Tags: Buffalo | Wild Wings | Bar | Grill

Buffalo Wild Wings: A Secret Sauce for Success

By    |   Wednesday, 26 Mar 2014 08:23 PM

With the NCAA Basketball Tournament approaching the “Sweet 16” of remaining contenders in its annual March Madness series, I thought that now would be a good time to review Buffalo Wild Wings (BWLD), which caters to sports enthusiasts in more than 434 company-owned and 558 franchised restaurants throughout the United States and Canada.

The Minneapolis company is an owner, operator and franchisor of sports-oriented restaurants that feature Buffalo, New York-style chicken wings tossed in one of the company’s 16 secret sauces, ranging from Sweet BBQ to Blazin’ hot BBQ, or five seasonings including Buffalo, Desert Heat, Chipotle BBQ, Lemon Pepper and Salt & Vinegar.

In an effort to appeal to a wider audience, the company’s restaurants also offers specialty hamburgers and sandwiches, wraps, soft tacos and salads. Its beverages include 20 to 30 domestic and imported beers on tap and a wide selection of bottled beers, wines, and liquor.

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The company’s restaurants have won dozens of “Best Wings” and “Best Sports Bar” awards throughout the United States.

A significant factor that led to the company’s rapid growth and financial success since its founding during 1982 is the design and layout of the company’s restaurants.

In the dining/drinking areas of its restaurants, Buffalo Wild Wings offers distinct seating choices for sports fans and families by providing an extensive multi-media system, a full bar and an open dining layout.

Sports and gaming fans have the option of watching sporting events or other popular TV programs on three large projection screens and approximately 60 large-screen TV monitors in all of the company’s restaurants, competing with other patrons in trivia games or playing numerous types of video games.

Its open dining and entertainment spaces enable customers to rearrange their seating easily and to accommodate parties of various sizes.

In the food preparation area of its restaurants, Buffalo Wild Wings arranges its fryers, grills and food preparation stations in an efficient assembly-line manner. It’s able to do that because its menu items are simple to prepare. As a result of that efficient and simple food preparation process, the company’s restaurants are able to prepare quality, casual-dining food with minimal wait times and without the expense of having an on-site chef.

Buffalo Wild Wings’ simple menu and kitchen design also enables the company to staff its kitchens with low-paid employees who require only a minimal amount of training before reaching their full productivity. Hence, the company is able to devote more time and resources to training its bartenders, waiters and floor managers in a way that seeks to deliver a positive dining, drinking and entertainment experience for its restaurants’ guests.

Another factor that has led to the company’s success is its management selection and training process. Instead of hiring most of its managers from outside of the company, Buffalo Wild Wings seeks to fill those positions by promoting lower-level employees who have demonstrated a high level of knowledge in one or more positions at the company’s restaurants.

Its bartenders and wait staff work directly with more-experienced Guest Experience Captains to ensure that they meet the company’s expectations.

Guest Experience Captains who express an interest in becoming a manager are provided with the opportunity to participant in the company’s management-training program by attending a six-week class at one of the company’s "Certified Training Restaurants." After successful completion of the manager-training program, new managers work with their general managers to build a tailored program to meet training and development needs that are specific to their assigned area of responsibility.

In regard to the company’s upper management, Buffalo Wild Wings seems to have the right people in the right positions.

Before being promoted to the position of chief executive officer during 1996, the company’s CEO, Sally J. Smith, served for two years as Buffalo Wild Wings’ chief financial officer. Before that, she worked for 12 years as the CFO of a large electronics and medical device company. Previously, she worked as an accountant at KPMG LLP.

The company’s CFO, who’s been in that position since 1996, also began her career in public accounting.

The company’s executive vice president of global brand and business development, who joined Buffalo Wild Wings during 1997 as the company’s vice president of marketing, worked previously in corporate advertising, serving as a partner at Minneapolis-based advertising firm Nemer, Fieger & Associates from 1994 to 1997.

That management team helped Buffalo Wild Wings to grow both its revenues and earnings at a very consistent and fast rate over the past 12 years. For example, except for the years 2007 and 2010, Buffalo Wild Wings’ revenues rose at a year-over-year rate of least 21 percent from 2002 to 2013. And, except for the year 2012, the company’s net income rose at a year-over-year rate of at least 20 percent from 2004 to 2013.

With the company run by accountants, who tend to focus as much of their attention on bottom-line earnings as on top-line revenues, I expect Buffalo Wild Wings to continue to grow its revenues and earnings at a fast rate over at least the next few years.

The fact that the company recently embarked upon an international expansion plan, opening its first south-of-the-border restaurant in Mexico during December 2013, and two more during January 2014, also bodes well for the future direction of Buffalo Wild Wings.

In addition to those restaurants, the company signed an agreement during 2013 with a large restaurant franchisee to open up to six restaurants in the Philippines.

Within the next six months, the company expects to sign a franchise agreement to open a Buffalo Wild Wings in Mumbai, India and to enter into an agreement with a Saudi Arabian conglomerate to open up to 20 Buffalo Wild Wings restaurants in four Middle Eastern countries. Instead of selling alcohol, the Middle Eastern restaurants will offer fruit juices, lemonades and other beverages on tap.

In addition to its international expansion plan, Buffalo Wild Wings is exploring investments in emerging restaurant brands. During March 2013, it acquired a minority equity investment in PizzaRev, a California-based fast-casual pizza restaurant that offers pizzas similar to the way that Chipotle Mexican Grill serves burritos and tacos — customers get in line, pick out a crust and sauce and choose from approximately 30 toppings for single-serving pizzas that are priced at around $8.

Although I’m very impressed with Buffalo Wild Wings’ management decisions and the company’s historically fast growth rate, financial market participants appear to be over-valuing the company’s stock at this time, with BWLD closing Wednesday at a price/earnings to earnings growth (PEG) ratio of approximately 1.9 — the company’s price-to-earnings multiple is currently almost two times higher than its estimated growth rate for the next 3 to 5 years. BWLD stock fell $3.65, or 2.5 percent, to close Wednesday at $143.86 in Nasdaq trading.

While Buffalo Wild Wings’ international growth plan could enable the company to grow its earnings at a faster pace during the next few years, I would advise investors and speculators to avoid putting any of their money into BWLD unless it were to pull back to around $100.

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David N. Frazier has an extensive background in the investment securities industry and has invested in the financial markets for more than 25 years.

In addition to working as a business analyst, merchant banking analyst and equity research analyst, he’s held positions in sales and marketing at institutional investment firms, including William O’Neil & Co., TDAmeritrade, and Merrill Lynch.

David now serves as the President and Chief Market Strategist of Frazier & Mayer Research, LLC (dba www.TheMarketMonk.com), an independent investment research firm that provides research and analytical services to hedge funds, investment advisory firms, and other investment newsletters.

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While Buffalo Wild Wings’ international growth plan could enable the company to grow its earnings at a faster pace during the next few years, I would advise investors and speculators to avoid putting any of their money into BWLD unless it were to pull back to around $100.
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2014-23-26
Wednesday, 26 Mar 2014 08:23 PM
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