Bus 4951-8 Unit VIII Project
Implementation Plan: Part 3
For the final assignment of this course, you will continue your work with the company you used in Unit 4 and Unit 6 which was Buffalo Wild Wings, Inc., 2013. For the Unit 8 Project, you will complete the final components of your implementation plan.
For Part 3, you will focus on the following points:
- internal and external issues,
- competition ,
- future outlook for the organization, and
- Implementation of tools for measuring business success.
Much of the information you will need to complete this segment can be found in the case study in the textbook. However, you are welcome to conduct further research as needed. For the future of the organization, you may be creative and add your own insight on where you see the company going.
Your project must be a minimum of three full pages in length, not including the title and reference page. Make certain to include an introductory paragraph.
Below is the information from Unit 4 and 6.
Buffalo Wild Wings, Inc., 2013
www.buffalowildwings.com , BWLD
Headquartered in Minneapolis, Minnesota, Buffalo Wild Wings (BWW) is the largest chicken wing–based sports bar in the USA. BWW offers a welcoming atmosphere, open layout catering to families, sports enthusiasts, and chicken wing lovers. The typical store offers 20 to 30 different beers on draft and tap, up to 10 projection TV screens, and up to 50 smaller TVs for people to watch sporting events.
BWW specializes in traditional bone-in chicken wings and boneless chicken wings complimented by its 16 different wing sauces. BWW also sells burgers, other finger foods, and alcoholic beverages. The typical restaurant offers a diverse selection of beers, wines, and liquor options. As of year end 2012, BWW operated 891 stores of which 381 were company-owned and 510 were franchisee-owned. The company expects to increase its total number of restaurants by 105 in 2013 and approximately by the same amount in 2014. The typical restaurant is between 4,000 and 10,000 square feet and costs around $2 million to build, including the land, building, appliances, etc. Each has 50 high-definition flat-screen TV’s and 10 large projection screen TV’s. Takeout orders comprise 14 percent of BWW sales.
In their company-owned restaurants, BWW employs 25,500 people, 2,800 full-time and 22,300 part-time, which it calls team members. Five of the top nine executives are females including the CEO, Sally J. Smith. BWW operates its 817 stores in 48 U.S. states and Canada. BWW opened five new restaurants in 2012 on the parking lots of big-box retail stores such as Home Depot. BWW expects to have 1,500 restaurants in the USA and Canada by 2016, and many of them will be in vacant space of Sears stores, parking lots, and malls.
Copyright by Fred David Books LLC. (Written by Forest R. David)
In 1981, James Disbrow, from Buffalo, New York, along with friend, Scott Lowery, went looking for a Buffalo-style chicken wing restaurant around the campus of Kent State University in Ohio while judging a figure skating competition. Unable to find a satisfactory restaurant in the area similar to what they knew was good from back home, the concept of opening Buffalo Wild Wings and expanding this tradition of Buffalo, New York, to other areas of the country was born. The first restaurant named Buffalo Wild Wings & Weck or BW3, was opened in Columbus, Ohio, in 1982 near the campus of Ohio State University. In 1991, BWW began its franchising program and in 2003 the company completed its initial public offering.
Vision and Mission
BWW refers to its mission statement in its code of ethics, but the firm does not provide an explicit mission or vision statement on its website or its annual report. However, BWW does provide its “concept and business strategy” as follows:
- Continue to strengthen the Buffalo Wild Wings brand
- Deliver a unique guest experience
- Offer boldly-flavored menu items with broad appeal
- Create an inviting, neighborhood atmosphere,
- Focus on operational excellence,
- Open restaurants in new and exciting domestic markets and new countries and
- Increase same-store sales, average unit volumes and profitability.
EXHIBIT 1 BWW’s Organizational Design
Source: Company documents.
As indicated in Exhibit 1, BWW appears to operate from a divisional by geographic region structure.
Statement of Ethics and Governance
BWW has two statements of ethics: one for regular employees and one for executives. For employees, the Code of Ethics provides an overall standard for ethical conduct in conjunction with what is viewed today as ethical business behavior. The statement also provides the following: (a) how to report violations of conduct, (b) extensive personal conduct policies, (c) conflicts of interests, (d) protecting trade secrets, (e) disclosure of financial data, (f) environmental impact, and much more. The executive code of ethics is similar to the document for employees. Both codes of ethics stress doing the job to the best of one’s ability and seeking help before making a decision on any matters of which the employee is not sure of.
BWW provides a well-detailed corporate governance document for view on its website. This document stresses all key issues related to the governance of BWW, including but not limited to: board size, board leadership policies, selection of new directors, retirement, compensation, and stock ownership policies.
