34 August 2014

Guillermo Perales likes to build restaurants. And so he builds a lot of them. “Every year we

try to build as many locations as we can,” the CEO of Sun Holdings said. At the moment, he has close to 50 projects in various stages of development.

Yet Sun Holdings has grown so much—it is the eighth largest restaurant franchisee in the country, based on our Restaurant 200—that it can’t build new locations fast enough to meet its expectations for growth. And that means new acquisitions. So in recent years, Sun has added new Burger King, Arby’s and now Krispy Kreme locations to its stable. And Perales keeps looking.

“For me to keep my growth, I really have to look for other brands,” he said. “You look for buying

opportunities. It’s another area of business. You cannot grow if you can’t buy, so I have to buy.”

This is our Restaurant 200, the ranking of the nation’s largest restaurant franchisees, in a nutshell: The franchisees on the list are so big now that to maintain self-imposed growth levels they have to keep buying existing units, simply because nobody can build that fast. The companies on the ranking have been buying locations at an impressive rate, driving up the prices for those acquisitions. And they’ve gotten into new concepts.

The acquisition frenzy has carried these companies through a post-recession environment that hasn’t exactly been friendly to the restaurant business. Sales at many of the chains that dominate

the ranking—like Burger King, Applebee’s, Wendy’s and others—haven’t been flourishing.

Consider this: Today, the average franchisee on the Restaurant 200 has 109 locations and $143.5 million in revenue. Both numbers are about 30 percent higher than they were in 2009. The big are getting bigger.

There are now two companies, Flynn Restaurant Group (No. 1) and NPC International (No. 2) that have more than $1 billion in sales. And each of the top 11 companies on our ranking had more than $400 million in sales. Sales for the 25 largest franchisees on the ranking grew more than 10 percent last year.

The franchisees we talk to don’t grow just for growth’s sake. Operators say they try to be

August 2014 35

opportunistic with their acquisitions, looking for good deals that make sense from a business standpoint.

Sun Holdings is a good example. Two years ago the company took advantage of Burger King’s eager refranchising of company stores with a 99-unit purchase in the Orlando market. Perales followed that up with a 50-unit Arby’s purchase at a time when that chain was struggling. And then he bought the Dallas Krispy Kreme market when that became available.

Allendale, New Jersey, franchisee Doherty Enterprises, (No. 12), bought 38 Applebee’s in Florida in what the company’s chairman, Ed Doherty, called a strategic opportunity. “The franchisee wanted to get out of the business,” he said.

“We grow strategically where we think it makes sense, and where we think it’ll make money, and which will provide growth opportunities for people who work with us.”

The buying spree enabled several franchisees on our ranking to grow by leaps and bounds. Fifteen companies on the ranking had increased sales of at least $40 million last year. Carrols Restaurant Group grew the most. The fourth largest franchisee in the country got a full year’s benefit from its 2012 acquisition of 278 Burger King units from its franchisor. Carrols’ sales

grew 23 percent last year.

Other companies grew, too. Team Schostak Family Restaurants bought 65 Applebee’s in late 2012 and had a year to enjoy the additional sales, which more than doubled that company’s sales and helped it skyrocket to No. 30 on our ranking from No. 74. The Livonia, Michigan-based franchisee also operates Burger King and Del Taco as well as Olga’s Kitchen.

Franchises expanded because the market is flush with investment cash. Private equity groups have been pouring money into the sector, buying up large franchisees quickly, creating behemoths overnight. No. 16 RMH Franchise Corp. became Applebee’s second largest franchisee almost overnight with a series of purchases. The company is backed by a Washington, D.C.-based private equity group, AKON Investments.

Likewise, debt has been readily available, from a growing number of lenders that have eagerly entered the restaurant finance market in the past couple of years.

“There is plenty of money, provided your paperwork is accurate, and provided you have your ducks in order,” said Tony Lutfi, owner of No.

58 MarLu Investment Group, based in Elk Grove, California. “It’s pretty friendly from a financing standpoint, and from a franchisor standpoint.”

As these operators have grown larger, they get more opportunities because both franchisors and existing franchisees are eager to do deals with them. Franchisors like the large operators because they have experience and access to financing. So a number of the franchisees on our ranking have bought into smaller growth chains.

