Franchise unit growth during five years
As part of its expansion plan, Buffalo Wild Wings (BWLD) embraced franchising in 1991. As of December 2015, the franchisees operated 573 restaurants, which accounts for 49% of BWLD’s total restaurant count. But restaurants operated by franchisees decreased from 60.9% in 2011 to 49% in 2015.
From the graph below, we can infer that BWLD is a franchise-heavy company compared to peers. By the end of 2015, Texas Roadhouse (TXRH) had franchised 18.1% of its 454 restaurants, while Chili’s Grill & Bar of Brinker International (EAT) and Outback Steakhouse of Bloomin’ Brands (BLMN) had franchised 41% of 1,595 and 14% of 755 restaurants, respectively.
Terms and conditions of franchising
BWLD, which makes up 0.4% of the holdings of the iShares S&P Mid-Cap 400 Growth ETF (IJK), offers a separate franchise agreement with each of its franchisees. Normally, the franchisee has to pay $40,000 for an initial period of 20 years. The franchisee has the option of extending the agreement on certain conditions.
Apart from this, the franchisees have to pay 5% of their annual sales as royalties and 3.5% for marketing expenses. The company also offers an area development agreement, where the franchisee has to develop between three and seven restaurants in a defined geographical area within a specified time.
BWLD adopted franchising not only to expand its business but also to have greater control over the implementation of the company’s initiatives. And BWLD has increased its share of company-owned restaurants during the past five years. To manage the operations of the franchisees, BWLD has appointed a vice president of franchise operations, and franchisees are to be guided by franchise consultants appointed by the company.
Continue to the next part for a look at BWLD’s initiatives to drive same-store sales growth.