Buffalo Wild Wings' Plan: Smaller Stores, Delivery, Boneless, and More
Recent results have shown that changes are afoot at Buffalo Wild Wings. The company’s investor presentation Monday offered a glimpse into the brand’s progression through what’s been an eventful year, to say the least, and what’s to come.
Firstly, Buffalo Wild Wings updated investors on the impact from hurricanes Harvey and Irma. The company reported lost sales of about $3 million, as well as a $2.2 million EBITDA impact, and a 10-cent reduction to its estimated earnings per share.
All team members are safe and accounted for, Buffalo Wild Wings added. If the unit closed for three days in a month, it will be excluded from same-store sales reporting. If closed for a day in a week, it will be excluded from average weekly sales.
In-restaurant and team member fundraising efforts for Red Cross and a team member assistance fund were deployed as well.
In 2017, a year that has been marked by board battles and the announcement that longtime CEO Sally Smith would be stepping down at year’s end, Buffalo Wild Wings reported revenue growth of 3.6 percent, and EBITDA decline of 20.6 percent (or $32.5 million), and a net income decrease of 46.3 percent ($26.1 million). Same-stores sales fell 1.2 percent at company stores and 2.1 percent at franchised locations in the second quarter.
Here are some of the notes Buffalo Wild Wings mentioned as drivers for building sales and controlling costs. The latter has been increasingly important as wing prices continue to cripple the bottom line.
Generally speaking, Buffalo Wild Wings said its initiatives are designed to further improve the fan experience, respond to changing consumer needs, increase traffic, and grow average check. The moves:
- Blazin’ Rewards: A program that had more than 2.5 million guests enrolled as of June when it announced it was going national.
- Takeout optimization: At the end of the second quarter, delivery was in 230 company-owned locations—up from 180 at the end of Q1, and accounted for $4.1 million of sales in the quarter. Takeout and delivery comprised 17.6 percent of company-owned restaurant revenues in Q2, up from 15.7 percent the year before. Buffalo Wild Wings also estimated that third-party delivery is over 90 percent incremental to dine-in and takeout sales.
- Third-party delivery rollout: See above. One more note: Buffalo Wild Wings said in the second quarter that it was adding delivery ordering to its mobile app later in the year and piloting beer delivery where legal. Ohio and Wisconsin were slated as early markets. The app should help reduce commissions to third-party delivery providers.
- Tuesdays/Thursdays/Happy Hour
- Fast Break Lunch: Smith said in the second-quarter review that Fast Break Lunch is “exceeding what we expected at the beginning of the year.” In July 2016, Buffalo Wild Wings marketed the menu by guaranteeing that a guest could get their lunch order in 15 minutes or less. If not, it was on the house. Read more about it here.
- Single-day events
As for cost-control initiatives, investors will be paying close attention. Among the challenges facing Buffalo Wild Wings, the price of its signature item might be the most prevalent.
“Traditional wings were $2.05 per pound in the second quarter, representing an 11-cent increase, or 5.7 percent, higher than last year's second quarter average of $1.94. Traditional wings as a percent of cost of sales was 30.7 percent in the second quarter,” the company stated in the review.
Could a shift to boneless help? Time will tell. In the interim, here are the points Buffalo Wild Wings stressed to investors.
- Labor usage planning
- Menu optimization
- Waste reduction
- Sourcing and supply chain
- Facilities contract negotiations
- Home office and field operations support model
- Third-party support services
- Marketing promotion and media spend optimization
Buffalo Wild Wings delved deeper into some of the above subjects. One point was the small-format locations. The 2,000–2,500-square-foot units have an estimated average unit volume of $1–$1.5 million per store, which is a higher revenue-per-square-foot option than traditional units. The company sees runway for 200-plus of these locations.
This store design also addresses growing consumer demand for speed and convenience by focusing on takeout and delivery, Buffalo Wild Wings said, noting that takeout and delivery would measure out to about 40 percent of sales, in theory.
The pilot program could lead to a larger-scale rollout in 2018.
For takeout and delivery, Buffalo Wild Wings said it plans to focus on optimizing execution, including refreshed training, quality checks, and technology solutions to drive customer satisfaction and upsell.
It also plans to deploy hot boxes for takeout in applicable company-owned restaurants by Q3. Buffalo Wild Wings aims to expand third-party delivery to 250 company-owned restaurants by the end of the year. GrubHub and DoorDash are already signed on.
The company will pilot proprietary delivery by the end of the year as well.
On the development side, Buffalo Wild Wings is developing in India, which would join Mexico, Oman, Panama, the Philippines, Saudi Arabia, Vietnam, and the United Arab Emirates as international markets.
A major announcement after the second quarter was Buffalo Wild Wings’ plan to alter its popular half-price Wing Tuesday promotion. The company replaced the deal with a Boneless BOGO offering in company-owned stores. The main reason being the price of bone-in wings. It anticipated the move would decrease cost of sales from 32.1 percent in Q2 2017 to 31.5 percent in the third quarter. While traditional wings comprise 31 percent of Buffalo Wild Wings’ cost of sales, boneless wings are only about 13 percent.
On Monday, Buffalo Wild Wings offered an update by predicting that the same-store sales impact will be better than forecasted. The majority of traffic loss will be from takeout. Average check is improving with the BOGO offer, and a mix shift to boneless wings is sequentially improving cost of goods sold from Q2, offsetting Q3 year-over-year increases in traditional wing prices.
As of September 19, all company location are on board with the new offer, as well as 39 franchise locations. In Q4, Buffalo Wild Wings anticipates traditional wing inflation to be 10–12 percent higher year-over-year.
Buffalo Wild Wings also revealed that it has identified $40–$50 million in net cost saving, primarily due to labor, and achieved $5 million net savings in Q2. It expects $7 million in Q3, followed by $8 million in Q4, and about $25 million in 2018.