The following is a transcript of the April 3 podcast episode with Wingstop CEO Michael Skipworth. Wingstop has thrived in recent years, generating strong sales coming out of the pandemic despite difficult comparisons.
But it has also helped the chain with its cost problems. Chicken wings are a frustrating commodity, which soars during times of heavy demand and plunges during supply gluts. Skipworth talks about how the chain was able to build sales while easing its reliance on bone-in wings. He also talks about a variety of other topics, such as its push to become 100% digital.
Jonathan Maze:
All right, I'm here with Michael Skipworth. Michael, welcome to the podcast.
Michael Skipworth:
Thanks for having me, Jonathan.
JM: So, tell me a little bit, Wingstop, I've been watching the chicken wing market for a long time. And it has always been one of the more fascinating commodities out there for forever. Just have super high highs and then really low lows. And I know that it's given you guys more headaches than Budweiser.
So my question for you is, could you tell us a little bit about what your plan, how did you guys came up with an interesting plan to deal with that? Could you talk a little bit about that?
MS: Yeah, I'd be happy to, Jonathan. And over the years at Wingstop, you nailed it. We've seen a lot of volatility in our food costs. In one year, wings could be over $2 a pound, and then 12 months later, it's less than a dollar a pound. In our P&L for our brand partners, that could translate to a thousand basis points swing in food costs.
Thankfully, we have a unit economic model that could weather that, but that's still a lot of volatility and makes it challenging for our partners to manage their business. And so we put together a few years ago, a pretty comprehensive strategy that was really centered around, and this isn't very complex, but it was around solving one thing, and that is minimizing volatility in our food costs. And there were a few facets of that work.
But it really had to do with how do we take more control? Cause the reality is we are buying wings, which are a fall off product represent about six to 8 % of the entire chicken. Our partners at the poultry plants, they're not growing those chickens for the wings. They're growing it for the breast meat. And so we knew we had to approach this a little bit differently.
And so we put together a strategy that ultimately had a few components associated with it, but really allowed us to take more control. And this strategy includes simply how we contract for wings and moving that buying arrangement away from that spot market and the volatility that we've seen in the past to include things like a joint venture. If there was the right partnership, whether it's one of our supplier partners or even another brand, we are open to investing to deliver that predictable food costs and then go all the way to Bright, which other brands have done this before, but vertically integrate and take complete control. And we've seen a lot of progress here recently with what I would describe as a little bit less capital intensive approach to that supply chain strategy. And that's simply around how we structure these agreements with our supplier partners. And I think we've been able to do that because of two things.
One, the amount of growth we've seen in our business in general, the brand has grown significantly over the last few years. And so we've become a very big buyer of chicken out there. And our partners recognize that. But then in addition to that, we've seen a meaningful growth in the amount of breast meat that we're using, whether that's our boneless wings or most recently, I guess, a couple of years ago now, the launch of chicken sandwich has enabled us to what historically was call it 30% of our sales mix was boneless meat products.
Fast forward to Q4 of 2023, that's almost 50%. And so we're using a lot more breast meat. We're becoming a more balanced purchaser of poultry with our supplier partners. And that's enabled us to completely change the way we structure those agreements. And for the first time ever as a brand, we're able to look out into 2024 and tell our brand partners what they can expect from a food cost perspective. And the exciting part about that is the predictability that creates for them just fuels the demand for growth for Wingstop.
JM: And so, how much of that additional 20 % is from the chicken sandwich?
MS: Our chicken sandwich is mixing still kind of in that mid single digit range. And so we're selling a lot of sandwiches, but it's been a pretty exciting outcome for us when we launched chicken sandwich is I've said this before, but there's 2 .4 billion annual chicken sandwich occasions in the U S. So every single consumer out there knows how to engage with a chicken sandwich. They know how to eat a chicken sandwich and when to eat it.
