Earnings Claims of Top Franchises Revealed

Earnings Claims of Top Franchises Revealed

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Battle of the Brands: Sales Continue to Soar for Wingstop and Buffalo Wild Wings, But Which One Offers the Better Deal for Investors?

by Brian Bixler on November 10, 2014

in Battle of the Brands, Chicken Wings Franchise, Franchise Chatter Guides



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Wingstop vs. Buffalo Wild Wings main

This Franchise Chatter guide on Wingstop and Buffalo Wild Wings was written by Brian Bixler.

Chicken wings have become a popular menu item in a variety of limited-service restaurants, and even McDonald’s took a stab at serving up the fiery finger food during the last year. While McDonald’s experiment with wings was by most accounts a failure, two other companies—Buffalo Wild Wings and Wingstop—have had notable success with the popular food and are currently the No. 1 and No. 2 brands in the category, according to the 2014 Entrepreneur Franchise 500.

When Technomic market research compiled some information on the chicken wing category for Foodservice Equipment & Supplies in 2012, it found that more than one-third of the top 500 restaurant chains offer wings on their menus and the number was continuing to grow.

With other brands such as Zaxby’s and Hurricane Grill & Wings also jostling for both customers and new franchisees, the top two brands have their work cut out for them if they want to stay on top of the chicken wing pile. But which one is most worthy of investors’ money?



RELATED: Franchise Chatter Guide: Chicken Franchise Brands Old and New Have the Whole Industry Clucking

The Histories

Buffalo Wild Wings was founded about the time that wings started becoming a national craze in 1982. Two friends from Buffalo, N.Y., James Disbrow and Scott Lowery, fans of the food themselves, were thwarted in their search for wings in an Ohio college town. When they couldn’t find a place to enjoy their favorite saucy delicacy, they decided to open a place themselves, first in Columbus, Ohio, home to Ohio State University.

They opened as Buffalo Wild Wings & Weck and the brand was often abbreviated to BW3 (a weck is a special roll used to make sandwiches). The company has also gone by the nickname B-Dubs during its history.

Expansion of the brand was achieved primarily by locating in college towns in the Midwest, and over the years it has evolved into less of a college spot and more of a sports bar.

Sally Smith, who joined the company in 1994, eventually becoming chief executive officer, is credited with transforming Buffalo Wild Wings into a national brand. Today, the company is publicly traded with headquarters in Minneapolis; it has become an international brand with units in countries such as Canada, Mexico and others in the Middle East.

Wingstop took flight more than a decade after Buffalo Wild Wings. It started as a small Buffalo-style chicken wings restaurant in Garland, Texas, in 1994, and began franchising three years later with restaurants taking on an old-fashioned aviation theme from the 1930s and ’40s. By 2003, it was acquired by Gemini Investors, which sold the brand to Roark Capital Group in 2010.

Like Buffalo Wild Wings, Wingstop has been working on increasing global brand awareness with locations in Mexico, Russia, Singapore, the Philippines, Indonesia and other countries.

Headquartered in Dallas, Texas, it is now part of the impressive portfolio managed by Atlanta-based Roark, a private equity firm that has invested in some 29 franchise businesses whose brands include Arby’s, Auntie Anne’s, Carl’s Jr., Carvel Ice Cream, Cinnabon, Corner Bakery Cafe, Hardee’s, Il Fornaio, McAlister’s Deli, Miller’s Ale House, Moe’s Southwest Grill and Schlotzsky’s.

Current Status

According to the 2014 Entrepreneur Franchise 500, both Wingstop and Buffalo Wild Wings rank in the top 100 franchise companies. Buffalo Wild Wings ranked highest at No. 62. It ended last year with 938 total units, including 409 corporate-owned stores. Wingstop was No. 77 on Entrepreneur’s list. It ended 2013 with 578 units and only 24 of them are company-owned.

Buffalo Wild Wings continues to expand toward a goal of 1,700 restaurants in the United States and Canada, according to a company release. In 2015, it plans to open approximately 50 company-owned Buffalo Wild Wings restaurants, with franchisees in the United States opening another 40 locations. Wingstop has said it has a target of having 1,000 stores by 2017, according to published reports.

Differentiators

Buffalo Wild Wings and Wingstop both have their star menu item in common, in traditional and boneless offerings, and both are considered fast-casual restaurants, but the franchise concepts are very different—something potential investors should keep in mind.



Wingstop is all about wings and the franchise has remained focused on them without many other extras on the menu. It prepares them made-to-order in 11 different sauces along with a few side orders and drinks on the menu. Otherwise, Wingstop’s core menu has remained fairly consistent.

A signature side dish is its seasoned fries, which are hand-cut fresh in stores daily. Other sides include baked beans, coleslaw, veggie sticks, cheese fries and fresh-baked yeast rolls.

Wingstop also caters primarily to take-out customers, though limited seating is available in most units.

Buffalo Wild Wings has a sports bar atmosphere and caters primarily to those who want to eat in with television and projection screens (tuned into sports stations and popular programming) providing a diversion to customers while they dine. Other entertainment includes Buzztime trivia games and other video games that can be played at the table on tablets.

The menu is extensive. While wings are the main attraction with some 20 different grades of flavor and spiciness, there are also appetizers, sandwiches, burgers, wraps, desserts and children’s items.

Unlike Wingstop, alcohol sales are also important to the brand with each unit offering about 20 domestic and imported beers on tap, including several local or regional micro-brews, and a wide selection of bottled beers, wines and liquor.

Because of those differences, the initial investment in a Buffalo Wild Wings venture ranges between $1.4 million and $3.6 million with a $40,000 franchise fee, while the cost to open a Wingstop ranges between $211,628 and $650,540 with a $20,000 initial franchise fee.

