Did you know that Arby’s is the third largest US chain in terms of revenue? The chain has undergone an incredible turnaround since 2011 when it was purchased by a private equity firm, Roark Capital Group. Roark Capital shares Arby’s ownership with Wendy’s (actually not an even share as Roark Capital owns around 81%).
Arby’s advertising, voiced by James Earl Jones, with the line, “We’ve Got The Meats” is iconic. In most instances, a private equity buy-out has been unfortunate for restaurant brands, as in the case of Macaroni Grill. But, the Arby’s situation is different. Arby’s is flourishing.
Investors are hopeful that the Roark Capital Group’s bid for Buffalo Wild Wings will also salvage the once energetic darling of casual dining. Buffalo Wild Wings is a sports bar with walls of TVs, and a lot of beer, chicken wings, and noise. At one point, the brand was perceived to be one of the premier restaurant stocks.
Buffalo Wild Wings is under pressure from another private equity firm that has three Board seats, Marcato Capital Management. Marcato Capital Management became interested in Buffalo Wild Wings when the brand’s stock price fell below $200 to $150. After a series of run-ins with the CEO, Sally Smith, who then retired, the brand’s share price fell to a low of $100. Marcato Capital Management had urged the brand to expand by franchising more stores, improve technology, and other strategies. According to Barron’s, speculation is that the re-franchising initiative was problematic internally and externally.
Buffalo Wild Wings has experienced two years of sagging sales, with its stock losing almost 25% of its value. Due to rising commodity prices, the brand has raised prices enough that customers rank it the worst in terms of value for money. It has focused more on digital ordering and delivery than on improving its core products and brand experience. Furthermore, it is struggling with an overall decline in the casual dining category that is eating away at other brands such as Applebee’s, BJ’s Brewhouse, and Famous Dave’s. And, since the departure of Sally Smith, there is a leadership void.
Roark Capital Management has a good track record with restaurants. The Group owns Jimmy John’s, CKE Restaurants (owner of Carl’s Jr. and Hardees), and Focus (Moe’s Southwest Grill, Auntie Anne’s, Cinnabon, Carvel, and Schlotzsky’s). What is sad is the pattern: really strong brands losing their mojo and finding that salvation can only be found through a private equity sale. Some have been successful such as Olive Garden. But others have been unfortunate. Macaroni Grill has suffered through several private equity sales and never recovered. Chipotle is being pressured by Pershing Square, the Bill Ackman group that is seeking a public win after several brand debacles.
Brands can be revitalized without the stress of a sale. McDonald’s has done this twice in the past 15 years. KFC is a terrific turnaround story, as is Taco Bell, a brand that has become a winner with Millennials. It is possible if there is not only a will to win but also a complete, fully integrated “Plan to Win.” Too often their beleaguered Boards go for the fast money fix. We can only hope that Buffalo Wild Wings survives this near-death dilemma. Revitalize the brand or adopt the strategy of financial extraction.
Larry Light, a global brand revitalization expert, is co-author with Joan Kiddon of Six Rules for Brand Revitalization. He also is the Chief Executive Officer of Arcature, a marketing consulting company that has advised a variety of marketers in packaged goods, technology, retail, hospitality, automotive, corporate and business-to-business, as well as not-for-profit organizations.
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