Whereas wings, traditionally, there's a lot of people out there who only think about wings for a special occasion, think the Super Bowl or maybe even the March Madness tournament going on right now and a watch party. But yet what we've been able to do with Chicken Sandwich is bring a lot of new guests into the brand with a very easy entry point. And then they're learning to navigate the rest of our menu and they're finding more occasions for wing stop. And those guests that are coming in, they're over indexing to boneless, which is great for our business, great for food costs, great for our supply chain strategy. So we've seen a really exciting amount of growth in our boneless meat.
JM: So the chicken sandwich sales, is that pretty much all incremental or is it mostly incremental?
MS: We have seen it be highly incremental, substantially all of it, which is great.
JM: And now has that changed, has it kind of changed how the business operates? I mean, people go in for chicken sandwiches at different times a day than they do chicken with.
MS: You know, we saw initially when we launched it, we did see chicken sandwich sales index a little bit higher over that lunch day part. But as those new guests have come in and learned to navigate the rest of the menu, it's almost created a halo effect on our business. And so we've seen pretty consistent growth. If I look at 2023 in aggregate across all day parts, which is really a great balance way for us to grow, which we like to see.
JM: And so that has to be kind of like the perfect, you know, the perfect new product, right? A product that helps you both on the supply chain side and something that generates incremental sales.
MS: Absolutely. The strategies we're executing against work hand in hand and kind of, if you will, feed off of each other. And it's really strengthened our results, strengthened our unit economics for our brand partners and put us in a really great spot.
JM: And so now you said you've also had a pretty, you know, based on your, the, my quick math, uh, a relatively strong increase in, in boneless wing sales. Um, is that just because of chicken wing prices or is that where people are going or what's the deal there?
MS: Yeah, that's a lot of where these new guests are navigating. They come into our brand via chicken sandwich. And what we're seeing with this new guest is it's a little bit of a different profile than our core guests. They're, they index a little bit higher income. They have, again, a tendency to over index to boneless. And what we really like is we're seeing them come back sooner and move up that frequency curve faster.
So for the first time in a long time, we've actually seen an uptick in our frequency as a brand, which is still a pretty low frequency occasion. We average about three times a quarter once a month, but these new guests that we're bringing in are impacting our frequency a little bit and they're indexing to boneless. And that's really what we're liking what we see a lot.
JM: Mm -hmm. So is that, I mean, do you see like consumers just generally speaking, moving more towards boneless wings away from bone -in or is that just a different customer altogether?
MS: I think it's generally a different customer is what we're capturing with these new guests that we're bringing in. And we still sell a lot of bone in wings and continue to sell more and more, particularly as we're open more and more restaurants. But to see our mix getting closer to that 50 50 is really great for us because again, it helps that fuel that supply chain strategy and help us deliver predictable food costs for our brand park.
JM: Mm -hmm, probably fewer headaches for you guys.
MS: Yeah, always.
JM: No, I will. I've said this on the podcast before, but I remember, um, talking with a former owner of a chicken wing concept and he sold it. He said, thank God I don't have to deal with chicken wings anymore. That's literally what he said. It was relieved that he, if ever he got through it, just, it was, it, it is the, you know, I mean, if there is another more volatile commodity out there, I don't know what it is.
MS: Yeah, I mean, there's without a doubt the spot market that wings are priced on is probably the most inefficient market that's out there. Thankfully for us, we've moved so much of our buy away from that. It's delivering very predictable cost. I actually have a very different conversation with our brand partners. The number one complaint I get right now is how can I open more wing stops? I want more growth. And so they're looking to, to double down if you will with Wingstop, which is great for us because if you think about it, we're just over 1 ,800 restaurants in the US today. We have line of sight to expanding that well north of 4 ,000 and that's just in the US. We have an international business that's taking off and so as we sit here today, we see an opportunity to over triple our footprint, which is pretty exciting.
JM: Are they have any issues adding Wingstops? Any development challenges there?
MS: No, I think the number of units we were able to deliver in 2023, a record year for us, I think really just speaks to not only the demand that we have from our existing brand partners that are reinvesting of the restaurants we open, 95 % of those were existing brand partners reinvesting in growth with Wingstop. And then I think it also speaks to the fact that we're a little bit different.
