The prices Wingstop and its franchisees pay for chicken wings fell 30% in the third quarter, the company said Monday, and profits surged as a result.
The company said that its cost of sales fell 1,300 basis points in the quarter, to 67.9% of revenues, due mostly to a combination of those lower wing prices and higher same-store sales, which rose 6.3% systemwide.
Net income, meanwhile, rose 33.8% to $6.3 million, or 21 cents per share in the quarter ended Sept. 29.
The Dallas-based chicken wing chain’s sales growth came from a combination of higher prices as well as transaction growth, as the company used a pair of value offers to drive business into its restaurants.
That included 60-cent boneless wings on Mondays and Tuesdays and a $15.99 bundled boneless wing deal. The company promoted that bundle with television ads.
The bundle “did a great job of increasing the frequency of our core guests,” CEO Charlie Morrison said during the company’s earnings call Monday. “We think that’s a great testament to the brand’s ability to react in a tougher environment.”
More digital, more delivery
Wingstop is pushing more digital orders and delivery in its bid to maintain those sales increases.
More than a quarter of all the company’s sales are now coming through digital channels, and 80% of the company’s more than 1,200 global restaurants now get more than 20% of their orders online.
Wingstop wants to increase that. The company is rolling out a custom-built app and website this year that should further increase delivery and digital orders and send consumers more custom messages.
And the company is working on natural voice recognition technology for orders that come over the phone. For Wingstop, digital orders are better because they come with average checks that are $5 higher.
“We see no reason our digital sales cannot approach and even exceed the levels of some national pizza chains,” Morrison said. “Our goal is to digitize every Wingstop transaction.”
Pizza chains typically get 50% or more of their orders through digital channels.
The company is also increasing delivery. It recently added a fourth delivery market, Denver. It plans to add a fifth, Los Angeles, and a sixth, Houston, both large markets for the chain that, by the end of 2018, would bring to 25% the percentage of Wingstop restaurants with delivery.
The company expects to have the service in more than 80% of its restaurants by the end of next year.
“We believe the market-by-market approach to our rollout of delivery will help us ensure that we deliver on our guest expectations,” Morrison said.
The company has seen an increase in sales in the “mid- to high single digits” when it adds delivery in a market, despite the fact that the chain does little to advertise the service.
The company believes that its app redesign should help that. Two-thirds of delivery customers come through the Wingstop app. The new app will first ask users if they want a delivery or carryout order.
Wingstop is also asking franchisees to increase their marketing contribution by 1% of revenues in a bid to increase the chain’s brand awareness.
Morrison said that the company’s brand awareness levels are “more than 20 percentage points below other large franchise brands.”
As a result, the company’s “purchase consideration” is below that of many other concepts. By increasing the marketing contribution, executives said, the company will shift its strategy to target “customers who really don’t know much about Wingstop and convert them into users of our brand.”
No more Philippines
Wingstop now includes more than 1,200 locations worldwide, all but 130 of them domestic. The company plans to open its first location in London in the coming weeks and has plans to open in France and Australia next year.
But the company is about to exit another market: the Philippines. Executives said on the earnings call that they expect to close 11 restaurants in the country by the end of this month.
The company made “a conscious decision … to sever our relationship with our franchisee in the Philippines and exit the market” after four years.
“Although we generated a lot of fans in the Philippines and multiple successful restaurants,” Morrison said, “our ability to deliver sustainable growth was in conflict with our franchisee’s overall plans for other businesses.”
Wing prices, higher prices
Chicken wing prices ballooned last year, leading many operators to raise prices to generate profits. That has helped Wingstop’s same-store sales this year—much of that 6.3% increase came from those higher prices.
But wing prices have plunged this year due in large part to weaker demand, as chains such as Wingstop have focused more of their promotions on cheaper, more profitable boneless wings. The higher prices have remained, however, and that has helped profits.
Executives said on the call that they expect wing price deflation to “moderate” later this year. But the prices will continue to decline.