Nearly half of all franchises on the ranking, including

most of the very largest companies , oper ate more than one brand. So in addition to big legacy

brands like Taco Bell, Burger King, Wendy’s and

Applebee’s, operators have been getting into chains like Biggby Coffee, Freddy’s Frozen Custard, Great American Cookie and Corner Bakery. Doherty recently started developing Noodles & Company units.

And they are also among the first people called when another franchisee goes on the market.

“There are plenty of deals available,” Lutfi said. “We’re currently looking at three very large deals. We’re going after all three.”

Sponsored by: Wells Fargo Restaurant Finance provides financing to corporate restaurant

brands, large multi-unit restaurant franchisees, experienced commercial real estate investors who own restaurant properties, private equity firms, and other investors in restaurant concepts. Our loan products include: syndicated corporate senior financing, fixed and floating rate term loans, acquisition facilities, sale-leaseback financing, bridge/development financing, working capital revolvers, and interest rate risk management. For more information, visit www.wellsfargo.com/restaurants

By Jonathan Maze

Research by Matt Haskin and Nick Sommers

36 August 2014

1 Flynn Restaurant Group, LLC San Francisco, CA Annual sales: 1,297,719,000 Units/Concepts: 448 Applebee’s 115 Taco Bell

2 NPC International, Inc. Overland Park, KS 1,094,032,000 1263 Pizza Hut 91 Wendy’s

3 Summit Restaurant Group Richardson, TX 697,417,000 257 IHOP 115 Applebee’s

4 Carrols Restaurant Group, Inc. Syracuse , NY 663,483,000 564 Burger King

5 Bridgeman Foods Louisville, KY 547,000,000 235 Wendy’s 125 Chili’s

6 Covelli Enterprises Warren, OH 528,800,000 233 Panera Bread 9 Dairy Queen

7* WendPartners Cortland, NY 455,000,000 324 Wendy’s

8 Sun Holdings, LLC Irving, TX 450,000,000 186 Burger King 81 Popeye’s

9 Strategic Restaurants San Ramon, CA 417,445,000 291 Burger King 27 TGI Friday’s

10 Boddie-Noell Enterprises Rocky Mount, NC 412,572,000 337 Hardee’s

11 Heartland Food Corp. Downers Grove, IL 401,229,000 378 Burger King

12 Doherty Enterprises, Inc. Allendale, NJ 380,000,000 100 Applebee’s 34 Panera Bread

13 Harman Management Corp. Los Altos, CA 346,122,000 120 KFC 188 YUM! Multi

14 The Briad Group Livingston, NJ 345,660,000 65 TGI Friday’s 50 Wendy’s

15 K-Mac Enterprises Fort Smith, AR 345,362,000 202 Taco Bell 17 KFC

16 RMH Franchise Corp. Lincoln, NE 335,000,000 138 Applebee’s

17 Pilot Travel Centers, LLC Knoxville, TN 327,370,000 199 Subway 83 Cinnabon

18 Muy Brands, LLC San Antonio, TX 317,272,000 225 Pizza Hut 75 Taco Bell

19 JIB Management, Inc. Fremont, CA 306,000,000 221 Jack in the Box 35 Denny’s

20 Quality Dining, Inc. Mishawaka, IN 282,372,000 165 Burger King 48 Chili’s

21* Pepper Dining, Inc. Charlotte, NC 282,000,000 104 Chili’s

22 ADF Companies Fairfield, NJ 278,000,000 289 Pizza Hut 14 Panera Bread

23 Tacala Birmingham, AL 277,046,000 247 Taco Bell 66 Sonic Drive-In

Franchise Times’ Restaurant 200:

TOP 25

Franchise Times’ Restaurant 200:

TOP 26-200

Big getting biggerAverage annual revenue and number of

units for Restaurant 200 companies.

2009 2010 2011 2012 2013

109

84

80

120

100

1002009 2010 2011 2012 2013

110

120

130

140

150

UNITS

24 KBP Foods, Inc. Overland Park, KS 274,000,000 227 KFC 49 Taco Bell

25 D.L. Rogers Corp. N Richland Hills, TX 262,500,000 223 Sonic Drive-In

$200-260 Million26 United States Beef Corp. Tulsa, OK 322 Arby’s 6 Taco Bueno

27 Apple Gold Group Raleigh, NC 132 Applebee’s 6 Burger King

28 Sizzling Platter, Inc. Murray, UT 154 Little Caesars 20 Sizzler

29 Cedar Enterprises, Inc. Columbus, OH 170 Wendy’s

30 TEAM Schostak Family Restaurants Livonia, MI 65 Applebee’s 60 Burger King

31 Interfoods of America, Inc. Miami, FL 145 Popeye’s 20 Taco Bell

32 DavCo Restaurants, Inc. Crofton, MD 152 Wendy’s

33 Pacific Bells, Inc. Vancouver, WA 84 Taco Bell 24 Buffalo Wild Wings

34 Fugate Enterprises Wichita, KS 172 Pizza Hut 72 Taco Bell

* Denotes revenue estimate

IconologyTop 10 Gainers

Notable Newcomers

REVENUE (in millions)