What’s in Common?

Both brands rely on a sports connection due to the snack-like nature of their main products, which have become part of many fans’ sports-watching routine. To solidify its connection with sports fans, Wingstop enlisted Superbowl Champion and NFL Hall of Famer Troy Aikman to be its national spokesperson.

Meanwhile, Buffalo Wild Wings has announced that it has acquired the naming rights to the Citrus Bowl played in Orlando, Fla., on New Year’s Day. As part of a multi-year deal beginning in 2015, Buffalo Wild Wings will receive national exposure through television, radio, social and digital media, plus broadcast, outdoor and print advertising throughout Central Florida to promote the game.

The game could receive additional attention from fans this year with a new cycle that pits top non-College Football Playoff teams from the Big Ten (or Atlantic Coast) conference against a top non-CFP Southeastern Conference team.

Market Forces

Buffalo Wild Wings is doing many things right, which is translating into continuing sales growth, according to a recent Business Insider report. For one thing, it is taking advantage of the calendar, and when a major sporting event comes up—from the NCAA tournament to this year’s World Cup—it advertises itself as a great place to watch the competition.

Sports, however, is just one part of the Buffalo Wild Wings experience. To enhance the overall dining experience for customers, the company is almost finished staffing all of its company-owned restaurants with what it calls “guest experience captains,” according to CEO Smith. The team members exist to engage guests and deliver what was termed “the ultimate social experience for sports fans” in a company release.

Moreover, the brand is investing in technology, such as hand-held devices used by servers to quicken ordering times, improve accuracy and accept payments from guests.

In the third quarter of 2014, same-store sales for Buffalo Wild Wings increased 6 percent at company-owned restaurants and 5.7 percent at franchised restaurants, according to an earnings release.

Yet both brands, might see some changes in financials this year because of the increasing cost of chicken. Buffalo Wild Wings already announced that it intends to raise menu prices 3 percent at the end of November to counter an increase in costs for both the main ingredient and wages. Wingstop has yet to make any kind of similar announcement.

Wingstop is also on a roll when it comes to sales. It boasts 10 consecutive years of same-store sales growth, even when the Great Recession was eating away at other restaurants’ revenue. In 2013, same-store sales increased 9.9 percent and its average unit volume for domestic stores increased to $974,000 according to a company release.

In the first half of 2014, the company opened 138 restaurants – a record for the chain, according to Entrepreneur.

Other News

Two of the most significant developments with Buffalo Wild Wings have nothing to do with wings and everything to do with pizza and tacos. It is continuing with a strategy to acquire emerging restaurant brands in the burgeoning fast-casual space. And the strategy could push the company’s stock higher, according to the Motley Fool website.

Less than two years ago, Buffalo Wild Wings became a minority investor and first franchisee of the fast-casual custom pizza brand PizzaRev, a Chipotle-style restaurant that allows customers to customize their own pizza pie by moving along a serving line as it is being made.

CEO Smith said she hand-picked the brand and the move would be just the beginning of an effort to invest in more brands in the future. PizzaRev gained Smith’s expertise as a strategic adviser and board member and Buffalo Wild Wings has already opened two PizzaRev units. It plans to open additional franchise locations in Minnesota, Utah, Nebraska, South Dakota, Missouri, Texas, and Orange County and San Diego in California.

RELATED: Franchise Chatter Guide: How Fast-Casual Custom Pizza Evolved Into the Hottest Franchise Concept of 2014

RELATED: Why Invest: How PizzaRev Is Leading the Revolution of One of America’s Favorite Foods

This year, the company’s strategy continued. In August, it announced that it made a majority investment in Rusty Taco Inc., which owns and operates Rusty Taco restaurants. Headquartered in Dallas, Rusty Taco features a simple menu of tacos prepared fresh. Terms of the deal were not disclosed.

“As part of our long-term growth strategy, we are actively looking for additional concepts to invest in to build a portfolio of emerging brands, and continue to build a dynamic restaurant company,” Executive Vice President and Chief Strategy Officer Kathy Benning said at the time of the announcement.

Meanwhile, Wingstop had some exciting news of its own for investors. In late October, the Wall Street Journal, citing sources close to the deal, broke a story that the company is planning an initial public offering. The IPO could raise around $100 million and value the company at approximately $500 million, reports say.

The announcement came on the heels of other reports that the company has been tinkering with its image, exploring prototypes that would update the decor and allow for larger seating areas. Internationally, the company has already been opening stores that are upscale and more like a full-service restaurant.

Wingstop Sports, as the new units are called, have also been tested in the United States. There are only a few of them so far, with the most recent opened in South Gate, Calif., this summer. Seeming to take a page from Buffalo Wild Wings’ playbook, the new stores combine the chain’s signature wings with an expanded menu, more seating options and a stronger emphasis on sports with a variety of high-definition TVs for watching events.

Buffalo Wild Wings has already undergone a facelift. In 2012, both the logo and restaurant designs were refreshed and the words “Bar & Grill” were removed from the name to more accurately reflect the customer experience, the company said. The newest restaurant designs are intended to make sports front and center with what the company hopes is a “stadium-like atmosphere,” according to reports.

The Future

Dining trends bode well for growth of both Wingstop and Buffalo Wild Wings. Chicken offerings are showing up on more restaurant menus as consumers look for healthier options and move away from red meat. Buffalo Wild Wings’ investment in Rusty Taco is also seen as a smart move by some analysts because Mexican is one of the fast-growing categories in fast-casual dining. Still, if the cost of traditional chicken wings continues to rise, as it did this year, it could take a bite out of the brands’ otherwise steady sales growth.



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