QSR May 2022

FRANCHI SE PERSPECT IVES

FORMATION OF FLYNN That journey Flynn speaks of began in the mid-1990s via World Wrapps, a restaurant that “started the whole wraps phenome non,” he says. The company was founded by a classmate from the Stanford Graduate School of Business, and Flynn decided to make a small investment. The first unit opened in San Fran cisco in February 1995, with lines around the block. “Everyone thought ‘oh my God, we’ve got the next Star bucks on our hands, and we need to bring this to market as fast as possible,’” Flynn recalls. To accelerate development, Flynn agreed to build stores in Seattle, where he was growing a budding real estate business. Between 1995–1999, he opened 14 units, and was quickly intro duced into the “school of hard knocks for running restaurants.” He learned to be a jack of all trades working in the front of house, back of house, construction, and other various tasks. Flynn also recognized that because he was in the beginning stages of an independent restaurant transforming into a small chain, he was playing in the riskiest end of an already treacherous sector. Nearly all aspects were inherently more diff icult, whether it was convincing landlords to lease space, vendors to sell their equipment, employees to come work, or customers to try the food. “And you can’t borrow a dime for it, except on a full recourse basis,” Flynn explains. “Basically, you have to come up with all the money to do this.” But in the late 1990s, he became aware of a financing oppor tunity in which he could receive all the necessary funds to buy into a top-tier franchise restaurant. “I looked at this and it’s like wait a minute, I can borrow all of the money on a non-recourse basis to do this,” Flynn says. “And then once you do it, the customers already know you, employees know you and want to work for you, the landlords know you and want to lease to you, vendors know you and want to sell you equipment. Everything about it is easier.” In that era, the hottest segment was casual dining, and the leader in the category was Applebee’s, Flynn says. So he took out a loan and purchased eight stores in the Seattle market. He bought those Applebee’s restaurants from Cleveland based franchisee Don Strang III, who owned roughly 70 units in Minnesota, Ohio, and Indiana, and was starting to develop New Jersey and Delaware. His Seattle outlets, however, were struggling due to expensive real estate, construction, wages, and food. The restaurants earned about $45,000 per week. Flynn entered the venture with Brad Pettinger, who he recruited to build the WorldWrapps business. Neither had much knowledge on running a full-service restaurant, but that void was filled by Dan Krebsbach, who spent years working for Strang in the Minneapolis and Seattle markets. Subsequent to the acqui sition, he joined Flynn’s company as director of operations. “He is perhaps the best restaurateur I’ve ever met in my life,” says Flynn, describing Krebsbach. “Consummate profes sional. And he said, listen, we can make it here in this market, but we need to do things differently than the way they’re done in the Midwest.” Flynn and Pettinger gave Krebsbach freedom to make oper ational and CapEx decisions. And to ensure everyone’s interests

were aligned, the duo shifted his compensation heavily toward prof it sharing and gave him an equity interest. Krebsbach launched multiple initiatives, such as leaning into the bar and late-night business, shifting promotions to different lines or prod ucts, and stacking employment to meet higher sales volumes. Within half a year, average weekly sales grew to $60,000. The group proceeded to open a ninth and 10 th restaurant, which debuted with high volumes. It was at this point Flynn and Pet tinger realized they were on to something major. A couple of years later, Flynn contacted Strang again and bought the rest of his stores, swiftly expanding the footprint from 10 to 72 units. “When you think of when was Flynn Restaurant Group founded, maybe it was when we first got in the restaurant busi ness in ’95, but maybe it was when we first got into Applebee’s in one market in ’99,” Flynn says. “That’s what I normally think of it as, but maybe it was in 2001 when we assumed our current configuration of being a multi-market operator.” EXTENDING THE PLATFORM Flynn and Pettinger handed off the World Wrapps restaurants and committed themselves to becoming a lead expert in run ning Applebee’s stores. Flynn Restaurant Group did just that, growing to more than 400 in the next decade. By 2011, Flynn felt the company had the requisite capital, experience, and industry knowledge to become a multi-brand platform. When deciding what chains to pursue, the organi zation listened to the marketplace and decided to model itself after the composition of the restaurant industry, which at the time was 60–70 percent fast food and 20–25 percent full ser vice, Flynn says. The rest was filled by the small, but growing fast-casual space. “The idea there is, we could guess at which segment is going to be the winner in the long run,” Flynn says. “But that’s hard to do and it comes and goes and it’s just that the safest bet is to diversify along the lines of what the market is saying to you. And that may change over time.” The other key factor dated back to Flynn Restaurant Group’s origin—only associating with mature, proven brands that have been around for decades. The company entered fast food through Taco Bell in 2012, and now operates 280 restaurants in nine states. For fast casual, the only true options, Flynn says, were Chipotle and Panera. Since Flynn Restaurant Group already operated Taco Bell and Chipotle didn’t franchise, Panera became the No. 1 option. The operation was established in 2014, and now includes 133 bak ery-cafes in eight states. “It took a while to actually get into the Panera system,” Flynn says. “Panera hadn’t had a new franchisee in 10 years at the time we finally entered, and it took getting to know [founder] Ron Shaich personally and convincing him that we would be good for the brand.” Flynn Restaurant Group followed that up in 2018 with Arby’s, through an acquisition of nearly 370 restaurants in

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MAY 2022 | QSR | www.qsrmagazine.com