$109

$143.5

August 2014 37

35 Southern California Pizza Co., LLC Orange, CA 224 Pizza Hut

36 Frisch’s Restaurants, Inc. Cincinnati, OH 95 Big Boy

37 Falcon Holdings, LLC Westlake, TX 165 Church’s Chicken 46 Long John Silver’s

$170-220 Million38* Rottinghaus Co. La Crosse, WI 400 Subway

39 JRN, Inc. Columbia, TN 151 KFC 22 YUM! Multi

40 Carlisle Corp. Memphis, TN 134 Wendy’s

41* Valenti Management Tampa, FL 125 Wendy’s 17 Chili’s

42 Apex Restaurant Management, Inc. Dallas, TX 112 KFC 68 Long John Silver’s

43 The Rose Group Newtown, PA 58 Applebee’s 6 Corner Bakery Cafe

44* T-Bird Restaurant Group La Jolla, CA 63 Outback Steakhouse

45 Caspers Co. Tampa, FL 53 McDonald’s

$150-170 Million46 Century Management, Inc. Memphis, TN 59 McDonald’s

47 T.L. Cannon Management Ponte Vedra Beach, FL 60 Applebee’s

48 Western Reserve Restaurant Mgmt Rochester, NY 112 Wendy’s

49 Franchise Management, Inc. Houlton, ME 140 Pizza Hut 45 KFC

50 BR Associates, Inc. Jasper, IN 103 Long John Silver’s 35 Wendy’s

51 Apple Investors Group Chino Hills, CA 51 Applebee’s 23 Burger King

52 Restaurant Management Co. Wichita, KS 139 Pizza Hut 15 Long John Silver’s

53 Apple-Metro, Inc. Harrison, NY 36 Applebee’s

54* Hamra Management Co. Springfield, MO 49 Panera Bread 34 Wendy’s

$140-150 Million55 Metro Corral Partners Winter Park, FL 30 Golden Corral

56 Palo Alto, Inc. Denver, CO 90 Taco Bell 38 Pizza Hut

57 SSCP Management, Inc. Dallas, TX 68 Applebee’s

58 MarLu Investment Group Elk Grove, CA 53 Arby’s 47 Church’s Chicken

650 restaurants+ WORLDWIDE

10 STRAIGHT YEARS+ SAME STORE SALES INCREASES

74RECORD BREAKING

NEW restaurantsOPENED IN 2013

*Figure reflects the average annual net sales for all Wingstop Restaurants (23 corporate and 503 franchise) in the system that were open during the entire period from December 30, 2012 through December 28, 2013, as published in Item 19 of our May 1, 2014 Franchise Disclosure Document. Of these 503 restaurants, 225 (43%) had higher net sales during the reported period. The financial performance representation contained in Item 19 of our May 1, 2014 Franchise Disclosure Document also includes the average annual net sales information (1) separately for all franchised Wingstop Restaurants, and (2) separately for all company-owned Wingstop Restaurants, in operation in the United States during the referenced period. A new franchisee’s results may differ from the represented performance. There is no assurance that you will do as well and you must accept that risk. © 2014 Wingstop Restaurants Inc.

