As the number of Wingstop restaurants grow worldwide, the company has been looking at options to not only secure a more steady supply of chicken, but also be subject to less volatility in the price of chicken.
Several scenarios are being considered to accomplish those goals, including either buying or building a poultry complex.
“We believe the key our strategy of maintaining best in class returns is minimizing the volatility we see in our core commodity,” Wingstop Chief Financial Officer Alex Kaleida said during the Wingstop Investor Day, held on May 17.
The prospect of greater supply chain control
Earlier known primarily for its chicken wings and chicken breast products commonly known as boneless wings, Wingstop diversified its offerings and launched a successful “Thighstop” campaign in 2021 as a way diversify its offerings among a chicken wing shortage.
Based on that success, the company in November 2021 announced it is examining whole bird purchases.
However, Wingstop wants to have better control of the cost inputs as the company continues to grow.
That could mean a co-investment or joint venture to secure a supply at Wingstop’s targeted food costs with suppliers. But it could also mean obtaining its own poultry complex.
“There’s also scenarios that could include the acquisition of a small poultry complex or building our own poultry complex over a longer-term horizon,” Kaleida said.
He pointed out that highly franchised restaurant concepts have before executed a strategy like forming a purchasing co-op where brand partners would own and manage the processing asset going forward. Kaleida said that company is thinking of going in a somewhat different direction.
“In our scenario, Wingstop could help set up with the initial capitalization, but then the co-op would then acquire any asset from Wingstop in that scenario, which then allows us to continue to maintain our asset-light model that many of you have come to appreciate today,” he said.
A realistic opportunity
Wingstop isn’t taking this decision lightly, and has been doing its homework.
Kaleida said Wingstop has “worked with a third party to truly understand the end-to-end cost structure of a poultry complex and what it takes to run a facility, from the feed, to the growout to the processing stage.”
“And while the wing prices are highly volatile as we see, the costs at the poultry complex are much more stable,” he said.
Wingstop CEO Michael Skipworth said the company felt like that third-party input validated Wingstop’s idea to enter the poultry production and processing segment. He also said Wingstop has placed itself in a financial position to make this plan a reality.
“We did leave a little excess cash on the balance sheet to be in a position to where we could be opportunistic, should an opportunity present itself to be disruptive, take more control and go all the way to bright with a vertically integrated strategy,” Skipworth said.
Wingstop does “have a short list” of potential acquisition targets, Skipworth noted, but did not offer specifics.
The CEO added that if Wingstop can successfully overcome challenges with chicken price volatility, the growth of the Wingstop brand can only accelerate.
Wingstop has increasingly increased its global presence over the past five years. It added 119 new restaurants in 2018, 133 restaurants in 2019, 153 locations in 2020 and 193 new locations in 2021. Kaleida said the company anticipates the addition of more than 220 more restaurants by the conclusion of 2022.