We kind of refer to ourselves as being in a category of one, because even when it comes to the build out of a wingstop, we're not going out and competing for a pad. That's a ground up build. We are our core, our core asset, our target real estate profile is an inline B B minus real estate, 1700 square foot box, basically a shell that we're building out. So a lot of the challenges other brands have faced recently with development.
Has it really been something, I mean, of course we're not immune to the municipalities, the permitting and those elements. So we still navigate those like everybody else, but it's not nearly as involved as a ground-up bill.
JM: Now you, there was, you said something very interesting on, on, on your last earnings call about competition. Uh, there was, uh, has been a very large chicken concept that have been going all in on chicken wings. And your comment was something to the effect of when other brands start advertising wings, you do better, which is not the first time I've heard that from, from Wingstop. Can you talk about that? Why is that?
MS: Yeah, no, absolutely. And I've had the opportunity to be a part of this brand for almost 10 years now. And so I've seen other brands over the years put menu, put wings on the menu, promote them. And they have a much bigger national scale than Wingstop does. And historically what we've seen is it's a tailwind for our business because they're driving wings as a, as top of mind. And if consumers know of Wingstop.
There's not really a decision tree. If they're thinking about wings and they know of Wingstop, they're going to pick Wingstop. And I really think it speaks to that indulgent occasion that we deliver on. Quality, cook to order, hand sauce and toss, our craft made ranch and blue cheese, all of those elements come together. And I think consumers reward us for that. And I think 2023 is a really strong testament to that because we saw as we progressed through the year. As most other brands were measuring declines in value scores, we were actually measuring improvements as consumers really lean into, they want to feel good, they want to treat themselves, and we saw plays really well in that occasion.
JM: Is one of the brands that, uh, in the past tried chicken wings, uh, that are much larger than you does the name rhyme with rhyme with McDonald's.
MS: It very much may, yes.
JM: I remember Charlie Morrison talking about that back when they were testing Mighty Wings in Chicago. And he said that they saw a lift when in Chicago, when McDonald's started testing Mighty Wings there, he said they saw a sales lift.
MS: Yeah, no, he's right. He's right. And we saw that happen a few more times over the years. And historically, while that's been good for the top line, usually what that translates to is inflation and wing prices. Thankfully, as we sit here today, we're not really affected by that. So we're just getting to see the benefit of the tailwind.
JM: Yeah. Yeah. Well, that was one of, I think that was the first massive, well, not the first, but I remember that was a massive, massive spike in chicken wing prices after McDonald's went into that market. I mean, everybody started hoarding chicken wings and then Mighty Wings was a disaster. And then the market flooded with chicken wings. So one year he had record prices and then the next year he had dramatically lower prices, even more so than you've seen in recent years. It's just.
MS: Yep, you're exactly right.
JM: As I said, it gives me a headache and I'm not even in the chicken wing business. Let's shift gears here a little bit and talk about technology. You have had in the past a goal or you've wanted to get to a point where you're 100% digital. Is that still a goal and how achievable is that?
MS: Yeah, it's still an aspirational goal of ours is to digitize every transaction. You know, you saw, particularly through the pandemic, you saw a real surge in digital sales. And then as consumer behaviors have normalized since the pandemic.
You've seen a lot of businesses digital sales kind of retrade back down to where they were historically. But for Wingstop, we were well positioned. We saw an acceleration in our digital sales mix, but we've even grown on top of that since then. And that's because it's how consumers engage with our brand. We're 94 % off -premise. It's a quality, cook -to -order occasion. And then we've invested a lot in a best -in -class digital ordering experience. Again, positioned us very well, closed out 2023 with almost 70 % of ourselves coming through digital. We see an opportunity to continue to expand that. There are some exciting things in front of us. One of those is we've been investing over the past three years in our own proprietary tech stack, our own e -commerce engine, if you will, My Wingstop is what we're calling it. We're really excited about how we're going to be able to use that digital platform combined with a database that we've built over the years that's over 40 million users strong and really lean into hyper personalization.