FRANCHise opportunities availableWINGSTOPFRANCHISE.COM | 972.686.6500

974,025 average unit volume per store*

$

38 August 2014

59 Pizza Properties, Inc. El Paso, TX 47 Peter Piper Pizza 40 Burger King

60 Celebration Restaurant Group Celebration, FL 100 Pizza Hut 40 Taco Bell

61 Potomac Family Dining Group Herndon, VA 69 Applebee’s

62* PJ United Birmingham, AL 155 Papa John’s

$130-140 Million63 WKS Restaurant Group Lakewood, CA 59 El Pollo Loco 22 Denny’s

64 Wisconsin Hospitality Group, LLC Waukesha, WI 83 Pizza Hut 38 Applebee’s

65 Miller/Hopkins Group Las Vegas, NV 150 Pizza Hut

66* Fourteen Foods, LLC Minneapolis, MN 142 Dairy Queen

67 Quality Restaurant Concepts, LLC Birmingham, AL 60 Applebee’s

68 Desert de Oro Foods, Inc. Kingman, AZ 76 Taco Bell 59 Pizza Hut

69 The Jan Companies Cranston, RI 101 Burger King 4 Krispy Kreme

$120-130 Million70 Meritage Hospitality Group Grand Rapids, MI 114 Wendy’s

71 Border Foods Companies Golden Valley, MN 84 Taco Bell 5 Sonic Drive-In

72 Paradigm Investment Group, LLC San Diego, CA 99 Hardee’s 1 TGI Friday’s

73 BurgerBusters, Inc. Virginia Beach, VA 83 Taco Bell 11 Pizza Hut

74 Pennant Foods, LLC Knoxville, TN 89 Wendy’s

75* Goldco, LLC Atlanta, GA 110 Burger King

$110-120 Million76* RPM Pizza, Inc. Gulfport, MS 135 Domino’s

77 America’s Pizza Company, LLC Lafayette, LA 129 Pizza Hut

78 Wendy’s of Colorado Springs Colorado Springs, CO 73 Wendy’s 9 Golden Corral

79 Southern Multifoods, Inc. Jacksonville, TX 64 Taco Bell 22 YUM! Multi

80 McEssy Investment Co. Lake Forest, IL 46 McDonald’s

81 Starboard Group Coral Springs, FL 76 Wendy’s

82 B & G Food Enterprises, LLC Morgan City, LA 62 Taco Bell 20 YUM! Multi

Playing in the middle

The growth of large-scale franchisees has created concern in the restaurant business for the fate of small franchisees, the “mom-and-pops,” or

“onesies-twosies” as they’re often called, because they own just one or two units.

But what about the mid-sized operator? Many of the franchisees on the Restaurant 200 are getting bigger not by purchasing these mom-and-pops, but because they’re buying out mid-scale operators with 10 to 20 locations. These franchisees are retiring or simply getting out of the business.

“It’s happening a lot,” said Rick Ormsby, co-founder of Louisville-based investment bank NDA Inc., which works on the sale of a number of franchisees—but especially the Yum Brands concepts, Taco Bell, KFC and Pizza Hut.

Ormsby recently created a database, and found that 25 to 30 percent of operators in the Yum system with 10 to 15 units or fewer have left the system over the past four or five years. Most have sold their businesses.

That trend is playing out over many other chains. At least part of the reason is due to retirements. The legacy chains that dominate the Restaurant 200 grew in the 1970s and ‘80s. Their franchisees are reaching retirement age, don’t have heirs who want to continue in the business and they sell.

But that’s not the only reason. Many believe the current operating environment is increasingly difficult for smaller operators, even mid-sized franchisees. That has reduced operating margins. Add into that remodel requirements from a number of legacy brands, and older franchisees may opt to leave the business rather than keep going.

“Many aging franchisees have impending remodeling obligations,” Ormsby said. “There’s a lack of clear generational pass-downs. Everyone wants to retire at some point in time. And the average age in a lot of these systems is high.”

So big franchisees will keep getting bigger. And mid-sized operators will be fewer.

August 2014 39

83 Pacific Island Restaurants, Inc. Honolulu, HI 44 Pizza Hut 38 Taco Bell

84* Lemek, LLC Elkridge, MD 54 Panera Bread

85* Big River Restaurants Natchez, MS 46 Applebee’s 11 Pizza Hut

86* JEM Restaurant Group Charleston, SC 92 Pizza Hut 29 Taco Bell

87 DORO, Inc. Eau Claire, WI 99 Hardee’s 5 Taco John’s

88 QK, Inc. Phoenix, AZ 90 Denny’s 6 Del Taco

$100-110 Million89 Diversified Restaurant Holdings Southfield, MI 36 Buffalo Wild Wings 18 Bagger Dave’s

