brand leadership?
Arby’s has a great leadership team: Rob Lynch, who came over from Taco Bell, is the brand president and a gifted executive and marketer. Paul Brown [CEO] of Inspire [Brands Inc.] is one of the best executives in the industry, and he’s really building a powerhouse support structure at Inspire. And then [Inspire parent] Roark [Capital Group], Neal Aronson [founder and managing partner] has, more importantly, shown a willingness to invest in his businesses and has a very long-term perspective.
How about Arby’s ownership of restaurants?
It was important to me that Arby’s owns a third of the 3,300 restaurants in the country, and they are growing that footprint while most other franchisors are going extreme asset-light and increasingly misaligning their interests with their franchisees.
Did the former owner, Tulsa, Okla.-based U.S. Beef Corp., figure into your thinking?
It was great. First of all, it’s a 50-year-old family business — great operators and great operating culture. The restaurants are in these great states where they love Arby’s: Oklahoma, Arkansas, Kansas, Missouri, Illinois, Colorado. It was one-stop shopping. Our usual process has been to make a small acquisition and then, over some number of years, grow to hit real scale within a brand. This was presto-change-o — and we had scale.
Where does Arby’s fit in your portfolio?
It’s the second largest brand by number of restaurants. It’s our third largest brand by sales.
What does this mean for restaurant-level operations?
We didn’t look at these restaurants and say specifically that we could bring a great level of operational expertise to them. Frankly the Davis family — Bo Davis [U.S. Beef’s chief operating officer] is coming with us and will continue to run the restaurants with his team – are great operators. We do see opportunity for improvement. … This is not a turnaround, and we are not viewing it that way.
What does this mean for the 55,000 company employees?
You can move between our brands. That’s part of the career opportunity we offer. We can bring some of our core cultural values that may get more out of the team that’s already there. We can come in and might cure all the deferred maintenance in a restaurant and make sure we are 100 percent staffed all the time and bring in state-of-the-art technology for food costs and labor management.
What are the linchpins of the Flynn Restaurant Group culture?
We trust our operators and try to empower them and challenge them. But we don’t micro-manage. I think of it as a fairly decentralized state-and-federal structure. … We like to treat individual [brand] presidents in their markets as independent franchisees. They have real authority to run their restaurants with considerable latitude. They have hire-fire [authority]; they have the ability to adopt different operating policies; they can make cap-ex decisions. We support them and try to align our interests through profit sharing and through equity ownership. And we trust them. We share best practices across our markets as our main way for our independent operators to do it better. We make sure our operators are competitive with each other by nature, but in a healthy way.
Will what is now RB American Group’s management remain in Tulsa?
Our main support center is in Cleveland — [in the suburb of] Independence, Ohio. Most of the functions will move to Independence, but some core functionality will remain in Tulsa — at least in the short run and maybe indefinitely, with IT being the biggest example. They have their own unique POS system.
What about this deal most excites you?
I just think it is the perfect addition to the FRG portfolio. … It feels exactly right for us and plays to our core competency of being a large operator of franchised restaurants in big established brands, operating restaurant well and getting more out of the operators.
What’s the next step for Flynn Restaurant Group?
I don’t know. I have no idea. I haven’t known for 20 years. We sort of take it as it comes. We did have a master plan, first to get into Applebee’s and become a premier operator. But in 2011, we adopted a plan to plant a flag in each of the major segments. … What I really want to do is absorb what we’ve taken on with RB American and really run our restaurants well. So maybe we will do nothing next year.
Contact Ron Ruggless at [email protected]
Follow him on Twitter: @RonRuggless