Two businesses in one…
On the business side of the picture, Buffalo Wild Wings is actually two businesses in one: The company-owned store operation and the franchise management business. This has both risks and rewards. The risks are, as Jim Gillies points out on the 8th of March 2007, “These businesses aren't necessarily natural brothers; they compete for attention from management, company resources, favorable locations, etc. A strong leadership team is required to manage these competing interests”. The rewards could be that franchised stores, especially franchisers who own multiple stores, take some of the management burden off the company as the number of stores increases beyond the capabilities of current management. At some point they will have to increase the size of management without sacrificing quality and focus.
I like the mix. It seems to me that either the franchises or the company owned stores could each expose the other to new areas and allow for more intelligent growth. The bottom line here is that management has been growing at a very controlled methodical rate with little or no over-saturation problems. As long as the current management stocks around, BWLD will be more than ok.
I honestly don’t know if they need to increase the company owned side of the ratio. It’s a lead by example thing for me. When Sally Smith first took the reigns and redesigned the way the stores look and operate, several franchisers decided they didn’t want to follow suit. After seeing the new stores perform, they converted their own. I believe BWLD is the best at operating B-Dubs stores, but how many in relation to franchises? The balance is something I have to trust BWLD to figure out.
In 2006, they gave guidance that they plan to open 20 new company-owned restaurants and 50 to 55 new franchised restaurants. This may or may not mean they plan to keep the ratio.
10-20 year contracts w/ franchisees encourage opening multiple units within an area.
Ethanol and the flu?...
It is important to remember that in life, The Universe or when investing in Buffalo Wings, that all things are connected. In this case it is all about the chicken. When chicken prices go up, so do BWLD’s costs. This can either lower margins or be passed on through the menu. Of course, a menu update is the less liquid of the two, so when looking for short term pricing, unless there is a menu change, this is factored in to the bad side.
There are two stories in the news of late which greatly affect the price of chicken. The first is not a long term concern. This is Avian Flu. Over the last couple of years it has poped up several times, always affecting things in the short term before falling to the background. The second may or may not be a long term issue. This is the availability of corn due to a greater demand for production of Ethanol, an alternative fuel. Again I’m not too worried here. Keeping it simple…As the technology of Ethinol progresses, it will be made from other things in addition to corn. There was also a recent report by American farmers that more corn will be available than expected. This is something to keep an eye/ear on, but the situation looks stable for now. Management has handled this extremely well as well.
When is 20 selections still not too many?...
The answer is beer (in this case). The last thing to watch is the Alcohol sales. Raise your hand if you like beer with your wings. Now, raise your hand if you like beer, period. Good, now go get me a beer. At more than 30% sales, this is something I had to mention, but not something I expect to matter in the long term. The marriage between products is just to concrete. Short of prohibition, I don’t see this changing, and they tried that once…it didn’t work.