As indicated in Exhibit 2, 22 percent of BWW’s revenues come from alcoholic beverages. Not included in the chart but important to note is that 13 percent of BWW’s sales come from takeout orders, an area in which BWW states it does not try to compete on and do not consider takeout wing establishments its primary competitors. But 13 percent is quite large and may be a growth area for the company in the future.
Exhibit 3 reveals strong revenue growth for BWW’s company-owned and franchised stores over the last three years. Revenue from company-owned stores increased 34 percent in 2012. Exhibit 4reveals average revenue per store. Note that franchised stores are outperforming company-owned stores on average, but this is partly the result of BWW repurchasing underper-forming franchised stores.
EXHIBIT 2 A BWW Revenue-by-Product Percentage Analysis
|Traditional Wings||Boneless Wings||Alcoholic Beverages||Other Food/Beverages||Years|
Source: Company documents.
EXHIBIT 3 BWW Revenue Analysis: Company Owned versus Franchised Restaurants
Source: Company documents.
EXHIBIT 4 BWW’s Average Revenue per Restaurant
Source: Company documents.
BWW is currently employing both market penetration and market development strategies and plans to have around 1,500 restaurants within the next several years, nearly double what they currently own. BWW is considering adding locations outside its current two countries: USA and Canada. The company also expects to maintain its 60–40 split of franchised-owned to company-owned stores. Opening new stores especially in new countries would create additional risks, such as limited brand awareness, supply chain issues, unknown competitors, and much more. BWW is considering expanding into international markets via joint ventures with an established global brand.
Exhibit 5 reveals BWW growth over recent years. Note in 2012 the 19 percent growth in company-owned stores and 2.4 percent for franchised stores.
Marketing and Advertising
EXHIBIT 5 BWW’s Growth: Number of Restaurants
Source: Company documents.
Since its inception in 1982, BWW has specialized in offering a unique brand experience for guests with the wide array of 6 award-winning sauces, beer variety, conveniently located TVs, a great social and sporting atmosphere, and though not acknowledged by the company, sex appeal with young attractive female waitresses. BWW instituted Tablegating at its restaurants in 2011 to promote sporting events, good food, beverages, and fellowship among fans. BWW maintains a year-round advertising presence but increases this advertising around its peak seasons, generally NCAA football in the fall and NCAA basketball in the spring. Each BWW franchise pays a royalty fee of 5.0 percent and an advertising fee of 3.5 percent of restaurant sales.
In 2011 alone, BWW built 50 new company-owned stores and repurchased 18 franchised stores. Exhibits 6 and 7 are the financial statements for BWW. Note net income increased 13.6 percent from 2011 to 2012. Note on the balance sheet that BWW currently has $32 million in goodwill, up from $17 million in 2011.
|EXHIBIT 6 BWW’s Income Statements
(Amounts in thousands except per share data)
|Fiscal years ended|
|December 30, 2012||December 25, 2011||December 26, 2010|
|Restaurant sales||$ 963,963||717,395||555,184|
|Franchise royalties and fees||76,567||67,083||58,072|
|Costs and expenses:|
|Restaurant operating costs:|
|Cost of sales||303,653||203,291||160,877|
|Depreciation and amortization||67,462||49,913||39,205|
|General and administrative||84,149||72,689||53,996|
|Loss on asset disposals and store closures||3,291||1,929||2,051|
|Total costs and expenses||957,916||711,694||556,915|
|Income from operations||82,614||72,784||56,341|
|Earnings before income taxes||83,368||72,902||57,025|
|Income tax expense||26,093||22,476||18,625|
|Net earnings||$ 57,275||50,426||38,400|
|Earnings per common share – basic||$ 3.08||2.75||2.11|
|Earnings per common share – diluted||$ 3.06||2.73||2.10|
|Weighted average shares outstanding – basic||18,582||18,337||18,175|
|Weighted average shares outstanding – diluted||18,705||18,483||18,270|
EXHIBIT 7 BWW’s Balance Sheets
(Dollar amounts in thousands)
|December 30, 2012||December 25, 2011|
|Cash and cash equivalents||$ 21,340||$ 20,530|
|Accounts receivable, net of allowance of $25||20,203||12,165|
|Refundable income taxes||4,122||7,561|
|Deferred income taxes||5,774||6,323|
|Total current assets||125,536||139,245|
|Property and equipment, net||386,570||310,170|
|Reacquired franchise rights, net||37,370||21,028|
|Total assets||$ 591,087||$ 495,359|
|LIABILITIES AND STOCKHOLDERS’ EQUITY|
|Unearned franchise fees||$ 1,763||$ 1,852|
|Accrued compensation and benefits||39,637||30,499|
|Total current liabilities||140,843||114,270|
|Deferred income taxes||37,128||38,512|
|Deferred lease credits||27,992||23,047|
|Commitments and contingencies|
|Undesignated stock, 1,000,000 shares authorized, none issued||—||—|
|Common stock, no par value. Authorized 44,000,000 shares; issued and outstanding 18,623,370 and 18,377,920, respectively||121,450||113,509|
|Accumulated other comprehensive loss||(125)||(295)|
|Total stockholders’ equity||383,372||317,986|
|Total liabilities and stockholders’ equity||$ 591,087||$ 495,359|
Source: 2012 Form 10K, p. 37.