So we think over time that's gonna help us continue to expand digital mix in addition to ultimately hopefully driving frequency as well, which we're pretty excited about. We look at delivery as another channel. It's been hovering, call it around 30 % of our sales mix over the past year or two, but when we benchmark ourselves to other heavy off -premise brands, you can think maybe Big Pizza as an example, their delivery channel mix is north of 50%. So we see a lot of opportunity to continue to grow that channel. And then this may shock you a little bit, Jonathan, but today, I think still somewhere between 10 and 15% of our orders come in over the telephone in the restaurant. And so we're leaning in and investing on ways to leverage artificial intelligence and take that voice order, capture it, and convert it to a digital order. And so that's something we're pretty excited about. So we see a ton of runway in front of us and believe we can continue to march towards that goal of 100% digital.
JM: Yeah. It doesn't surprise me, um, that you still have people calling, but I still don't understand it. But, um, I don't, I don't, you know, like getting phone calls. I don't like making phone calls. I'm just, anyway, just that, um, I'm at that point now, but you, you, you said you're building your own, you, you're building your own tech stack. Why, why? Cause that's that, that, that to me is, is fascinating. Why, what was the thinking behind the decision to do this yourself?
MS: Yeah. I think it ties a lot back to that aspirational goal of digitizing every transaction. But if you look at 2023, I think we eclipsed over $2 billion in digital sales. And we know that's something we want to have control over and maybe not necessarily have that flowing through a third party. But then I mentioned a little bit about building that digital database. And we had a great partnership with a third party that allowed us to grow our digital business to $2 billion, but yet we were still using a common white label platform that was designed to accommodate as many brands as possible. So we saw a lot of opportunities for us to make some strategic investments that can make that digital ordering experience exactly what is right for Wingstop, for our strategy and for our guests. And so that's a lot of the rationale behind that investment.
JM: That's a very different business than selling chicken wings though, because at some point if you build your own tech stack, that means you got to hire people like engineers and software folks and all those other people that can know code and whatnot and things like that. I mean, it is actually a pretty different business, is it not?
MS: It is a very different business, but we've often over the years described ourselves as a technology business that sells chicken wings. We've been a front runner or leading the pack a little bit from a digital perspective over the years. So I wouldn't say it's a fundamental change in our team, our construct and how we approach the business, having such a heavy digital business to begin with. But I think doing this today compared to call it 10 years ago, it's a very different environment to build a tech stack in that you can, it's a modern technology cloud -based, you're able to focus on the strategic component parts and not necessarily have a lot of the tech debt that maybe you'd have traditionally approaching something like this.
JM: Yeah. Yeah. Plus you get some more control over the whole process. If you have your own technology, you know, then you can, um, you can try out new things. You know, you, you're eliminating the need to deal with, you know, a customer or a third party, um, you know, when you want to upgrade your technology and then you can do some pretty innovative things. And we've seen some companies, certainly in the pizza business that have really, really done quite a bit on that front.
MS: Yeah, we view our digital business, the database, the investments we're making in technology is almost a bit of a moat around our business that allows us to really protect ourselves and continue to grow and scale.
JM: So how do you get that 30 % delivery up to the 50 plus percent range? I mean, what do you do on that? What do you do there?
MS: I think there's a couple of things. One is it's really just about awareness. We've seen our delivery business grow at a pace that not very many brands can stack up against. And we've actually done that with without really spending any of our ad dollars. These partners of ours, DoorDash, UberEats, they like our business. We carry a higher average check, our asset, our business is built for off -premise.
So they really like it. And so a lot of the growth we've seen, the advertising that you see out there are our partners that are investing behind our business. And so as we continue to see opportunities to build more awareness around Wingstop through those channels, we see some really nice, healthy organic growth there. But I think awareness is just generally a huge opportunity for Wingstop. We're measuring record levels, but yet when we line ourselves up against other national brands that are out there, there's still a double digit gap in awareness that we think is a huge opportunity for us to go out.
