The big deal at Buffalo Wild Wings

by Erica Shaffer
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 BWW
Executives, shareholders disagree over how best to grow the restaurant chain.
 

DENVER – The future of growth for sports-themed Buffalo Wild Wings lies in international markets and investments in “emerging brands,” according to Sally Smith, president and CEO. But some of the company’s investors disagree.

Marcato Capital Management LP, founded by Mick McGuire, made its discontent with Buffalo Wild Wings’ growth strategy public in a letter to James Damian, chairman of the Buffalo Wild Wings board. In the letter, McGuire called for a shake-up of management and the board; a stronger focus on the chain’s core business and an end to the company’s “emerging brands” growth plans “which focus on “hit-or-miss growth drivers — particularly those in the highly competitive fast-casual space.”

But executives at Buffalo Wild Wings tried to make the case that growth goes beyond brick-and-mortar locations.

“Creating shareholder value is not only about performance, it’s also about potential,” Smith said during an analyst day conference held recently in Denver.

Buffalo Wild Wings’ growth strategy is focused on its core business in North America — the United States and Canada— and international markets and emerging brands.

In the North America segment, the company plans to open more than 1,179 restaurants. There are 605 company owned restaurants including 14 in Canada and 574 franchised restaurants which leaves Buffalo Wild Wings about 500 locations short of its goal.

“Yes, we have a huge opportunity for restaurant growth here in North America,” Smith said, “but at the same time we want to ensure continued growth in the future when BWW nears its unit potential” of about 1,179 stores.

On the international front, Smith said the company expects to end 2016 with more than 30 international locations, with franchises in India and Vietnam expected to open locations in early 2017.

“We believe that international franchising will someday be a bigger part of our growth strategy than domestic Buffalo Wild Wings,” Smith noted.

Last is the company’s emerging brands growth strategy. Buffalo Wild Wings already has a majority interest in R Taco and a minority interest in PizzaRev. “It’s currently a very small part of our business, but it has strong potential for future growth in revenue and earnings,” Smith said.

“That’s why we have a small dedicated team … that continues to explore new and emerging restaurant brands as potential vehicles for our future growth,” she added. “We’ve built and incredible platform to grow our business and it doesn’t limit us to just traditional Buffalo Wild Wings restaurants.”

Kathy Benning, executive vice president, chief strategy officer, business development, said the company’s core competencies are a competitive advantage in the crowded fast-casual space.

“It is the fastest-growing restaurant industry segment, and it’s predicted to continue with this growth, so that’s attractive to us.”

Smith said that “Ultimately our goal for emerging brands is to find a concept that has the potential to become a success story like Buffalo Wild Wings.

“We know how to develop restaurants. We know how to build a brand, and we have franchisees that want to diversify their portfolios by investing in other brands,” she said.

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