BWW’s home office in Minneapolis consists of 48,000 square feet and is under a lease that terminates in 2017 with an option to renew for another five-year term. BWW has 891 restaurants in 49 different U.S. states and 7 additional restaurants in Ontario, Canada. Exhibit 8 provides the top 10 U.S. markets ranked by total number of BWW restaurants. Note that Texas has the most BWWs, followed by Ohio. Exhibit 9 reveals that approximately 43 percent of all BWW restaurants are located in Midwestern states. The Northeast, West, Canada, and other world locations are still relatively untapped by BWW.
Restaurant Franchise Operations
Approximately 59 percent of all BWWs are franchised and owned and operated by the franchisee. Franchises fees range from $25,000 to $42,500 depending on the owner’s restaurant experience and the number of stores he or she currently operates. The general lease is typically for a 20-year initial term with the possibly to renew subject on certain conditions that the company does not specify.
In addition to the initial start-up costs, franchisees also pay royalty fees of 5 percent on all restaurant sales, with an additional 3.5 percent of sales revenue being attributed to advertising. There is a provision in all contracts whereby BWW can increase the fees by 0.5 percent once every three years. It is unclear from company documents whether this would amount to a 5.5 percent fee or a 5.025 percent fee. BWW does not expect to enact this provision in the next two years.
EXHIBIT 8 BWW’s Top 10 U.S. States (Number of Stores)
Source: Company documents.
EXHIBIT 9 BWWs’ by U.S. Region (2011)
Source: Company documents.
In the competitive restaurant industry, BWW is attracting customers based on taste, quality, service, and ambience. Primary competitors include Hooters, T.G.I Friday’s, Chili’s, Applebees, and many regional and mom-and-pop sports bars across the USA and Canada. In addition to sports bars and chicken wing-themed establishments, BWW does not consider quick-service restaurants (QSR), such as McDonald’s and Kentucky Fried Chicken, as competitors, nor surprisingly quick takeout chicken wing establishments. This corporate view is surprising because many quick-service chicken wing stores can offer much lower prices than BWW because its overhead is significantly less. Recall that 13 percent of all BWW sales are derived from takeout customers. This 13 percent can somewhat be considered a gift because BWW does not promote its takeout business with volume discounts, “tailgate specials,” or any other marketing strategy.
Exhibit 10 provides a financial comparison of BWW with DineEquity (owner of Applebees’s) and Brinker International (owner of Chili’s). Note that BWW has the highest price-earnings ratio but has the lowest revenues among the three.
With about 1,000 locations worldwide, T.G.I. Friday’s (often shortened to “Friday’s” in most countries, and stylized “FRiDAY’S”, or “T.G.I.s” in the United Kingdom and the Republic of Ireland) is a U.S. restaurant chain focusing on casual dining, similar to BWW. T.G.I is owned by the Carlson Companies, a privately-held firm, so financial information is difficult to obtain about T.G.I Friday’s. The company name, however, is taken from the expression TGIF, which stands for “Thank Goodness It’s Friday,” although some recent television commercials for the chain have also made use of the alternative phrase, “Thank God It’s Friday.” The company is known for its red-striped canopies, brass railings, Tiffany lamps, and frequent use of antiques as dècor.
HOA Restaurant Group (Hooters), based in Atlanta, Georgia, was founded in 1983 in Clearwater, Florida, and currently operates more than 430 franchise restaurants in more than 27 different countries, and additionally, the company operates 160 stores. The theme and concept of Hooters has changed little over the last 30 years and chicken wings is a main product served. The typical Hooters restaurant experience includes the sex appeal of female waitresses, jukebox-style music, sports on television, and a menu that focuses around chicken wings, but also includes seafood, salads, and sandwiches. Around 68 percent of all Hooters sales are derived from food and nonalcoholic beverages, 28 percent from beer or other alcoholic beverages, and 4 percent from merchandise, such as Hooters calendars and appeal.
EXHIBIT 10 A Financial Comparison of BWW with Brinker International and DineEquity
|Number of Employees||2.8K||640||60.3K|
EPS, earnings per share; P/E, price-to-earnings.
Source: Company documents.
