Launches www.WinningAtWildWings.com to Share
and Solicit Views on How Company can be Improved
Marcato Capital Management LP (“Marcato”), a San Francisco-based
investment manager which manages funds that beneficially own
approximately 5.2% of the outstanding common shares of Buffalo Wild
Wings, Inc. (NASDAQ:BWLD) (“Buffalo Wild Wings” or the “Company”)
today issued an open letter to the franchisees of Buffalo Wild
Wings outlining the ways in which Marcato’s roadmap for change and
value creation at the Company can benefit franchisees’ businesses
and the Buffalo Wild Wings brand.
Marcato also today launched a dedicated website,
www.WinningAtWildWings.com, to share its views with all Buffalo
Wild Wings stakeholders on how it can help the Company reach its
full potential and to solicit views from stakeholders about how
Buffalo Wild Wings can be improved.
The full letter to franchisees is included below and available
at www.WinningAtWildWings.com.
An Open Letter to the Franchisees of Buffalo
Wild Wings from Marcato Capital Management
To the Franchisees of Buffalo Wild Wings:
As you may know, Marcato is a significant investor in Buffalo
Wild Wings (“BWW” or the “Company”). Over the life of our
investment, we have observed a lack of urgency among the Board and
senior executives that is crucial in today’s difficult operating
environment. We strongly believe in the proven BWW brand and the
substantial future potential of the business. In our view, if the
Company’s strategy – including the franchise business model – is
redesigned and executed properly, there is a significant
opportunity to create substantial value for all stakeholders.
In order for the brand to achieve its full potential, we have
proposed that Buffalo Wild Wings make substantial changes to its
business. Returning to a predominantly-franchised business model
and putting franchisees first are key components of our proposal.
For this reason, we are writing to you directly to keep you
informed about our work and views.
Since June, we have sought to share our views with the Company’s
Board of Directors and management team. In many cases, our
overtures have been ignored. While some of our communications are
already public, we have launched a dedicated website where you can
access ideas and materials we have shared with the Company at:
www.WinningAtWildWings.com
We believe it is important that all franchisees are fully aware
of our ongoing dialogue with the Company and that you have the
opportunity to express your perspective on how Buffalo Wild Wings
can be improved.
The points below summarize how our efforts can benefit your
business and the BWW brand:
I) A BRAND MANAGED FOR AND BY FRANCHISEES. We strongly
believe that the future strength of Buffalo Wild Wings will be best
realized through a return to a majority-franchised model, in which
serving the needs of franchisees will be the key to growth and
innovation. Under our proposal, Buffalo Wild Wings would adopt a
franchisee-first approach:
- Franchising will be the top priority of the business, and the
franchisor will no longer be conflicted by aspirations of
company-operated unit expansion.
- Guest initiatives and related
investments such as tablet order and pay, Guest Experience
Captains, and loyalty programs will be vetted for franchisee
feedback, ROIC analysis, and business improvement. Initiatives that
do not deliver measurable and compelling results should not be
rolled out.
- Franchisees will receive equal and
immediate access to new systems, tools, marketing initiatives, and
operational improvements that are proven at company-operated
units.
- The result will be a
franchisee-oriented corporate partner, with a leaner structure that
can be more responsive to your needs.
II) DEVELOPING NEW GROWTH OPPORTUNITIES FOR FRANCHISEES.
Currently, the business favors the expansion preferences of the
corporate parent. We believe that markets and territories currently
reserved for future corporate development should be made available
to franchisees:
- We believe all stakeholders would
benefit from seeing the system transition to a 90% or higher
franchise mix. To achieve this target, approximately 600+ company
units would be refranchised, inclusive of expected future system
growth.
- Refranchising company-owned stores
provides you an opportunity to reinvest your cash flow into
additional units, leveraging your operating expertise, managerial
infrastructure, and local marketing resources. Qualified existing
franchisees will be favorably positioned to acquire company units
in new, overlapping, or adjacent markets.
- Seasoned, well-capitalized operators
from other brands will have a unique opportunity to participate in
refranchising, allowing for cross-pollination of operations best
practices and sales-driving ideas, and engendering greater system
diversity.
- International growth will be a
significantly larger focus of time and resources to take advantage
of this largely untapped growth opportunity.
III) PRIORITIZING RETURN ON INVESTED CAPITAL IN ALL BRAND AND
CAPITAL INITIATIVES. We believe Buffalo Wild Wings must refocus
its priorities for capital allocation and business spending on
maximizing returns on invested capital. We are concerned that
capital allocation discipline and ROIC have deteriorated in support
of corporate growth at any cost:
- New unit development has been
constrained due to ever-increasing capital costs and pre-opening
expenses, which have reduced the number of potential locations that
can achieve the volumes to justify the required investment. Our
plan would initiate a value-engineering review to reduce the costs
of new unit development, improve ROIC, and expand the addressable
market for BWW franchisee units.
