How Wingstop is taking control of its poultry industry

Wingstop, which has been hit hard by volatility in chicken wing prices over the past year, wants to take food pricing into its own hands.

Early last year, the company was forced to pay $3.22 a pound for bone-in wings compared to the $1 a pound price it pays today, chief financial officer Alex said on Tuesday. Kaleida at Wingstop Investor Day. The fast-food chain is considering several strategies to assert more control over its poultry supply, which would ensure more predictable chicken costs.

Strategies under consideration include forming co-investment or joint ventures with chicken suppliers to capture Wingstop’s targeted feed cost, hovering around $1.60 to $1.80 a pound of chicken wings, or 30% of food cost, Kaleida said. Wingstop is also considering the pure and simple acquisition of a small poultry complex, or build his own chicken factory.

The chain could also establish a buying cooperative where the brand partners would own and manage the poultry asset in the future. Wingstop could set up initial capitalization and then the co-op would acquire any Wingstop assets, allowing the company to maintain an asset-light model, Kaleida said.

“Not only does this strategy help us provide more predictable restaurant food costs and minimize volatility, it also helps us provide assured supply so that we have sufficient supply for our long-term growth,” said said Wingstop CEO Michael Skipworth.

It is likely that Wingstop’s supply chain strategy will integrate these three options over time, but there is currently no timeline for an acquisition. He is currently exploring several possibilities, Skipworth said. However, a poultry complex would only represent 20% of its supply chain, and Wingstop will still work with its current suppliers, so there will be an element of market-based pricing, Skipworth said. The company will continue to negotiate with its suppliers.

The chain worked closely with a third party to understand the end-to-end costs of a poultry complex, from feed to growth and processing, and how to stabilize poultry costs.

Sixty-five percent of Wingstop’s food costs come from bone-in wings, so when bone-in wing prices rose 125% in the second quarter of 2021, it sent shockwaves through its System of 1,700 units. Food, beverage and packaging costs also increased by 11.4% during this period. In contrast, wing prices were as low as $0.99 a pound in the second quarter of 2020, executives said. during the company’s second quarter 2021 earnings call.

Last year, the company expanded beyond bone-in wings to test chicken thighs through a virtual brand, Thighstop. Thighs possibly rolled in the general menuand The company this week launched a pilot project of a chicken sandwich which can be matched to any of its 11 available flavors.

Courtesy of Wingstop

Keep the overall operating model lean

With 95% of the company’s sales coming from wings, fries and sides, Wingstop has also developed a simple, low-cost operating model to enable it to better manage highly volatile food costs. In restaurants with average unit volumes of $1.6 million, the model is configured to run a shift with three to four team members. The company is also opening new restaurants at $1.3 million AUV in the first year leveraging 1,700 square foot units and high offsite digital orders, Kaleida said.

“When we open a restaurant, we have a reduced headcount and we look for a real estate profile that allows us to maintain a low occupancy rate,” Kaleida said.

Maintaining food costs is also part of Wingstop’s growth strategy and its ability to attract new and existing franchisees to open more restaurants. With today’s food prices and Wingstops AUV of $1.6 million, many partners are seeing a 70% return on investment, or about $400,000, or about a payback of less than two years from that initial investment, Kaleida said.

“This year we are uniquely positioned in the industry relative to others with significant deflation in our core product and as our forecast applies for this year, we could achieve another record year with 220 restaurants” , Kaleida said. “Our strategy [for] Maintaining best-in-class returns minimizes the volatility we see in our core commodity. … We are executing a clearly defined strategy to better control our supply chain.

This development pipeline would surpass last year’s high of 193 units, Kaleida said. Wingstop’s existing partners are reinvesting in the business and gaining more territory in its home markets because of the high returns they are seeing, he said.

The restaurant is also testing an even lighter, 100% digital model in Dallas. This store, which only offers delivery and transportation, displays QR codes on its menu boards that allow walk-in customers to fill out a digital order. The company is also testing AI voice control in this store and other ways to improve restaurant efficiency, Kaleida said.

“This format also creates options in our market plan. While the traditional storefront with dining areas will always make up the majority of our footprint, a delivery and delivery-only location gives us more options,” Kaleida said. “It gives us confidence in our national business to reach over 4,000 restaurants.”

This format could also help grow the company’s digital mix, which is currently at 62%. Delivery has also gone from 13% of sales in 2019, when Wingstop launched delivery, to 27% today, according to the investor presentation. Marisa Carona, Wingstop’s Director of Growth, said this growth was achieved with a single third-party service provider.. It currently has an exclusive partnership with DoorDash. The company expects it could expand this channel further if it were to add a secondary provider, but it has not officially announced any additional partnerships. Maintaining predictable food costs will also help make this distribution channel profitable, especially since so many chains increased menu prices to compensate for additional delivery costs.

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