Fast casual success: How Wingstop rose above the competition

 
June 6, 2011 | by Valerie Killifer

When Roark Capital purchased Wingstop in April 2010, the private equity firm knew it was investing in a leading brand in a growing category.

“It was the No. 1 chain in what they were doing,” said Roark vice president Geoff Hill.

Through seven years of same-store sales and revenue increases, Wingstop has established itself as the leading chicken wing chain in the fast casual category. In 2010, the company boasted a Technomic-estimated revenue of $334 million, a nearly 9 percent increase over 2009.

Roark was on-hand during the National Restaurant Association’s Restaurant, Hotel-Motel Show to discuss Wingstop’s success during the Fast Casual Industry Council session, Fast Casual Success Stories.

In order to expand on Wingstop’s early success, Roark established a set of four pillars designed to increase the chain’s overall ROI. While the pillars can be used for any restaurant operator looking to increase performance, they have specifically led to the long-term viability of Wingstop.

The pillars were looked at one by one during the session and include: top line sales, operating costs, development costs and leverage.

The first pillar, to increase top line sales, was achieved through the launch of new products, including Wingstop’s new Glider chicken sandwiches. The menu items launched in April 2011 and sales so far have been “absolutely phenomenal,” Hill said.

The concept also worked on the further development of its social media strategy, discussed the addition of more salads to its menu and looked to add more seats in restaurants. Wingstop and Roark executives also looked at its real estate strategy and created better tools for the real estate department to make better site-selection decisions, Hill said.

“We went into very high-end sites that didn’t always work,” Hill said. “So, we hired a group to help us develop all of the things Wingstop needs to be successful.”

Operating & development costs

The second pillar was based on the idea of reducing operating costs. Wings are a volatile commodity and so the company reviewed strategies to make the menu more stable. For example, the company has been moving toward the increased use of boneless wings to offset the past several years of high bone-in chicken wing costs.

“The industry got caught off guard with the explosion of chicken wings on menus,” Hill said. “From a cost standpoint, chicken wing prices are at a low right now because the poultry industry has worked hard to catch up with demand. I don’t know where it will end up, but the chicken wing is here for awhile. So, the price will stabilize.”

In addition to new product developments, the company continued to re-evaluate its real estate strategy, working to “right-size” what franchise owners are paying in rent. The new strategy included a tougher approach to real estate negotiations and a better understanding of the real estate market.

For example, Hill said several Wingstop locations were in high-end retail centers next to chains such as Starbucks; however, Wingstop customers were not a core demographic of the area.

“If I match myself against brands such as Starbucks, the Wingstop customer is maybe not a Starbucks customer. Or, maybe the affluency traffic is different,” he said. “If my customer is not around there, then I’m way overpaying in rent and hurting my overall cost of the business because I’m paying too much for it. But, if there’s a location four miles away that my core customers are all around, and build-out costs are the same, the cost of rent is going to be the big difference.”

The company’s goal to also decrease development costs has played a big role in Wingstop’s success.

The chain has experienced seven consecutive years of same-store sales growth. Year to date, same-store sales are up 4 percent and AUV’s are nearly $761,000. Combined with realistic redevelopment costs and an 18 percent to 24 percent EBIDTA, Wingstop has experienced an ROI increase of 58 percent in its first year as a Roark brand, Hill said.

As part of that initiative, the company reviewed build out costs and brought in stakeholders who were emotionally invested in the chain.

“The shareholders are the people running the restaurant - everybody that has a stake in that business success,” Hill said. “That includes the operations team, the growth team, the real estate team, the design team. All of those people coming together in the process is very important.”

Leverage

Each of the preceding three pillars led Wingstop to the fourth: leverage.

The company views this as finding the balance between how much debt is needed and how much is used. If leveraged correctly, financing can be gained to build long-term success as long as franchise owners and operators do what's right in terms of how much they take.

“If a lender offers you a ton of debt, which they will, don’t take it,” Hill said. “The best business people and restaurants that I’ve seen have thought it through and made sure their debt load is correct. To us, the beginning and end of a growth story is this topic."


Topics: Business Strategy and Profitability , Financing and capital improvements , Franchising & Growth , National Restaurant Association , Operations Management


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