Buffalo Wild Wings (BWLD) has been subjected to volatility on commodity costs as wing prices increased rapidly and suddenly, and BWLD is managing the price increase by launching initiatives to improve in-restaurant service and increase menu prices up to 6%, says Stephen Anderson of Miller Tabak + Co., LLC.
“They don’t contract for wings; they buy them in the spot market, so they are more subject to volatility on commodity costs…They have a couple of initiatives to improve their in-restaurant service, but I think as they try to adjust staffing levels that’s going to be a drag on margins at least through the next one to two quarters,” Anderson said.
Anderson says commodity costs will remain a factor throughout the sector, but restaurants can manage the volatility with judicious, gradual price increases. With Buffalo Wild Wings‘ scramble to put together a 6% menu price increase, there is a concern that the company may lose their value proposition in the casual dining sector, Anderson says.
“That is one of the reasons why Buffalo Wild Wings‘ growth has been so dramatic in recent years; they certainly cater to the wings, beer and sports crowd, but I think they developed a secondary audience of young families with kids — the Little League families, if you will — who have found it a less expensive alternative than even the traditional midscale bar and grill names. I think others like Chili’s (EAT) are starting to capitalize on value; they’ve reduced costs to the point where now Chili’s — Brinker International — and more recently Red Robin (RRGB) are able to compete on price,” Anderson said.
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