At first glance, East Coast Wings + Grill’s growth plan might seem bold, perhaps even ambitious: Take a 35-unit chicken-wing chain and build it beyond 100 restaurants. Given the casual-dining landscape, where retraction—not expansion—is the buzzword, East Coast Wings would be bucking the trend. This is true without even mentioning the challenges with chicken wings, which soared to historic prices in 2017, afflicting even the biggest brands in foodservice (just look at Buffalo Wild Wings).
But the reality about East Coast Wings is this: Anything cofounder and CEO Sam Ballas says is researched and contemplated down to the grain. This is not a brand that believes in “ballpark” figures. No, Ballas is driven by EBITDA (earnings before interest, taxes, depreciation, and amortization) and unit-level economics. The latter is the ironclad benchmark and predictive model by which the brand measures and plots its future.
That careful and calculated strategy helped East Coast Wings thrive in the recession and continue to grow even as chicken-wing prices choked other concepts’ growth. In the first half of 2017, the brand enjoyed same-store sales growth of 18.5 percent and boosted its guest count by 13 percent. Now the brand is evolving for the future, with a new logo, a new “2.0” store prototype, and an expanded menu beyond chicken wings that includes entrée skillets, desserts, and seasonal rotations (to go along with 65 craft-beer options). East Coast Wings plans to open 13–14 units this year, pushing it past the 50-unit mark.
Ballas talked with FSR’s Danny Klein late in 2017 to discuss how the brand is bucking the casual-dining trend and winning the chicken-wing wars.
(This interview was edited for conciseness and clarity.)
Why bank on the casual-dining sector for a chicken-wing concept?
I come from an investment-banking background. I’m a big hedger. I love to be as calculating as I can be, and we investigated a limited-service [model]. We put a couple of those out there to test those. They are still functioning. They do fairly decently. They don’t do anywhere close to what the full-service store does in both AUV and EBITDA.
We are now actively pursuing that full-service-style model. We came to find out that when you have a small box, you’re somewhat limited in the offerings, just due to size constraints of a kitchen. If you are a wing company, wing prices soar, as they did in 2009 and 2010, and if that’s all you sell, then there is a pretty good chance that you will be in trouble, that you will have a depletion of sales or EBITDA or profitability.
We thought that the juice wasn’t worth the squeeze for that style of marketplace. You also had to have large density abilities, and we are based in the South, which is more rural. We like the Southeast marketplace, because I think that’s the strongest region in the country.
What’s the secret to East Coast Wings’ steady growth?
I decided to grow this franchise model back in 2004. I wanted some absolutes to be put in place, and what I didn’t realize then that I realize today is that those absolutes have become the DNA of who we are as a brand.
One of those absolutes is unit-level economics. I’m a financial-background corporate guy, but I’m Greek, so I grew up in the restaurant space. All my life my family has owned restaurants. I always wanted to take the experience of the hearsay in the family restaurant I grew up in and make that transferable from one location to another as a franchise model. I would not grow the brand unless we had laser-like focus on supporting a franchisee on driving numbers at the unit level.
The other absolute that is just part of my DNA, having grown up in the business—and it’s become a DNA of the brand—is we would have the best-quality product in what we do. That absolute has become DNA of the brand. I’m very proud to say that 90–94 percent of our product lines are all fresh-crafted lines. We have very few frozen products that we have to deal with.
The third absolute that has been developing that is now becoming DNA is we want to grow smart. You have to have vision when you have a 10-year run; with the current look, the current deliverable, can it take you the next 10 years?
In 2015, I sat down with my team said to them, “I want to be able to make the changes necessary that gives me a 10–12 year position against the competition.”
What are you doing right that other full-service wing joints aren’t?
If you investigate the wing restaurant space in the last two years and look at other concepts out there, you will find that a lot of people in my space went to a larger-box direction. They went to more sports-bar theming, more TVs and stuff. And we made a decision to go the opposite direction. We wanted to downsize our box. We wanted to change construction materials to be able to develop cheaper.
We wanted to be a dining experience that would not alienate my customer base, and that would capture millennials, who we’re now starting to build as a demographic. We’ve been very patient in building this 2.0 model. Our first one opened up December 2016 in Harrisburg, North Carolina, and we’ve been able to sustain, if not grow, our sales in a box that could be 1,000 square feet smaller than previous boxes. Harrisburg is a great example of the success of the 2.0. That is a three-store franchise owner. Harrisburg is about 1,110 square feet smaller than his other two locations, and his sales are sustaining the larger locations, and outperforming one of the two locations. Think about that win for a location that can develop cheaper, operate with less expense, but yet have the same revenue sustainment. That in itself drives larger EBITDA, right? So it is very difficult in casual dining to be true to driven-by-unit-level economics.
How do unit-level economics play a factor in your success?
We own “driven by unit-level economics.” It is very difficult to multiply your locations and sustain this point in our public disclosure documents where the majority of the units are at or above our bench-makers. We measure everything that has a number to our unit level.
