Buffalo Wild Wings' sales grow

Buffalo Wild Wings' sales grow

A Heard on the Call report following third-quarter earnings

Buffalo Wild Wings’ promotions aimed at football fans and the happy-hour crowd drove positive results in the third quarter, company executives said in an earnings call on Thursday.

The 795-unit Minneapolis-based chain, whose net income rose 32.5 percent for the Sept. 25-ended quarter [3], logged same-store sales increases of 5.7 percent in company-owned stores and 4.2 percent at franchised locations.

Chief executive Sally Smith said the start of the National Football League season [4], as well as an Ultimate Wings lunch promotion and happy-hour and late-night drink and appetizer specials, boosted traffic and sales.

A rush of traffic, sales

The chain kicked off the pro-football season with more fantasy football draft parties than it had hosted in previous years, Smith said. The brand reprised its “Tablegating” campaign on Sept. 5 and is running a social-media challenge all season on the location-based platform SCVNGR.

Smith and chief financial officer Mary Twinem said Buffalo Wild Wings’ marketing spending would increase “significantly” in the fourth quarter due to higher same-store sales from the first three quarters of the year bolstering the chain’s marketing budget. The brand will advertise on television for an additional week this October, and will run cable ads in November, and radio and TV ads in December for the first time.

The chain’s happy-hour and late-night specials of $3 appetizers and featured mixed drinks drove value perceptions and traffic, the executives said, and the resulting mix shift eroded margins only slightly while still contributing to the bottom line.

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Chicken wing costs were $1.16 per pound this quarter, compared with $1.42 a year earlier. However, total food costs increased despite lower prices for wings, due mostly to the $3 appetizer and drink specials during happy-hour promotions and the Unlimited Wings lunch promotion.

Cost of sales for the quarter was 28.5 percent, Twinem said, 0.5-percent higher than the third quarter of 2010.

“We believe these promotions were driving incremental visits, and we’re pleased with the positive impact on same-store sales in this quarter, even though cost of sales ran a little higher,” Twinem said. “From a sales mix piece, with the happy-hour focus and appetizers, I think it’s here to stay, and we’re fine with that.”

Smith reiterated that the promotions spurred incremental traffic far more than they encouraged any trading down from regular customers to lower-priced items.

“I think it’s letting people come in an additional time during the week,” Smith said. “My guess is that’s a group of people that look for value, and I do think that’s driving number of visits … The competition remains [at happy hour], but we have a compelling offer.”

While the National Basketball Association lockout remains unresolved, Buffalo Wild Wings does not anticipate a significant detriment to traffic, like what could have happened if NFL games were canceled [5].

“While certainly games are important, the NBA isn’t a huge driver for restaurant sales … until the Finals,” Smith said. “We have opportunities to capitalize on [football], as well as some of our community efforts we have planned when there isn’t a game on.”

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Unit counts, pricing to grow in 2012

For the first three weeks of the fourth quarter, same-store sales rose 8.3 percent at company-owned locations and 6.7 percent at franchised units, Twinem said. About 1.5 percent of that increase came from the benefit of an extra week of baseball playoffs and an extra UFC fight compared with last year, she said.

The company is expecting a 1.5-percent sales benefit at company-owned restaurants from menu price increases taken in previous quarters.

Buffalo Wild Wings is contemplating another price increase of about 2 percent for fiscal 2012, Twinem said. An updated menu will roll out in the first quarter, she added.

“We’ve been very cautious in the last several years not to take an increase that’s too significant that would frighten the guest or change an eating pattern,” Twinem said. “We think 2 percent is an acceptable increase to take. It helps protect some of our margin, but not all of what we might lose from increases in [price for] traditional wings. We think it won’t affect our traffic.”

For the first two months of the fourth quarter, traditional wings cost about $1.39 per pound for Buffalo Wild Wings. The chain extended its boneless-wing contract, which was set to expire in March 2012, through March 2013, with only a “slight price increase,” Twinem said. She added that the rest of the chain’s commodities basket is contracted to rise about 3.5 percent next year.

Traditional wings accounted for 20 percent of sales in the quarter, compared with 21 percent a year earlier, Twinem said, while boneless wings accounted for 19 percent of sales this year and last year.

Buffalo Wild Wings opened 10 new company-owned restaurants in North America, including a unit in Toronto, during the quarter. The company also purchased two franchised locations in the quarter and closed one older location.

It expects to open 19 locations in the fourth quarter, including two in Canada, while closing two older units. Buffalo Wild Wings expects franchisees to open 21 restaurants in the fourth quarter, and anticipates ending 2011 with 824 total locations.

Contact Mark Brandau at [email protected] [6].
Follow him on Twitter: @Mark_from_NRN [7]