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Executive Chat with Rebecca Patt | Partner at Wray Executive Search
Featuring John Metz of RREMC Restaurants John Metz is President and Founder of RREMC Restaurants, operator of 63 Denny's, six Hurricane Grills, and two Wahoo Seafood Grills, generating over $135 million in annual sales and employing over 2400 people in FL, GA, IL, IN, and VA. He was recently appointed to the board of FAT Brands, Inc. As one of the largest Denny’s franchisees, how would you assess the current trajectory and performance of the brand? That’s a loaded question! First off, there's been a new CEO at Denny's, Kelli Valade, and I am very optimistic about her. I think she's put together a great team, and I think the fact that they bought Keke’s Breakfast Cafe was a phenomenally strategic move on Denny's part. In fact, I'm about to sign up to build at least 20 Keke's. I'm about to hire back a former employee of mine who does development and construction, someone who built over 350 Starbucks, and give her the sole responsibility of building 20 to 25 Keke's. So, that's, that's part and parcel to Denny's. So, I think it was very strategic that they bought Keke's, and I think that Kelli has put a very good team together at Denny's. She brought in a new COO by the name of Alex Williams. They brought in a new CMO because they elevated John Dillon, who was the CMO, to be president of Denny's. I think the new CMO is phenomenal. She is phenomenal. And I think they've already discovered some things that they can improve on at Denny's, in terms of marketing, menu, presentation, and just menu in general. They are doing a new menu for Denny’s, which is sorely needed. I'm really excited about the direction that Denny's is going. I'm just thrilled, over the top. The other thing that I'm over the top about is that they are really walking the talk with being extremely transparent. They're really taking the covers off and letting us see pretty much everything, and I think that's very healthy. Denny's is a 70-year-old brand, and it's got positives and negatives. Being open 24 hours is a positive and a negative. It's very difficult to staff a 24-hour restaurant. It's very hard to get people to want to manage a 24-hour restaurant. And yet, we're known for being open 24 hours. That's our fourth day part, and that's a big day part for us. So it's complicated, but I think the trajectory for Denny's is definitely positive, and I think between Denny's and Keke’s, they're absolutely on the right track. Your career has been marked by a strategic focus on restaurant and real estate acquisitions. What insights can you share about opportunities now for M&A and how valuations are shaping up? The bottom line is money was too cheap for too long. I know that is sacrilege to say that. And cap rates are too low. Back when I first started, I was buying restaurant real estate at a 12% cap, and today, I’ve sold almost three quarters of my portfolio at a 6% cap. So that alone would have doubled the values. I built this company and my former companies almost entirely on real estate. I really get a little nervous when people call me a restauranteur because that's really not my thing. I think interest rates were too low for too long, and I think cap rates got a little too low, so that has encouraged a lot of people to pay a big price for a lot of restaurant real estate. And now that you have the increase in rates to borrow, it has gone from 5% to 8% or 9% for real estate. So you can't very well buy something on a six-cap rate and then have 8% interest. You have to acquire properties differently given the higher interest rate environment. That's my thing on real estate. Now, with respect to operations. That's a whole different ballgame. For operations, my go-to was always three times store level EBITDA. Denny's, pre pandemic, were trading at five-times-plus EBITDA. I've always wanted to get into something one of the Yum! Brands, whether it be Taco Bell or any of the Yum! Brands, but with Taco Bell, their multiples are eight, nine, or even ten. I can't even begin to I just can't see how I can pay that. So I don't, which is probably why I've got so many Denny's because I can buy the Denny’s fairly economically and make money at it. Paying 10 times profit for Taco Bell --- I don't know how these guys make that work. I think those multiples will come down because to get franchise finance capital today, it's every bit of eight, nine, or 10%. If you're going to borrow money from a franchise finance company, their rates have gone through the roof. So, I think cap rates need to go up, and I think for operations, the multiples on operations need to go down. You were recently appointed to the FAT Brands board. Congrats on that. Could you tell us about what excites you the most about this and how you anticipate leveraging your expertise in this new role? I