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Why McDonald’s and Domino’s better watch out for Wingstop

Wingstop, the fast food chicken wing purveyor, opened 51 new restaurants and had same-store sales growth of 6% last quarter, it said in its earnings announcement Feb. 27. The company’s pace of growth and the speed with which it’s opening new stores should make competitors like McDonald’s, Dunkin, and Domino’s hot with envy.

McDonald’s reported 4.4% growth in comparable global sales. Domino’s U.S. same-store sales rose 5.6%, and Dunkin’s comparable store sales growth only went up 0.6% in the U.S.

Wingstop’s revenue rose 15.1% to $40.5 million for the fiscal fourth quarter in 2018 and the number of Wingstop restaurants grew by 10.5% to 1,252 locations worldwide. No one else is growing at a 10% rate on new-store development, says Matthew DiFrisco, Guggenheim Partners’ managing director.

Authority on wings

Wingstop (WING), which launched in 1994 and has more than 1,200 restaurants in the U.S., found a niche that was underserved in the fast-food restaurant industry: the wing category. Wings are traditionally known for being casual bar food. But Wingstop developed its own unique standalone menu, transforming wings in the minds of consumers from being just an appetizer or a side order, to being the main course. Wings are what’s for dinner.

“I think they’re a category of one. I really do think that they are a differentiated brand,” says DiFrisco. “They have the authority in wings. I don’t think anybody else has the brand equity that they’ve established, in serving chicken wings. Certainly, they share the consumer with a KFC and a Popeye’s and your fried chicken player, however, the occasion is different for wings and the appeal is different.”

A big part of Wingstop’s appeal: its innovative wing calculator that asks consumers how hungry they are. The three different levels are snacky, hungry, and starving. Once the consumer makes a selection, the wing calculator suggests the right amount of wings needed to satiate that hunger.

Catalyst for growth: delivery

A branch of the Wingstop fast casual dining restaurant chain in Harlem in New York.(Photo by Richard B. Levine)

Most of Wingstop’s sales don’t come from sales in the restaurants themselves -- 70% are from consumers who order wings and come in to pick them up. Delivery through DoorDash is offered at 30% of Wingstop restaurants. And by the end of 2019, the company expects to offer delivery at 80% of Wingstop locations.

Other fast-food chains such as Domino’s and KFC do offer wings, but no one is focused on wings as a standalone menu. No one else is competing at Wingstop’s size on a national basis in doing wings.

“That’s a very unique business model that very few have been able to replicate -- no one in scale,” says DiFrisco.

Strong appeal for franchisees

As a niche player in wings, Dallas-based Wingstop, which operates and franchises more than 1,200 stores in the U.S, has strong appeal for franchisees.

“This is one of the best names for franchisees from a return perspective, to try and own and be a part of,” says BTIG managing director and restaurants analyst Peter Saleh. There aren’t many other national competitors that I can think of, that compete directly with them. They are essentially the Domino’s of the wings industry.”

Momentum for 2019

Wingstop’s future looks bright. As 2019 progresses, Wingstop will inch closer to being a national delivery player -- which will be an important driver of its same-store sales growth.

“When you see what they have still ahead of them, expanding their reach with 1% more on the marketing spend for the national advertising budget; then you also couple that with 2019 will be the first year that they have national reach with delivery being offered, it could really take the roof off of their sales growth,” says DiFrisco.

While Wingstop is a national brand, it doesn’t have a large presence across the U.S. The company has a lot more room to grow and advertising will be another important driving force for same-store sales growth in 2019.

The company recently launched the nationwide “Where flavor gets its wings” campaign to raise brand awareness.

“They have been able to do the rare, they’ve executed by asking their franchisees for 100 basis points more in marketing. They took their marketing contribution from 3% up to 4%. Very few franchisees have that type of buy-in from their franchisees or support to be able to jack up the advertising, and that speaks to the confidence franchisees have in advertising being effective,” says DiFrisco.

Wingstop sold over 16 million wings on Super Bowl Sunday. With March Madness coming up, the company will be building on that momentum as more consumers turn to them for a main entrée of chicken wings with sports watching on the side.

Source: Guggenheim Partners

Wingstop's shares are up 2.2% so far this year and almost 48% in the past year.

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