90 R.E.E. Inc. Beaumont, TX 52 McDonald’s

91 Carolina Restaurant Group Charlotte, NC 67 Wendy’s

92 Parikh Network Edison, NJ 83 Popeye’s 1 Corner Bakery Cafe

93 Summit Restaurant Holdings Lakewood, CO 95 Hardee’s

94 The Saxton Group Dallas, TX 53 McAlister’s Deli 4 Pinkberry’s

95 Retzer Resources, Inc. Greenville, MS 41 McDonald’s

96 RGT Management, Inc. Memphis, TN 61 Taco Bell 32 KFC

97 Friendly Franchisees Corp. La Palma, CA 72 Carl’s Jr.

$90-100 Million98* Neighborhood Hospitality/Woodland Group, Inc. Hazard, KY 41 Applebee’s 14 Wendy’s

99 Treadwell Enterprises, Inc. Springfield, MO 92 KFC 3 HuHot

100 Apple Sauce, Inc. Crestview Hills, KY 44 Applebee’s

101 Platinum Corral, LLC Jacksonville, NC 28 Golden Corral

102 PR Management Corporation Newton, MA 33 Panera Bread

103 Strang Corp. Cleveland, OH 38 Panera Bread

104 Luihn Food Systems, Inc. Morrisville, NC 41 Taco Bell 10 KFC

105 Stine Enterprises, Inc. Phoenix, AZ 70 Jack in the Box

106 Romulus Restaurant Group Phoenix, AZ 58 IHOP

107 Hielan Restaurant Group Lewisville, TX 43 Chili’s

108 Daland Corp. Wichita, KS 110 Pizza Hut

$80-90 Million109 Dolan Foster Enterprises, LLC Pleasanton, CA 72 Taco Bell

110 Den-Tex Central, Inc. San Antonio, TX 75 Denny’s

111* Kazi Management VI, LLC St. Thomas, VI 76 KFC 24 Burger King

112 Stanton & Associates, Inc. Jackson, MI 66 Wendy’s 5 Biggby Coffee

113 Morgan’s Foods, Inc. Cleveland, OH 53 KFC 4 Taco Bell

114* American Franchise Capital, LLC Greenwich, CT 33 Applebee’s 28 Taco Bell

115* The Bistro Group Cincinnati, OH 28 TGI Friday’s 5 McAlister’s Deli

116* United Restaurant Group, L.P. Glen Allen, VA 29 TGI Friday’s

117 Hospitality Restaurant Group, Inc. Traverse City, MI 43 Taco Bell 14 Pizza Hut

118 Gala Corporation Costa Mesa, CA 18 Applebee’s 10 Famous Dave’s

119 High Plains Pizza Liberal, KS 87 Pizza Hut

$70-80 Million120 FourCrown, Inc. Oakdale, MN 58 Wendy’s

121 OCAT, Inc. Modesto, CA 50 Taco Bell 1 YUM! Multi

122 Benton Properties, Inc. Springdale, AR 63 Sonic Drive-In

123 Jem Restaurant Management Corp. Fresno, CA 43 Wendy’s 14 KFC

124 Rucker Restaurant Holdings, LLC Chappaqua, NY 56 Jack in the Box

125 KC Bell, Inc. Wichita, KS 63 Taco Bell 3 Freddy’s

126 Oerther Foods, Inc. Orlando, FL 24 McDonald’s

127 CLP Corp. Homewood , AL 21 McDonald’s

Fastest growers

The 10 fastest-growing franchisees on the Restaurant 200, by percent sales increase.

