Buffalo Wild Wings Is a Better Version of Olive Garden's Parent

Except B-Dubs will be bigger, better, and more versatile.

Aug 30, 2014 at 9:00AM

Is Buffalo Wild Wings the next Olive Garden?

Buffalo Wild Wings wants to become a company of 3,000 restaurants worldwide, Photo: Mike Mozart/Flickr.

When Buffalo Wild Wings (NASDAQ:BWLD) announced the purchase of a majority stake in fast-casual chain Rusty Taco on Monday, it marked an important step toward fulfilling its most ambitious goal. Specifically, as B-Dubs' CEO Sally Smith put it, that goal is "to build a portfolio of diversified brands for long-term sustained growth."

In other words, Buffalo Wild Wings wants to become a stronger version of Olive Garden's parent company.

How do I mean? With 837 locations at the end of last quarter, Olive Garden operates as the flagship subsidiary of Darden Restaurants (NYSE:DRI). And before Darden completed the $2.1 billion sale of its 706-restaurant Red Lobster business to Golden Gate Capital last month, it operated a huge casual restaurant portfolio of 2,207 locations, split between eight brands. The others are LongHorn Steakhouse, The Capital Grille, Yard House, Bahama Breeze, Seasons 52, and Eddie V's.

For perspective, Buffalo Wild Wings' vision is to ultimately become a company of 3,000 restaurants worldwide, or nearly triple the 1,025 locations it sported at the end of June. And in the same way Olive Garden acts as Darden's flagship chain, Buffalo Wild Wings will undoubtedly remain the centerpiece of its own growing restaurant portfolio. To be sure, management has also set a goal of growing to 1,700 Buffalo Wild Wings restaurants in North America alone over the next 10 years. 

Why B-Dubs will be bigger, better, and more versatile
For investors, here's where Buffalo Wild Wings' story gets really interesting. Rather than focus entirely on the casual and fine-dining segments as Darden has done, Buffalo Wild Wings is hedging its bets by investing in the early stages of promising fast-casual concepts. And why not? According to the NPD Group, fast-casual restaurant traffic growth has easily outpaced the broader restaurant industry for each of the past five years.

Buffalo Wild Wings' diversification efforts began with the early 2013 purchase of a minority stake in fast-casual chain PizzaRev  -- the "Subway of Pizza," as some call it -- which currently operates just 17 locations. Terms of the original deal weren't disclosed, but Buffalo Wild Wings has already opened two company-owned PizzaRev locations in Minnesota, and added $3 million to its minority investment last quarter.

Buffalo Wild Wings PizzaRev

It takes less than three minutes for PizzaRev to cook hungry patrons' hand-crafted pies, Credit: PizzaRev.

That said, PizzaRev will also face competition from other chains like Pizzeria Locale, which was launched late last year by fast-casual extraordinaire Chipotle Mexican Grill (NYSE:CMG).

But Buffalo Wild Wings wasn't about to take Chipotle's move sitting down. After the company announced its majority stake in Rusty Taco, Buffalo Wild Wings' Chief Strategy Officer Kathy Benning noted, "We specifically were looking for a taco-type concept ... that could work across the country."

Sit down and stay awhile
Don't for a second think Buffalo Wild Wings has any intention of letting up now. According to Smith, the company has "probably looked at 200-plus" concepts so far, and plans to invest in up to seven more over the next five years. In addition to Buffalo Wild Wings' own cash position, it has a $100 million unsecured line of credit available to make good on that promise.

As a long-term Buffalo Wild Wings shareholder, I can hardly wait to see what's next.

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Steve Symington owns shares of Buffalo Wild Wings. The Motley Fool recommends Buffalo Wild Wings and Chipotle Mexican Grill. The Motley Fool owns shares of Buffalo Wild Wings and Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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