Buffalo Wild Wings (NASDAQ: BWLD) is going fast-casual. The chicken wings-and-beer sports bar chain will be opening two new small-format restaurants that feature fast-casual-style counter service, take-out ordering, and delivery that it hopes will reverse the slide in sales.
This may seem like a natural extension of its existing full-service restaurants, but there could be more and greater challenges in order to make a successful go of it.
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This summer, Buffalo Wild Wings will open the two new restaurants in the Minneapolis-metro market that will feature reduced seating areas and a streamlined counter-service experience, all with plenty of TVs tuned to sports stations so you still know you're in a Buffalo Wild Wings restaurant. Called B-Dubs Express, the new concept is being touted as a way to meet changing consumer tastes, one which favors quick foods to go or eating at home. It will offer home delivery through a partnership with DoorDash.
In addition to the limited dining area, the B-Dubs Express chain will also feature a more limited menu that will have chicken tenders, a chicken sandwich, burgers, salad, buffalo mac-and-cheese, and sides, along with a few adult beverages including draft and bottled beer, and wine.
It's a concept that's already been successfully staked out by Wingstop (NASDAQ: WING), which last quarter reported a 20% increase in revenue, but even Wingstop was only able to achieve that by opening more restaurants. Comparable-store sales slipped 1.1% for the period after decelerating for the past year. Buffalo Wild Wings needs for the new concept to pay off to counter slowing sales that are affecting all restaurants.
According to the Black Box Intelligence Report, restaurants saw same-store sales decline 1.6% during the first quarter of 2017, with customer traffic down 3.6%, making it the fifth straight quarter comps fell. Notably, fast-casual chains fared even worse.
While that's been felt perhaps the most among better burger chains like Shake Shack and The Habit, it's really a phenomenon occurring across the board. From Chipotle Mexican Grill to Zoe's Kitchen, the fast-casual concept appears to be petering out.
Not that it's necessarily a problem with the chains themselves (though in many instances it is), but the food price deflation consumers are enjoying at the supermarket checkout. When it becomes cheaper to buy groceries yourself and make meals at home, restaurants are going to suffer.
Netflix and chill
As kicking back at home and taking in a movie or the game with friends is becoming more popular than going out, restaurants need to devise strategies to meet the challenge. Take-out, and perhaps to a larger degree delivery, may help.
Fortunately, Buffalo Wild Wings has had considerable success with both at its primary restaurants where take-out and delivery now account for 18.2% of company-owned first-quarter revenue, up from 16.6% last year. By the end of the year, it expects to have 250 of its 1,230 restaurants featuring the option, up from 180 today. So it would seem that B-Dubs is a natural evolution stemming from those numbers, but the question is whether a new stand-alone business, as opposed to offering the service at existing restaurants, is the best choice?
Smaller-footprint restaurants should be cheaper for Buffalo Wild Wings to open and operate, but farming out delivery to a third-party operator like DoorDash eats away at the profits it could otherwise enjoy if it handled it in-house.
There is something to be said for not having to deal with the insurance and liability issues that might attach themselves with company employees making deliveries, but pizza chains like Domino's, which has nearly perfected the business, has done well with it.
Changing consumer brand image
The greater challenge for Buffalo Wild Wings is that its brand is wrapped up in being a deeply immersive, sports-themed, full-service bar and restaurant. A couple of TVs that have the local game on that you can briefly watch while waiting for your pickup order doesn't readily translate that same experience as does its stadia format.
Investors will most likely see many more B-Dubs Express restaurants opening up in the future, but it's not immediately clear that Buffalo Wild Wings' move into fast-casual will have the positive impact on sales as it would if it simply expanded take-out and delivery at existing restaurants.
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Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Buffalo Wild Wings, Chipotle Mexican Grill, and Zoe's Kitchen. The Motley Fool is short Shake Shack. The Motley Fool has a disclosure policy.