- Capital for expensive Stadia remodels
should be deployed only where supported by observable returns. The
cost of these remodels should simultaneously be minimized through
our proposed value-engineering process.
- “4-wall” profitability should have
pride-of-place over Average Unit Volumes through initiatives to
reinvigorate the mix of alcohol sales and to reexamine the current
menu design and labor model.
- Marketing campaigns will be:
- Considered an important financial
investment evaluated through the lens of ROIC.
- Measured against specific business
objectives (comp sales / traffic, day part patterns, improved mix,
etc.).
- Data-driven so that resources can be
redirected to only those programs that demonstrate quantifiable
success.
- Investments in technology, take-out,
and delivery should be structured to minimize upfront cost and
maximize incremental profits without cannibalizing in-store visits
and high-margin alcohol sales.
- This framework will drive higher
returns on existing units, open more opportunities for profitable
growth, and enhance the brand’s attractiveness to potential buyers
of franchisee networks.
IV) THE COMPANY KEEPS THE BEST OPPORTUNITIES FOR ITSELF.
The Company has retained many choice “greenfield” markets in
high-AUV regions, such as California, Florida, Texas, and
Washington, D.C., for its own development, effectively capping the
growth opportunities available to existing franchisees and
deterring investments from new entrants.
V) REMOVING OBSTRUCTIONS TO M&A AND HIGHER FRANCHISEE
VALUATIONS. We believe that our recommendations would improve
the valuations of franchisee networks and transaction dynamics in
favor of franchisee growth:
- The Company’s tendency to exercise its
Right of First Refusal (ROFR) option reduces the universe of
interested buyers who fear that their time and energy is being
wasted as a stalking horse bidder.
- A committed refranchising program would
dramatically increase the demand for BWW franchisee networks, both
in number and purchasing power of interested buyers. These
well-funded buyers have been forced to focus on other, potentially
less-desirable restaurant investment opportunities due to the low
availability of BWW acquisition candidates, limited growth
potential in current franchised markets, and overly-restrictive
franchisee policies at Buffalo Wild Wings.
- Availability of new Area Development
Agreements would add value to your network, with a known and
contractual development opportunity.
- We have engaged multiple M&A
advisors specializing in franchise transactions who believe that
there is tremendous appetite for BWW franchise platforms and that
the market would enthusiastically absorb any and all units to be
refranchised, bringing fresh growth-oriented capital into the
system.
VI) ALIGNMENT AT THE BOARD AND MANAGEMENT LEVEL.
- The Board of Directors must include
directors with real restaurant operating experience; with the
financial acumen to appropriately evaluate the business
considerations of BWW’s brand and strategy development; and with an
appreciation for the importance of a healthy and prosperous
franchise system.
- Management incentives must be
redesigned to deliver on these goals.
We believe the path that creates the most value for both
franchisees and the franchisor is a strong franchise-based system
in which the corporate franchisor is focused on maximizing the
value of the BWW brand and empowering franchisees with the tools
and opportunities to profitably grow their businesses.
We would enjoy the opportunity to hear your perspectives. Please
visit www.WinningAtWildWings.com to read more of our work
and for a link where you can send us your ideas.
Sincerely,Mick McGuireManaging PartnerMarcato Capital
Management
The views expressed in this press release represent the opinions
of Marcato Capital Management LP, its affiliates and the funds it
manages (collectively, "Marcato"). This press release is provided
merely for general information purposes. Nothing in this press
release is, or should be construed as, investment advice or as a
recommendation, invitation or inducement to engage in any
investment activity, and should not be used as the basis for any
investment decision. Any views expressed are given as of the date
of this press release, and are subject to change without notice.
Marcato reserves the right to change any of its opinions expressed
herein at any time as it deems appropriate. Marcato disclaims any
obligation to correct, update or revise this press release or to
otherwise provide any additional materials to recipients of this
press release.
This press release may contain “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act
of 1995, as amended, that reflect Marcato’s views with respect to,
among other things, future events and financial performance, and
actual results may vary materially from the results discussed in
this press release. Forward-looking statements are subject to
various risks and uncertainties and assumptions and there can be no
assurance that any idea or assumption contained in this press
release is, or will be proven, correct. Forward-looking statements
should not be regarded as a representation by Marcato that the
future plans, estimates or expectations contemplated will ever be
achieved.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161206005887/en/
Media:Gasthalter & Co.Jonathan Gasthalter/Nathaniel
Garnick212-257-4170orInvestors:Innisfree M&A IncorporatedScott
Winter/Larry Miller212-750-5833
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