As management differences escalate between Buffalo Wild Wings and activist investor Marcato Capital prior to the company’s annual shareholder meeting June 2, CEO Sally Smith issued a letter defending the company’s approach.
Smith, who has served as Buffalo Wild Wings CEO for more than two decades, says in the letter that despite headwinds faced by the casual dining sector, the company continues to perform well.
“I am proud that we have outperformed our peers on critical operating metrics like same-store sales and restaurant margins for many years,” she writes. “But, make no mistake: to remain a market leader, we need to continue our evolution and address changing customer demands and sentiment. And, we need to drive costs out of our business.”
In its most recent earnings report for Q1 2017, the brand reported earnings per share below industry estimates, a revenue increase of 5.2 percent, and same-store sales growth of 0.5 percent for company-owned locations.
Marcato has called for Smith’s removal, along with a refranchising plan to sell more than 500 company units by 2020. Buffalo Wild Wings responded by saying it doesn’t “want to be the next Applebee’s,” although it is affected by the same challenges as the casual dining brand.
“Millennial consumers are more attracted than their elders to cooking at home, ordering delivery from restaurants and eating quickly, in fast casual or quick-serve restaurants,” Smith writes. “Mall traffic has slowed. And, surprisingly, television viewership of sporting events [important for us, especially] is down.”
Smith says in the letter that the brand is testing smaller footprint units to focus on takeout and delivery, and that it is working to drive traffic and check size through new marketing programs.
“In these challenging times, we surely need fresh thinking and new ideas, but we also cannot afford to reinvent everything or unknowingly try again things that don’t work,” she writes. “At [the annual meeting], one of our shareholders is seeking to remove all of our independent directors that have served for more than eight months. Without them in the boardroom, I would be the only person in the room who knows our history. And while I love my job, sooner or later, it will be time for me to retire.”
Buffalo Wild Wings’ future may depend on whether shareholders vote on June 2 for a board with institutional knowledge and memory or for an overhaul of the company’s leadership.
Franchise Business Services, the association representing Buffalo Wild Wings franchisees, also released a statement reiterating its “full support” for Smith, the chain’s management team, and its board of directors.
“We continue to work with the Buffalo Wild Wings management team to enhance the guest experience and drive store profitability across its Company-owned and franchised locations,” says Wray Hutchinson, chairman of the FBS Board of Directors and an owner of 39 Buffalo Wild Wings franchises, in a statement. “This includes our collaborative focus on loyalty, order and pay at the table, merchant acquirer and EMV compliance, reduction of remodel costs, launch of a system-wide food safety program, food innovation, online ordering and delivery services. As with any business, there are always improvements to be made and we are working tirelessly with management to do so. However, while we appreciate Marcato Capital’s investment in the business, we believe their proposed 90 percent franchised model is heavily flawed. Under this proposal, there would no longer be an appropriate overall alignment of interests between the franchisor and the franchisee community, damaging the value we have worked so hard together to create.”