The 2.0 model has been excellent for us as far as the ability to sustain and grow sales in a smaller-box environment. We went to a rustic look. We went to a reclaimed-table look. We went to different construction components that save money. We were able to actually drop in the last two 2.0 stores an average of 22 percent in development costs, which is a balance-sheet cost, not an EBITDA drive. But that’s very attractive, because if you look at the historical data, we have full disclosure in our documentation as a franchise model that it’s $650,000 to $1 million to develop one of our stores. Next year that $1 million is going to drop because the new model has been cheaper.
There are brands in my space where if you look at their last two to three years of data, they’ve increased their development to over $3 million. And their ratio of sales is going to drop to or below 1:1 ratio of sales to investment dollar. We are maintaining an almost two-and-a-half times ratio of sales to investment dollars, which is extremely attractive in casual dining.
People will say, “Why haven’t you grown faster?” because of all these great numbers we have. Well, you can’t grow like a fast casual in full service and sustain leadership-style numbers.
How has technology played a role in growth?
I think I’ll lean into that by saying that about four years ago, during the recession and this kind of heartache that casual dining was having, we made a commitment that we wanted to understand our patron base. In that commitment, we went to the marketplace to try to find vendors who could help us survey your experience when you dine with us. We found a good partner for that. The problem we had with that partnership and implementing that platform is we had to figure out a way to reach you as a diner. How do I get you away from the very bland, traditional, fill-in-the-blank comment cards and be a little bit innovative in technology?
Our solution was we attached that platform to a loyalty program. I will tell you, if you go back and look four or five years ago, casual dining was not talking loyalty programming when we were. We were ahead of the curve, as small as we are, with our customer-based loyalty program. How do we reward you for staying loyal and keep rewarding you for bringing your dollars to East Coast, and how do we keep that engagement with you moving forward?
In those phases, our loyalty program was a huge benefactor of our ability to attract dollars back to the brand, or increase the ticket average. You saw that we had body-count increases in the first half of 2017. Some of our same-store sales was of course that body-count increase. The other part of that same-store sales increase was the ability to raise the ticket average.
We decided that we didn’t want to have our mobile and online ordering be a borrowed black-label platform. We wanted that to be something that we owned. We went to the marketplace early last year and basically developed our own platform, and then what we did—which most casual dining chains don’t do between zero and 100 units—we went to the marketplace last year and initiated some relationships with some of the top-tier companies. We implemented Paytronix’s loyalty program, for example. We implemented Olo for our mobile app. We implemented Buxton out of Texas, which is a very expensive platform that helps you understand your marketability, density usage of your patrons, and potential revenue source in demographic segmentation. Most franchise systems in casual dining at our level couldn’t afford to use some of those platforms.
We implemented a lot of strategy early in 2016 because it was the first year in the history of the brand that we felt a little tightness. And we had a couple of months in some negative same-store sales. Now, we’re not immune to some normal business cycling. We haven’t seen that in most of our 13 years of existence as a franchise model, and we felt some of that in 2016. But because of our DNA being unit-level effective and driven, we were able to move quickly in the decision process and, because we lead by example with EBITDA, we had the capital to do what was necessary to be done. By the middle of Q3 2016 we were implementing the strategy, which showed us the fruit results by end of June 2017.
How have franchisees responded to these technology initiatives?
Our loyalty program and some strategic movement with our mobile and online ordering helped our ticket average; our mobile and online ordering ticket average is almost 42 percent higher than the average of a traditional patron that comes through the door. That’s a huge number.
The key is that when you have a sound financial model as a corporate structure—especially a franchise model—and you see opportunity strategically to find growth revenue dollars, and you have the capitalization be able to make that distinctive move, to make it fast. Our success is a combination of the ability of the brand to utilize strategic platforming and technology with the DNA of quality food and the best franchisees in my space. Ultimately, the execution of the numbers are at the unit level, and if the franchisee has the right support mechanisms, has the validation of that support mechanism based on previous historical data and their own experience, then when you put out a strategic initiative, your franchisee is going to embrace and execute right.
That is probably our secret weapon: that the franchisee was able to execute the strategy we put in place in mid-2016. It took a year cycle to start showing that fruit of labor and execution.
How much do you credit franchisees to East Coast Wings’ success?
We’ve got one thing coming: Blow the franchising model in casual dining out of the world. We have opening teams to open stores. We came to an understanding that we probably should have some of our leading franchisees on the ground with the opening team for a store. That is unheard of in the franchise model. Franchisees don’t volunteer a week of their time to go with a corporate team to Memphis, for example, and open an East Coast Wings + Grill. We have franchisees who believe that the integrity of the units has to be intact immediately to the point where they want to be vested in the process.
Some people would say, “Why do you want to give away your cool tools to all the other franchise models?” Because they don’t have the same franchisees I have. You might give away the farm, but can they make the field grow corn?