Frisch’s Restaurants Inc. ............. 120.9%

TEAM Schostak Family Restaurants ...................... 104.4%

WKS Restaurant Group ................. 77.7%

RGT Management, Inc. ....................61.9%

Ocedon ...........................................48.8%

Apple Gilroy, Inc. ............................48.3%

Dolan Foster Enterprises, LLC ......43.3%

Diversified Restaurant Holdings ... 40.6%

OCAT, Inc. ....................................... 40.5%

Parikh Network ............................. 31.3%

40 August 2014

128* Schuster Enterprises, Inc. Columbus, GA 63 Burger King

129 Howley Bread Group, Ltd. Westlake, OH 27 Panera Bread

130 AB Enterprises Redding, CA 13 Burger King 11 Applebee’s

$60-70 Million131* Original Bread, Inc. Wichita, KS 34 Panera Bread

132 Apple Core Enterprises, Inc. Minot, ND 24 Applebee’s

133* Ultimate Challenge, LLC Willmar, MN 95 Domino’s

134 First Sun Management Corp. Clemson, SC 47 Wendy’s

135 Cotti Foods Corp. Rancho Santa Margarita, CA 60 Taco Bell

136 Kades Corp. Pasadena, TX 29 McDonald’s

137 DiPasqua Enterprises Winter Park, FL 115 Subway

138 Hallrich, Inc. Stow, OH 85 Pizza Hut

139 Carisch, Inc. Wayzata, MN 66 Arby’s

140 Lehigh Valley Restaurant Group Allentown, PA 20 Red Robin

141* Fourjay, LLC North Little Rock, AR 49 Wendy’s

142 Fowler Foods, Inc. Jonesboro, AR 45 KFC 15 YUM! Multi

143 Parrish Foods Dallas, TX 23 McDonald’s

144 Verlander Enterprises, LLC El Paso, TX 10 Applebee’s 10 Village Inn

145* Apple Corps, L.P. Witchita , KS 25 Applebee’s

146* Las-Cal Corp. Las Vegas, NV 64 Taco Bell

147 Ocedon Westerville, OH 51 Burger King

148 Ansara Restaurant Group, Inc. Farmington Hills, MI 22 Red Robin

$50-60 Million149 DenSuccess, Inc. Apex, NC 44 Denny’s

150 VKC Group Sugar Land, TX 105 Subway 18 Great American Cookies

151 LDF Food Group, Inc. Wichita, KS 42 Wendy’s

152* William Tell, Inc. Salt Lake City, UT 18 Applebee’s 8 Famous Dave’s

153 Top Line Restaurants, Inc. Chandler, AZ 37 Denny’s 2 Corner Bakery Cafe

154 Bullard Restaurant Group Raleigh, NC 23 Moe’s Southwest Grill 18 Burger King

155 DRM, Inc. Omaha, NE 69 Arby’s

156* West Quality Food Service, Inc. Laurel, MS 53 KFC 11 YUM! Multi

157 BMW Management, Inc. Temecula, CA 23 Sizzler

158 Brodersen Management Corp. Glendale, WI 39 Popeye’s

159 Serazen, LLC Orange, CA 69 Papa John’s

160* J.S. Ventures, Inc. Wichita, KS 25 Applebee’s

161 Mirabile Investment Corp. Memphis, TN 43 Burger King 7 Popeye’s

162 Janjer Enterprises, Inc. Silver Springs, MD 29 Popeye’s

163 C & P Restaurant Company, LLC Macon, GA 12 Captain D’s 8 Cheddar’s Casual Cafe

164 RLC Enterprises, Inc. Northbrook, IL 50 Taco Bell 9 KFC

165 Staab Management Co. Inc. Grand Island, NE 68 Pizza Hut

166* JAX, LLC Charlotte, NC 18 Golden Corral

167 Metz Group Dallas, PA 12 TGI Friday’s 2 Krispy Kreme

168 SD Holdings Fort Collins, CO 39 McAlister’s Deli

169 S-Group Companies Sandusky, OH 33 Wendy’s

170 GPS Hospitality, LLC Atlanta, GA 42 Burger King

171 RoHoHo, Inc. Charleston, SC 55 Papa John’s 4 Jersey Mike’s

$40-50 Million 172 Wendco Group Pensacola, FL 39 Wendy’s

173 Primary Aim, LLC Zanesville, OH 31 Wendy’s

174 Northcott Co. Chanhassen, MN 21 Perkins 4 Houlihan’s

175 Taco Bill Inc. & Affiliates Auburn, CA 23 Taco Bell 16 Long John Silver’s

176 Creative Foods Corp. Garden City, NY 27 Burger King

177 R & L Foods, Inc. San Antonio, TX 10 Taco Bell 5 KFC

178 U.S. Restaurants, Inc. Blue Bell , PA 34 Burger King

Popular brandsFranchisors with the most franchisees

on the ranking.

