Diversified Restaurant Holdings Inc. hopes that Bagger Dave’s will be better off on its own.
The big Buffalo Wild Wings franchisee is spinning off the burger chain it created eight years ago. The spinoff is expected to be complete this year.
Southfield, Mich.-based Diversified Restaurant Holdings hopes that moving away from the spotlight of Wall Street will help Bagger Dave’s turnaround. But it also hopes the move will be good for the company’s Buffalo Wild Wings operation. Diversified Restaurant Holdings is the casual-dining chain’s biggest franchisee, with 64 locations.
“It’ll be good for both brands,” Diversified Restaurant Holdings CEO Michael Ansley said. “Bagger Dave’s had some issues. Frankly, it’s a concept we grew too fast. There are five or six things we did wrong.
“We’ve been in the process of fixing it. But the public markets are not forgiving. Bagger Dave’s is only 10 percent of the revenue at Diversified. It shouldn’t be the focus. But investors like to focus on that.”
Diversified Restaurant Holdings has long been a Buffalo Wild Wings franchisee, but opted to get into the better burger business in 2008, with the opening of Bagger Dave’s in Berkley, Mich. The chain has grown rapidly, from three units in 2011 to 25 locations in 2015.
The company had such high hopes for Bagger Dave’s that in 2013, when it started trading on the Nasdaq Stock Exchange, it gave itself the ticker symbol BAGR. Today, Ansley said the decision to give Diversified Restaurant Holdings that ticker symbol, which focuses on Bagger Dave’s, was a mistake. Last year, the company changed its ticker symbol to SAUC.
“We should not have magnified Bagger Dave’s,” Ansley said.
Diversified Restaurant Holdings has shifted more attention to Buffalo Wild Wings, and acquired 18 locations last year. Earlier this year, the company began exploring options for Bagger Dave’s.
The burger chain has shed locations, and is now down to 19 restaurants, most of them in Michigan. Due to the closures, Bagger Dave’s sales fell 25 percent in its most recent quarter, to $5.4 million, or about 11 percent of Diversified Restaurant Holdings’ revenues. By comparison, a year ago, Bagger Dave’s accounted for nearly 20 percent of company revenues.
Bagger Dave’s restaurants have struggled to generate profits. While Diversified Restaurant Holdings’ Buffalo Wild Wings franchisees had average restaurant-level cash flow of more than 20 percent last year, the units that remain open had negative restaurant-level cash flow.
Bagger Dave’s struggles were a big reason the company’s stock price lost two-thirds of its value over the past year.
After the spinoff, Ansley will cede the CEO position at Diversified Restaurant Holdings to David Burke, the company’s chief financial officer, and will instead focus on Bagger Dave’s. But Ansley will remain as executive chairman and a majority shareholder, and will be involved in long-term strategy.
“I love Buffalo Wild Wings,” Ansley said. “I’m just not going to be running the day-to-day operations.” He added that he has an agreement with the franchisor to remain involved in the franchisee’s operations to a certain extent. “David [Burke] is more than capable of running the company.”
The shift will free Ansley to focus his day-to-day attention on Bagger Dave’s, so decisions can be made with only that chain in mind.
And efforts will begin shortly: Bagger Dave’s is creating its first television commercial to run this fall. It also has a new menu design, and the chain is “doing some aggressive promotions,” Ansley said.
“I’ve been somewhat stubborn on pricing,” he said. “I wanted to keep our food’s integrity. But we’ve found some pretty clever promotions that we’re going to roll out this fall.”
Ansley said that the company has also brought in some seasoned management to help operate the chain. Bagger Dave’s, which has a more complex menu, has proven to be more difficult to operate than Buffalo Wild Wings, which Ansley said is “somewhat easy” to operate in the back of the house.
The chain also has a new grill process to cook the burgers more quickly, and has worked on food improvement.
“We’ve corrected a lot of errors,” Ansley said. “Our [customer satisfaction] scores are unbelievable now.”
“It’s only been around for eight years,” he added. “That’s not a long time for a new concept. But to have those problems, they were magnified because we were a public company.”