JM: Really? Still, still a lot of people out there that don't know what Wing, Wingstop is. Yeah. Um, you know, still 30%. Now, is there a point at which you say we need to start delivering this stuff ourselves, or you think that third party is, is strong enough at this point to continue to build that percentage by, while we're.
MS: That's right. That's right. Yeah, I think, I think the businesses that they've built in that model is something that's going to be around for a while. Um, you're actually seeing a lot of other brands who have built a model to deliver themselves, starting to augment a little bit to lead in there. Um, our restaurants aren't designed to have delivery drivers on staff. And so it'd be a fundamental shift. And we believe the way we've been able to negotiate the agreements with our partners. These are highly profitable and incremental transactions for our business that we're pretty happy.
JM: For the record, I'm actually actively wondering, and I asked the now former CEO of Papa John's very recently whether he thought that we're in the beginning of the end stages of self -delivery. And part of my argument is, I mean, your point is, I'm like, I mean, that company, they get 10 % of their sales from third -party delivery, which is insane to me. It doesn't... It boggles my mind. It boggles my mind because they've had this very well, long time established, cheaper delivery system over here.
And yet there's a large group of customers that are still picking the more expensive item because they don't want to have a second app on their phone. So, I mean, that in and of itself is fascinating. So to me is there doesn't seem to be any reason why you can't build it, but it's just a matter of getting people to understand, um, that, that it's there.
MS: Yeah, yeah. And I think there's other ways you can augment as well and still outsource the logistics element and acquire that customer, acquire that occasion through your own channel, which I think is an opportunity for us as we think about continuing to expand that channel.
JM: So now you're also moving further into loyalty. Yes, I mean that's gonna be a big thing for you guys going forward.
MS: We know it's an opportunity. You know, we're a little bit different than most brands in that a lot of brands launch loyalty as a way to acquire customer data and build that database, which is interesting in that we kind of already have that because of how great of a digital experience it is to order through Wingstop. So for us, as we think about loyalty down the road, we see it as an opportunity.
But I think it's not something that would be maybe more of your traditional loyalty approach, which is almost synonymous with discounting, but more about how do we engage with our guests in a more personalized one -to -one basis? How do we win more occasions? How do we surprise and delight them and just ultimately impact frequency over the longer term? We know it's a lever we have to pull down the road, but no immediate plans right now.
JM: Yeah. Aren't you sort of like two businesses right now? Hear me out on this one. So I've always felt that Wingstop in particular, with the chicken wing occasion is very pizza -like. So we've talked a lot about pizza today. And so, but now you've got this growing business of chicken wings. I'm having microphone problems. You have this growing business of chicken wings over here or a chicken sandwich over here. And that's, That's a completely different occasion. I mean, is it almost like you're two businesses?
MS: I think we think of them both the same in that we're built for off premise. It's about serving flavor and variety to guests. And I think like the chicken sandwich is a great example of how that ties in that when we launched chicken sandwich, we looked at the landscape out there and consumers had two options. It was plain or spicy.
And so we knew we could do it in a very differentiated way, a wing stop way. That's very similar with what we do with wings, right? There's a lot of other brands out there that serve wings. And so providing that quality and that variety has allowed us to differentiate ourselves. And so when we think about how consumers engage with our brand, it's really when they're looking for quality and value, which I think is what's helped us deliver some pretty remarkable results in 2023 and industry leading same-store sales growth that was fueled by transactions, whereas you had the industry backdrop measuring losses. And so we think it's a lot about just that indulgent occasion and providing guests with flavor customization, which they appreciate and value.
JM: Yeah. I will end by saying this when I told my eldest son that I was talking to you. I mentioned it. His first comment was a chicken sandwich. Specifically, he said that we need to go get one because they're fire, which I guess means it's good.
MS: I like that. I like that. Well, Jonathan, I hope you take him up on.
JM: Oh yeah, I definitely will. Michael, this was great. I really appreciate you joining me this week on the podcast.
MS: Thank you. Thanks for having me, Jonathan.