Buffalo Wild Wings Inc. faces a sizable challenge in 2017 as it looks to generate sales and traffic while protecting margins: Chicken wing costs.
The Minneapolis-based chicken-wing chain ended a streak of declining same-store sales, with an increase of 0.5 percent at corporate restaurants in the first quarter ended March 26.
The company said its Half-Price Wing Tuesdays drove “significant traffic” in the period.
But Buffalo Wild Wings faces pressure from investors to improve margins. And chicken wing prices are forecast to increase 8 percent to 10 percent this year, the opposite of what was expected.
When the promotion was announced, chicken wing prices were $1.70 a pound, and were expected to decline by 10 percent this year, executives said.
“As such, we’re aggressively evaluating other offers for Half-Price Wing Tuesdays that still offer a value to our fans but help protect our margins,” Buffalo Wild Wings CEO Sally Smith said during an earnings call Wednesday.
The challenge illustrates the tightrope many operators are walking as they work to lure customers in a highly competitive environment, but face pressure from shareholders to maintain profits.
Buffalo Wild Wings is doing battle with activist shareholder Marcato Capital Management, which has nominated four people to the company’s board of directors. Marcato has been critical of the company and its management, and called for Smith to resign.
One issue Marcato has raised is margins, especially at company-operated restaurants.
Buffalo Wild Wings said this week it will cut costs by as much as $50 million, in addition to refranchising 13 percent of company locations, or 80 units.
One of the cuts: “Guest Experience Captains” who work at 90 percent of company-operated locations. Alexander Ware, Buffalo Wild Wings’ chief financial officer, said their responsibilities would be shifted to other employees.
Buffalo Wild Wings introduced the position in 2015, in a bid to improve customer service. However, that did not translate into higher sales: Same-store sales fell in 2016.
Marcato was especially critical of the program. In a presentation filed earlier this month, the investor quoted a corporate employee who said the role “has shown negligible positive impact on store experience.”
Buffalo Wild Wings said it can save $15 million to $17 million in the second half of the year, and $24 million to $28 million in 2018, by making changes at the unit level to improve margins. Eliminating the captain position is one such savings.
Savings would also come from a streamlined management structure at lower-volume units, food waste improvements and changes in procurement. In addition, the company said it would develop a new “activity-based labor model,” as well as improved sales forecasting and labor scheduling tools.
Buffalo Wild Wings is also working to save on general and administrative costs, and expects to save $3 million this year and another $3 million next year.
“By controlling what we can, the net impact of these savings and the [refranchising] will enable us to offset slowing consumer traffic in the sector, greater promotional activity, higher wing costs and labor headwinds, and still deliver 20-percent restaurant-level margins” by 2018, Ware said.
The company expects that “industry softness” will continue to impact sales in 2017. Buffalo Wild Wings said same-store sales this year would be about 1 percent, at the lower end of its predicted range.
While the company is “pleased” with its performance, given industry challenges in the first quarter, “the underlying casual-dining environment is weaker than expected,” Ware said.
Buffalo Wild Wings is also one of several restaurant chains working to quickly expand delivery.
Third-party delivery generated $2.7 million at 180 restaurants in the quarter, and take-out as a whole represented 18.2 percent of company-owned restaurant revenue, an increase from 16.6 percent in the same period a year ago. The company wants to expand delivery to 250 restaurants by the end of the year.
“Delivery is incremental to the business, as we’ve seen take-out continue to grow in restaurants that offer delivery,” chief operating officer Jim Schmidt said.
Contact Jonathan Maze at [email protected]
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