Wingstop on Tuesday said it is actively exploring the possibility of acquiring or building a poultry production facility in the next two to three years to better deal with wild fluctuations in wing prices.
“Our strategy of maintaining best-in-class returns is minimizing the volatility we see in our core commodity,” CFO Alex Kaleida said during the chain’s investor day presentation. “That’s a further unlock and acceleration in our growth. So, we are executing a clearly defined strategy to take greater control of our supply chain.”
The 1,700-unit wing brand has been meeting with third-party experts to discuss the financial implications and details involved in growing and harvesting chickens, executives said, adding that their strategy has been “validated” by these consultants.
Further, Wingstop said it has preserved some cash in its reserves should it need to take swift action and make an acquisition of an available poultry producer or, as CEO and President Michael Skipworth put it, “to be disruptive, take more control and go all the way to bright with a vertically integrated strategy.”
Wingstop floated many supply chain solutions Tuesday and said it would likely employ a patchwork of them, not just one, as it recently saw wing prices go from $3.22 a pound on the spot market to $1.63 a pound today.
The 1,700-unit chain said it is able to use the information gleaned from its third-party experts on chicken growing and harvesting to better negotiate with its suppliers, allowing it to get more favorable prices and a more predictable pricing model.
Wingstop said it is also looking at ways for it to “co-invest” in a poultry producing operation that would allow for a quicker timeline.
Acquisition and building from scratch are also on the table, the chain said. Doing so, though, would only provide about 20% of the chain’s wing supply, Skipworth noted—thus the need for multiple routes to the solution.
Skipworth said Wingstop has a “short list” of potential acquisition targets.
Wingstop has historically prided itself on its “asset-light” model, and that would not change even if it buys a poultry processor, executives said.
Wingstop would provide the up-front cash for the deal, but would then form a franchisee-owned co-op, Skipworth said.
“We would then put that asset within that co-op and put some sort of debt, obviously, the cash flows of that poultry processing complex would largely be guaranteed by our existing franchisees, and then use that to pay ourselves back,” he told analysts. “So, there could be some sort of near-term impact on our balance sheet, but we would move quickly to move that off of our balance sheet, return the capital that we've invested and maintain that asset-light position.”
Then-CEO Charlie Morrison hinted at such a deal in February, saying that Wingstop needed to find a way to exert more control over its supply chain by any means, “whether that has to do with acquiring or building or evaluating various ways in which we can involve ourselves closer to the production of the product.”
The chain’s comments Tuesday, however, greatly expand on that statement and show how serious Wingstop is in potentially becoming not just a wing-seller but a chicken-producer.
Such a move would be fairly rare in the restaurant industry.
Big box retailer Costco, though, opened a poultry facility in 2019 to save up to 35 cents per chicken on processing costs, keeping the price of its rotisserie chickens favorable for value-minded shoppers. And grocers such as Kroger, Walmart and Albertsons have built their own milk-bottling facilities.
Chicken prices have created major headaches for restaurant chains during the pandemic, driven by COVID outbreaks at poultry processing plants and demand for chicken during quarantine that far outstripped planned availability.
An explosion of virtual wing concepts over the last couple of years depleted the supply and drove up prices, forcing most every chain to raise its prices significantly.
Late last month, Noodles & Company said it would add a temporary $1 surcharge to all dishes featuring chicken, the company’s most popular protein offering. The chain said it spends more money on chicken than on any other food item and that it expects to pay 80% more for it during the second quarter than it did in 2021.
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