Founded in 1976 as the International House of Pancakes (IHOP) and based in Glendale, California, with 640 full-time employees, DineEquity today operates both Applebee’s Neighborhood Grill and Bar and IHOP. As of year-end 2011, the company operated 1,842 Applebee’s franchise restaurants in the USA and 16 different foreign markets and 177 additional company-owned restaurants. There were 1,535 IHOP-franchised restaurants in the USA and 5 in foreign markets and 10 company-owned IHOP restaurants. DineEquity has experienced a 40-percent decline in revenues from $1.4 billion in 2009 to $1.0 billion in 2011.
The Applebee’s segment of DineEquity competes with BWW by serving chicken wings, burgers, and other bar finger foods along with alcoholic and nonalcoholic beverage items. Applebee’s also sells steaks, its most popular item, and have begun a new fresh menu offering new chicken, seafood, and salads in an attempted to capitalize on a healthier-minded consumer. In addition to the historical similarity in food times with BWW, Applebee’s also markets itself as a neighborhood bar and grill and provides a limited sports bar atmosphere around the bar area during times of significant sporting events. New CEO Mike Archer of Applebee’s is currently reducing the pop culture feel of Applebee’s decor, adding healthier items such as its less-than 500-calorie menu, so it has yet to be determined how close of a competitor of BWW Applebee’s will remain.
Founded in 1975 as Chili’s in Dallas, Texas, Brinker International operates both Chili’s Grill & Bar and Maggianos’s Little Italy. As of year-end 2011, Brinker operated 1,534 Chili’s and 45 Maggiano’s. The company has restaurants in all 50 states and in more than 30 countries. The company experienced an 18-percent decline in revenues from $3.2 billion in 2009 to $2.7 billion in 2011. The Chili’s segment most closely competes with BWW offering many similar food items, alcoholic beverages, and a care-free atmosphere. However, Chili’s does not incorporate a sports bar aspect into its stores.
Chicken wing prices in 2012 increased 62.8 percent over the prior year to an average price per pound of $1.97. Chicken wings accounted for 27 percent of BWW’s cost of sales in 2012, up from 19 percent the prior year.
Unemployment is hovering just above 8 percent and interest rates are low but banks are not readily lending. Consumers continue to pinch pennies. “Dining out easily can be postponed, so many restaurants are a “very visible indicator” of what’s happening in the economy,” says Malcolm Knapp, a New York-based consultant who created the Knapp-Track Index and has monitored the industry since 1970. “Amid declining confidence, consumers don’t have the appetite to eat away from home as frequently,” he said. The USA is facing more than $600 billion in higher taxes and reductions in defense and other government programs in 2013. U.S. retail sales are weakening, and consumer sentiment, measured by the Bloomberg Comfort Index, is declining. “It doesn’t feel like we’re out of a recession for many middle-class American households,” Knapp said. In what’s become an “allocation nation,” consumers must choose between different categories of discretionary spending, and dining out is “very sensitive” to changing habits.
BWW does not engage in any form of futures contracts for purchasing wings, instead purchasing at market prices and accepting the volatility that comes with that strategy. BWW acknowledges this problem and is actively looking for a long-term pricing agreement but has yet to come to agreement with any provider of chicken wings. Also, most BWW supplies are provided by third parties, leaving BWW with limited little control over its supply chain. Failure to deliver chicken wings, sauce, paper products, beverages, and such on time could severely impact its business.
BWW is one of the fastest-growing restaurant chains in the USA and also one of the hottest stocks for investors. The company’s strategy to focus on chicken wings, beer, sports, and attractive waitresses continues to be a winning business model. Perhaps the most important challenge facing BWW is with its expansion policy. The company expects to double its total stores in the next three to four years. CEO Sally Smith is currently faced with continuing expansion in stronghold markets in the Midwest and Southeast or exploring markets in the Northeast, West, Canada, and other international markets. BWW has two franchise development agreements for restaurants in the Middle East and Puerto Rico.
BWW lacks control over its supply chain and has no real futures contracts in place to hedge against volatile chicken wing prices. Should CEO Smith actively establish contracts with chicken producers to buy chicken wings on a futures contract? Are there other backward integration strategies CEO Smith could pursue to help protect against untimely delivery, poor quality, or volatile pricing of supply chain products?
Another strategic issue facing BWW is its neglect of the takeout business. Although the company focuses on selling a casual sporty dining environment, many sports fans enjoy watching games at home, tailgating at the event, or even just enjoying a day at the lake or beach. Currently BWW does not offer any type of marketing package or takeout options for this customer group, rather it expects the customer to pay full menu dine-in prices with little price discount for volume purchases. However, with 13 percent of sales, and a much larger percent of food sales because takeout typically does not include alcohol, there is an opportunity to grow this business.