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Chicken prices are causing headaches for Wingstop

The fast casual’s food costs are soaring and it is looking for ways to assert more control over its supply chain.
Wingstop
Photo courtesy of Wingstop

High chicken prices are eating into Wingstop’s profits, and the fast casual is looking for ways to get a better grip on its supply chain to control future volatility.

Wingstop CEO Charlie Morrison told analysts Wednesday the chain will increase menu prices another 4% to 5% in the coming weeks, for a total of a 10% price hike this year, to deal with soaring food and labor costs. Typically, the company raises its menu prices 1% or 2% each year.

“This environment we’re in, which we don’t believe is transitory in any way, shape or form, is driving the need to take price,” Morrison said. “This will be a level-set for the future, and we will revert back to our cadence.”

For the quarter ended Sept. 25, food, beverage and packaging costs made up 48.1% of Wingstop’s sales. For the same period a year ago, that number was 36.4%.

Regardless, the Dallas-based wing chain continued its string of nearly 18 years of positive same-store sales, with same-store sales up 3.9% for the quarter over last year, or 29.3% on a two-year basis. Systemwide sales climbed 16.7% to $594.3 million and total revenue grew 2.8% to $65.8 million.

Wingstop's stock price was down about 11% on the earnings news mid-day Wednesday. 

Bone-in wings hit a record high price of $3.22 per pound during the quarter, an 84% increase over the year before, which the chain was able to partially offset for an effective 49% price increase. Now, wing prices are around $2.87 a pound and frozen wing inventory is rebounding, Morrison said, leading him to believe further price declines are coming.

He said the chain would like to see wing prices well below $2 per pound “for us to be comfortable.”

“We are exploring strategies where we can take more control of the supply chain,” he said. “To follow the lead of other large-scale brands like Dunkin’, Starbucks and pizza (chains) who take more control of the supply chain to eliminate volatility. Wingstop is a brand that’s finding its way into that scale level.”

Morrison said he was talking with franchisees about the issue but did not offer further details on how the brand might mitigate future pricing fluctuations.

One way the chain, which has 1,461 U.S. units, is dealing with high wing prices has been its “whole-bird strategy.” In June, Wingstop launched a virtual brand called Thighstop to sell bone-in thighs and boneless thigh bites.

Not long after, the chain said it would be adding Thighstop’s offerings onto its regular menu. Wingstop declines to highlight its menu mix but said thigh sales have doubled in volume since moving onto the wider menu.

“It’s making a meaningful contribution to the brand,” Morrison said. “It’s going to build over time. It’s following a trajectory we saw many years ago when we introduced boneless wings. We have a long way to go but it’s giving us confidence.”

 

 

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