Taco Bell ................................................41

Wendy’s ................................................ 31

Applebee’s ............................................ 27

KFC ....................................................... 26

Pizza Hut .............................................. 26

®

August 2014 41

179 RREMC Restaurants, LLC Merritt Island, FL 36 Denny’s 1 Dairy Queen

180 Shamrock Companies Hinsdale, IL 24 Taco Bell 11 KFC

181 Ryan Restaurant Corp. Billings, MT 8 Applebee’s 8 Famous Dave’s

182 Hart Restaurant Management, Inc. Corpus Christi, TX 44 Burger King

183 Apple Gilroy, Inc. San Jose, CA 12 Applebee’s

184* Thomas 5 Ltd. Dublin, OH 32 Wendy’s

185 Pizza Hut of Arizona Tucson, AZ 33 Pizza Hut

186 Emerald Foods, Inc. Columbus, OH 39 Wendy’s

187 Century Fast Foods, Inc. Los Angeles, CA 33 Taco Bell

188 Rawson Foodservice, Inc. Princeton, NJ 20 Wendy’s

189* GC Partners, Inc. Winston-Salem, NC 12 Golden Corral

190* PRB Management, LLC Fairfield, CA 34 Taco Bell

$35-40 Million 191 Mach Robin, LLC Sun Valley, ID 14 Red Robin

192 Brumit Restaurant Group Asheville, NC 44 Arby’s 2 Which Wich

193 Bartlett Management Services Clinton, IL 42 KFC 1 Taco Bell

194 WMCR Co. Alpena, MI 37 KFC 2 Taco Bell

195 H & K Partners Milwaukee, WI 34 KFC 7 YUM! Multi

196 Texas Subs, Inc. Fort Worth, TX 62 Subway 1 Mooyah Burger & Fries

197* Peak Interests, LLC Golden, CO 47 Pizza Hut

198 NRD Holdings, LLC Atlanta, GA 16 Popeyes 9 Subway

199 Wendy’s of Montana Billings, MT 18 Wendy’s

200 Tricorp Food Services, Inc. Chesterfield, MO 12 TGI Friday’s

Cutting out the go-betweenPrivate equity groups have become an increasingly

important investor in the franchise sector—they own many of the top companies on our Restaurant 200, and are buying up more of them all the time.

And yet, there is a certain level of conflict about these groups within the industry. Franchisors are historically wary of private equity groups. The firms also have short investment horizons, meaning that whenever they buy a franchisee, they’ll look to sell that company in five or so years.

But what if a franchisee could find a way around that? Greg Flynn might have done just that.

The CEO of the top company on our ranking, Flynn Restaurant Group, recently inked a deal with the Ontario Teachers Pension Plan, which invested $300 million in the San Francisco-based operator as part of a management-led buyout of its private equity owners, Goldman Sachs and Weston Presidio.

The deal values Flynn’s company at $1.1 billion, an enormous valuation for a franchisee and the first one in the U.S. to reach that level. But it’s the involvement of that pension plan that makes this a big deal.

Pension plans are among the large investors that invest in private equity groups, which turn around

and buy out companies or make other investments. In essence, said Flynn, “This eliminates the middleman.”

Pension funds will periodically, albeit rarely, invest in companies themselves. But this is the first time we could find that one has invested in a franchisee. It might not be the last, either. Flynn’s deal has generated considerable buzz within the franchise community, because it could provide a longer-term alternative to the private equity investor.

“There are no fund life issues,” Flynn said. “They don’t have to sell. They’re not led to sell just to create a data point. They can be as patient as appropriate for the business without regard to the capital source.”

With a growing number of large-scale franchisees, pension funds could be viewed as an attractive alternative to the private equity group. And franchisors could get on board, too.

The franchisees could also be a good investment for the funds themselves, for many of the same reasons that private equity groups have been buying out the operators. The businesses generate cash, and some of the biggest franchisees on our ranking are growing at rates that easily rival some of the fastest growing restaurant chains.

42 August 2014

How we compiled the rankingFranchise Times Restaurant 200 is compiled

annually using a combination of companies’ self-reported information and estimates gleaned from publicly available documents. Those documents include annual reports, Securities and Exchange Commission filings, and Franchise Disclosure Documents. The ranking is compiled by Franchise Times’ sister publication, the Restaurant Finance Monitor.

The ranking is based on the companies’ prior year revenue from their operations for which they are a franchisee. It does not count franchisees’ privately owned, non-franchised concepts, or concepts for which they are the franchisor. Nor does the ranking include revenue from other business operations, such as hotels or real estate interests.

For companies that did not respond to our survey, we confirmed the number of units operated by the company and then estimated the revenue. In the case of a tie in the amount of total revenue we give favor to the company with the most units. We give preference on our ranking to companies that provide us with their information, rather than companies for which we have to estimate annual revenue.

Our ranking of the top 200 franchisees is combined with the second 200 franchisees in a report prepared by the Chicago consulting firm Technomic.

For more information, contact Abbi Nawrocki at (612) 767-3200; abbi@franchisetimes.com