think what excites me the most about FAT Brands is Andy . He's just incredible. The one thing I like to say about Andy that most people don't know is that he's an Eagle Scout. I respect anybody who's an Eagle Scout. He's extremely bright. He's relentless. He doesn't give up, and he gets stuff done. Andy is old-fashioned. When he agrees to something and shakes your hand, he doesn’t re-trade the deal. Andy has a knack for these acquisitions. Obviously, the Twin Peaks acquisition is his crown jewel. When he bought that, of course, I wasn't on the board. I thought he overpaid to the nth degree for Twin Peaks. He proved me totally wrong. In reality, he stole that brand. I like working with people that are brighter than myself and I think Andy fits that category. The other members of the board, as I get to know them, are great. His son has become a really good COO. Andy is there to guide him, and that helps. The only thing I can hope to provide is some insights as a franchisee. You’ve got to look at all the stakeholders in a company, not just the shareholders, bondholders and employees of a company. You have to remember that franchisees are stakeholders as well. Only two public restaurant companies, to my knowledge, have a franchisee on their board. Yum! has a franchisee on their board, and Andy has me on board as a franchisee. There are very few franchisees on public boards of directors. I would love to be on Denny’s board because I think they need to hear from franchisees, so I applaud Andy for putting me on the board as a franchisee. Whether it leads to me being on other boards as a franchisee, I certainly hope that other franchisors put franchisees on their board. I think that is the most important thing that restaurant companies could do. You have an impressive roster of long-serving employees, including your COO, Vic Cuda, who I understand has been with you for over 20 years. Can you shed some light on the strategies that have contributed to your success in retaining such dedicated team members? I have got quite a few long-term employees. I think it's a matter of just treating them right. Vic didn't start out as a partner, but he became a partner after about 10 years, He became a 20% owner of both our real estate and our operations for all the Denny's. I think that having people that have been with you for a long time have the opportunity to buy equity, even though in some cases I have to finance that equity, but they're still on the hook. It changes the whole dynamic. They have skin in the game. Most of my area directors don't have ownership positions, but they all have bonuses based on performance. We pay fairly large bonuses. We have RVPs that are making over $150,000, and $50,000 is a pure bonus based on performance. I also have all my GMs on a profit basis as well. So a GM has a fixed bonus; every GM has the potential to make $7,500 in bonus annually. Plus, they get they get a percentage of everything they make above what our budget is. So, a store that has a budget say of 100, if they make 150, they'll make an extra $5,000. I'd say of my 37 Denny's that were my original Denny’s, more than half, probably 25 of them, have long-term GMs. And that's the whole secret sauce. You have dual degrees from Cornell in Hotel Administration and an MBA in finance. What motivated you to embark on this career path? I was originally a chemical engineer at Cornell, and to this day, I only need 18 credit hours to get my chemical engineer degree. I actually transferred from chemical engineering my senior year into the hotel school. Everybody thought I was nuts, including my father, but I had worked in restaurants and bars while I was in college, and I just loved it. I really wasn't enamored with being a chemical engineer and going to work in the petroleum industry. That didn't really appeal to me, and my grades as a chemical engineer were not going to get me into a business school. So I figured I better make a change. The hotel school at the time was essentially an undergraduate business school at Cornell. I got both my hotel-restaurant management studies as well as general business studies at the hotel school. And I went on to get my MBA, and while I was getting my MBA, I opened two restaurants. So my path was pretty well set, as it turns out. I couldn't get out of the restaurant business to save my life. Could you share an interesting and perhaps unexpected fact about yourself?
I have three Afghan hounds. I have Cody, Sophie, and Persia. Their beauty bill would put any woman to shame. I probably spend $600 to $700 a month on their grooming. They are extremely high maintenance. The other interesting fact is I collect Packards. I have a 1937 Packard convertible and I have a 1953 Packard convertible. Got an idea for the next Executive Chat? Contact Rebecca Patt at rebecca@wraysearch.com
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