Monday, February 18, 2013

Wing price spikes forcing some smarter marketing

If you run a local tavern or casual restaurant that sells a lot of chicken wings, you can always emphasize some of your other offerings to help combat the current sharply increasing price of wings from suppliers.

But, what if you run a chain that emphasizes wings in the name, the logo and on the menu? That's the problem facing Buffalo Wild Wings, which has a store in Clifton Park.

The company has reported that record-high chicken wing prices cut into its profit margins for much of 2012. In response, it has worked out a new menu pricing system for this year that is being eagerly watched by competitors as well as independent restaurateurs who pay attention to the big boys' marketing moves.

In other words, don't be surprised if the Buffalo changes eventually are reflected in service and pricing of wings at your favorite local haunt. 

“We faced challenges last year, but we maintained a disciplined approach to ensure our long-term success,” chief executive Sally Smith said during a fourth-quarter earnings call with analysts. “Even as we dealt with higher-than-expected cost of sales, we continued to invest in our future success.”

Food costs rose 2.6% from a year earlier to 32% of sales in the fourth quarter, driven by a 70% increase in the brand’s cost-per-wing from a year earlier. Traditional wings cost $2.07 per pound, an increase of 65 cents from the prior year, but larger wings also yielded fewer wings per pound, she said. For the first two months of 2013’s first quarter, wings are averaging $2.13 per pound. Fourth-quarter labor costs also rose slightly, by 0.3% from a year earlier.

According to a report in the trade publication Nation's Restaurant News, the chain’s test of a new pricing system, which serves wings in variable-size portions based on weight rather than a fixed number of wings, is in place at 64 locations, including both company-owned and franchised units. Instead of emphasizing the number of wings in each order, according to Smith, orders might be described as “single, double and triple” or “snack, platter and meal.”

Buffalo Wild Wings is expected to make a final decision on the pricing structure some time in the second quarter of the year, just ahead ahead of a new menu rollout set for August.

The chain did not increase menu prices early last year, when 2012’s record-high wing costs followed record lows from 2011,but by the third quarter, “there was no other way to cover the cost of the product,” Smith said. The brand ended up taking about 6% of pricing increases for all of 2012.

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