One of the company's biggest operators is witnessing a stellar turnaround.

Every quarter, Diversified Restaurant Holdings—one of the largest Buffalo Wild Wings franchisees—provides a ground-level glimpse into the now-private chain’s turnaround.

And for the second consecutive quarter, the comeback proved compelling.

DRH chief executive David Burke, who oversees the company’s 64 locations, said, “we’ve elevated our game,” in a recent conference call. This was reflected by an impressive turn in results. DRH’s same-store sales hiked 4.2 percent in the first quarter of fiscal 2019, driven by a 4.9 percent boost in traffic. It marked the second straight period of positive gains. More notable, though, DRH hadn’t turned in a positive quarterly comps figure in three years before the run.

READ MORE: Buffalo Wild Wings’ comeback is all about “a category of one.”

The company’s revenue also upped 2.6 percent to $40.6 million despite counting one less location.

You can see in the graph above just how deep the negative stretch went.

Burke said the performance came even despite headwinds. In this case, weather souring two football playoff weekends in each of DRH’s three core Midwest markets.

So why wasn’t DRH buried by snow, like many of its Rust Belt competitors?

Burke said it came down to Buffalo Wild Wings’ renewed focus on guest experience, loyalty attachment, and the continued development of delivery, as well as “the early benefits of the new marketing, media, and latest brand enhancing initiatives around March Madness.”

Inspire Brands, Buffalo Wild Wings new ownership—a group formed in the wake of the $2.9 billion deal, and now includes Sonic Drive-In, Arby’s, and fast casual Rusty Taco—has pushed an experience-driven message since taking the reins.

New CMO Seth Freeman’s NCAA Tournament campaign was labeled “That’s March Madness,” and targeted dine-in traffic with spots that showed guests watching games in “sub-par conditions,” like on a tablet or sitting in the basement rocking a newborn. The previous football-focused effort, “Escape to Football,” was similar in direction. It placed characters in real-life scenarios, like being stuck at a PTA meeting, before “escaping” to Buffalo Wild Wings.

The vision is one Inspire Brands plans to refine: The idea Buffalo Wild Wings is a brand capable of providing far more than food and drink. It’s not a traditional casual-dining chain, but rather one that defines value as the price paid for the experience customers get, not deep discounts or promotions that need to be marketed each launch.

Since the March Madness promotions hit, which also included menu changes, like the twin patty All-American Cheeseburger and Ultimate Nachos, as well as enhanced serving options (no more paper boards and plastic cups, but aluminum trays, craft paper liners, and stainless steel cups), Burke said dine-in traffic turned positive and has stayed in the green.

Buffalo Wild Wings’ new marketing is driven around dine-in traffic.

Comps gained through the end of this past week, he added, and that included the negative impact of the Easter shift. In fact, if you remove it, DRH’s same-store sales have been north of 7 percent, with traffic and average ticket rising.

“There were significant number of new branding elements rolled out in March that enhanced our image, value perception, and guest experience,” he said.

Burke spotlighted the menu items. A new menu design, too. Also hipper server uniforms and enhancements to the bar program. Buffalo Wild Wings unveiled classic cocktails, like old fashioneds, Moscow Mules, and Mojitos, served in new, proper glassware. Burke said the changes were “truly a [big] change from our legacy.”

Also, the products didn’t carry materially higher costs. The plateware, for instance, pays back in just a few months given the elimination of many disposable paper products, he said.

“Our guests have recognized that we have stepped up our game and the quality and value perception has been significantly enhanced and we should expect that same type of commitment in the future rollouts,” Burke said. “We anticipate new menu items being added throughout the year.”

DRH also took a 1.5 price increase with the new menu rollout in mid-March.

The delivery and digital changes are worth exploring. DRH offers the platform at 52 of its 64 stores.

This past quarter, delivery contributed $2.6 million in sales—a robust $2 million increase year-over-year. DRH CFO Phyllis Knight said delivery “is a critical channel with significant upside and one that our products and processes are well suited for.”

The question, as always, is how does it affect margins? DRH provided more data on this trend than normal. Net delivery expense, as the below chart illustrates, has tracked in the right direction, dropping from 21.4 percent in Q1 2017 to 11.6 percent in April of this year. “The good news is we expect the current quarter could be the last with negative margin percentage impact from this channel,” Knight said.

Burke provided some commentary on DRH’s experience with Buffalo Wild Wings’ Blazin’ Rewards loyalty program. He said they’re experiencing attachment rates of nearly 28 percent, which significantly outpaces the company’s franchise system (15 percent average).

DRH’s goal is to hit 35 percent loyalty attachment in 2019. He said data suggests that figure is the point where restaurants obtain maximum benefit through higher frequency visits from less regular guests.

In addition, over the last year, Buffalo Wild Wings has shared elements of a new, bold store design that also courts the customer experience element. The refresh—its first since 2012—includes a more prominent bar, indoor and outdoor seating, and free-flowing and flexible seating areas. Additionally, VIP spaces, stadium-like A/V technologies with LED modular screens, and a fully enclosed patio with rollup doors and skylights, are part of the model. There’s also a dedicated off-premises entrance and two interior changes that speak to the broader goal: A “Dugout,” designed to turn Buffalo Wild Wings’ waiting area into a lounge with a sporty feel, complete with bleachers; and a “MVP” room that serves guests 21 and older and includes two 80-inch TVs, a third 60-inch TV, gaming consoles, and six self-pour beer taps (the amount could change by location). The goal being to capture not just the esports rage, but also offer a “mini stadium environment” that provides another brand differentiator.

Knight said Inspire was “in the process of developing a new building standard and testing a variety of remodel options.”

“They’ve communicated to us that they’re targeting a three-tier remodel program with costs ranging from $250,000­ to $650,000 depending on the size and revenue profile of the restaurant,” Knight said.

That suggests the new design could be a retroactive effort as much as a new-store one for Buffalo Wild Wings.

Off-premises remains a key driver for Buffalo Wild Wings. And now there’s a sauce wall in the new design.

One troubling trend, however, was the cost of wings, which partly sank the company’s profits in 2017. It led to the much-maligned shift of the half-price wing Tuesday deal from high-cost traditional wings to higher-margin boneless wings—a move that provided mixed results, to put it lightly (check the earlier traffic chart).

Knight said traditional wings as a percentage of total cost of sales increased to 23.9 percent at DRH this past quarter, close to the 24 percent level it saw in the first quarter of 2017. Wing prices in March, April, and May are not only well ahead of 2018 prices, they’re higher than 2017 as well, Knight said.

“While it remains to be seen how wing prices will trend in the typically lower summer months, we’re concerned about this current market and taking an off-cycle price increase on wings to help combat the pressure,” she added.

The price increase, pulled forward from the typical August take, will land later this month. Knight added wing costs did drop a bit last Friday, although the category remains volatile. Typically the wing market dips a bit in spring toward summer.

Burke added that Inspire Brands’ effect on the company is helping with retention.

“As we start to see the brand change, the tone down at the restaurant level, the excitement revolving around new products and the changes going on with new uniforms, new plating, it’s definitely more appealing, I think, to stick around and work with Buffalo Wild Wings and DRH for that matter,” he said.

Casual Dining, Chain Restaurants, Feature, Finance, Buffalo Wild Wings