Lower food and labor costs drove a 24.9-percent gain in net income in the fourth quarter of 2013 for Buffalo Wild Wings, and the company plans to capitalize on that benefit in 2014 by devoting more capital to several growth initiatives.
“We are planning on investing some of that [food cost benefit],” chief financial officer Mary Twinem said during the company’s fourth-quarter earnings call. “When we look at where wing prices are in January and February … we are investing that in the labor line or some of it with the … ‘guest experience’ model rollout. [We are] also investing some of it in minimum-wage increases across the country, which we will work to … minimize the impact that has as we go through the year.”
Twinem and chief executive Sally Smith identified additional opportunities for the casual-dining chain in 2014, including the rollout of the new “guest experience” service model to all company-owned units, the adoption of at-table tablet computers at all corporate locations, new marketing partnerships, international expansion and investments in startup restaurant brands.
Buffalo Wild Wings’ biggest tailwind came from sharp deflation in the commodity price of traditional chicken wings. The average price fell 21 percent in the Dec. 29-ended fourth quarter to $1.64 per pound, compared with $2.07 per pound a year earlier.
Combined with about 2.1 percent of menu price increases taken in the past year at company-owned restaurants and the move to serve wings by weighted portion, the wing cost benefit contributed to a 2.2-percent decline in Buffalo Wild Wings’ cost of goods sold to 29.8 percent of sales.
The chain’s labor cost dipped a slight 0.2 percent to 30 percent of sales, as the cost of expanding the new service model — in which an extra server, or “guest experience captain,” visits tables to help customers with their sports-viewing experience — was offset slightly by a change in manager staffing at those restaurants.
Tablets to drive customer experience
Twinem and Smith expected labor costs to rise slightly this year due to minimum-wage increases in 10 states and some costs from the expansion of the new service model. But ultimately, they said, the guest experience model over time would increase customer engagement and loyalty and would help Buffalo Wild Wings introduce advanced technology to guests.
“The [guest experience captain] is responsible for creating a fun, exciting environment in the restaurant and helps leverage our second initiative: new technology,” Smith said. “This [tablet] platform combines a differentiated and interactive experience, offering BuzzTime trivia, poker, arcade games and more. We’re testing guest ordering and payment capabilities, and we expect to roll out this functionality in the back half of the year.”
Eventually, as the tablets allow guests to order from those devices, Buffalo Wild Wings could mitigate labor costs by enabling fewer servers to cover more tables, she said. Smith added that tablets could have guest-facing benefits like selecting music played in the restaurant, getting sports news updates or playing other kinds of games.
She also noted that greater interactivity provided by tablets could serve as another draw to Buffalo Wild Wings during times of the year with fewer sporting events that drive a lot of traffic.
“We really believe this model has the ability to drive same-store sales, whether it’s through increasing the shift in purchases coming back for another time or just helping introduce the guest to the technology,” Smith said. “It is our goal certainly that sales for the most part cover any incremental labor. That’s not always the case in the first couple of months that it’s rolled out, but we are very pleased with the results, and that’s why we are going to continue rolling it out.”
Branching out growth
Having reached the 1,000-unit milestone in January, Buffalo Wild Wings shared plans not just for continued domestic growth, but also through international expansion and possibly acquiring an interest in another growth vehicle, similar to last year’s minority investment in PizzaRev.
Buffalo Wild Wings expects to open 45 company-owned restaurants this year, with franchisees building another 40 locations. An international unit is expected to open in Dubai this year as well.
The company will open and operate two franchised locations of PizzaRev in Minneapolis in the first quarter and could finish 2014 with as many as six locations of the fast-casual pizza concept, Smith said. She added that the company might be looking for a few similar brands to add to the portfolio this year.
“Our criteria for that small emerging brand really haven’t changed,” Smith said. “We would like it to be in the fast-casual or perhaps casual-dining sector and the ability to have locations across the country — as a franchise-able, simple operation — anywhere from a couple units to maybe a dozen or more. … I do believe we should be able to add one or two small concepts before the end of the year.”
The brand opened 14 locations of the new “Stadia” prototype in 2013, and expects to open many this year. Smith said it was difficult to calculate a sales lift for the Stadia prototype because they are new builds and not remodels, but she did note that the new-look units averaged higher sales volumes than existing stores and have a very favorable sales mix of alcohol due to the prominence given to the bar area.
The chain also revealed during the earnings call that its new partnership with PepsiCo would result in more consumer packaged-goods opportunities in grocery stores, with a Buffalo Wild Wings-branded flavor of Ruffles set to debut in February.
“In addition,” Smith said, “we’ll plan marketing activities in 2014 utilizing NFL pass-through rights and music entertainment properties of these beverage partners.”
Twinem added that Buffalo Wild Wings would maintain its partnership with the NCAA and explore future sports-marketing opportunities on its nascent tablet and digital-marketing platforms.
“We’re always open to looking at things, whether it would be some sort of online sports platform, and these partnerships will help us provide some of that proprietary content within our restaurants,” Twinem said. “I think [it would give] guests just another reason to come into Buffalo Wild Wings, especially during lower sporting times.”
At the close of the fourth quarter, Buffalo Wild Wings operated 434 company-owned units and franchised another 559 locations in the United States, Canada and Mexico.