Buffalo Wild Wings' Latest Investments Could be a Boon for Business

Buffalo Wild Wings (NASDAQ: BWLD  ) is on a roll these days, and its new plan to acquire emerging restaurant brands in the burgeoning fast-casual space could push the stock even higher. Shares have climbed more than 266% over the past five years to roughly $144 a pop today. Let's look at why Buffalo Wild Wings' latest investments could be a catalyst for the stock going forward.

Source: Buffalo Wild Wings.

Investing in start-ups
Buffalo Wild Wings recently acquired a majority stake in Rusty Taco, a Dallas-based Mexican chain that serves made-to-order street-style tacos. Rusty Taco is the latest addition to Buffalo Wild Wings' growing portfolio of fast-casual start-ups. Less than two years ago, Buffalo Wild Wings also took a strategic position in PizzaRev, a chain that lets customers craft custom artisanal pizza in a Chipotle (NYSE: CMG  ) -style environment.

These strategic investments are particularly well timed, as Tex-Mex food and custom pizza are two of the hottest categories in fast-casual dining today. In fact, Chipotle set its sights beyond Mexican food last year when it launched the fast-casual eatery chain Pizzeria Locale.

Source: Pizza Rev.

Buffalo Wild Wings isn't trying to directly compete with Chipotle with its recent investments in Rusty Taco and PizzaRev. Rather, these investments are part of the company's longer-term growth strategy. By bringing in small emerging brands, Buffalo Wild Wings gains an entry point into the fastest-growing segment of the restaurant industry today: fast casual.

The company isn't wasting any time executing this plan. Buffalo Wild Wings CEO Sally Smith said the company wants to acquire between three and five different emerging restaurant brands over the next few years.

The chicken wings and sports-focused chain currently operates 1,000 Buffalo Wild Wings restaurants in the United States. While management plans to add roughly 700 locations, there is a limited amount of growth possible before Buffalo Wild Wings saturates the U.S. market. Therefore, investing in small scale fast-casual chains such as Rusty Taco and PizzaRev gives Buffalo Wild Wings a new growth channel outside of its core business.

These investments are also smart moves for both emerging chains, which can leverage Buffalo Wild Wings' experience in growing a successful restaurant business. With the help of Buffalo Wild Wings, Rusty Taco and PizzaRev have the potential to become national restaurant chains.

Growing through franchises
Buffalo Wild Wings had 579 franchise-operated restaurants open at the end of its second quarter, more than half its total location count. The company is using this knowledge of franchising to help PizzaRev and Rusty Taco grow their businesses.

Buffalo Wild Wings opened its second PizzaRev franchise restaurant in Minneapolis last month. The pizza chain plans to open additional franchise locations in the following markets: Minnesota, Utah, Nebraska, South Dakota, Missouri, Texas, and Orange County and San Diego in California.

Buffalo Wild Wings has a similar arrangement with Rusty Taco. "We are delighted to be partnering with Buffalo Wild Wings and believe it can have an immediate impact in helping accelerate our growth," said Rusty Taco CEO Steve Dunn in a press release. The Tex-Mex upstart currently has two company-owned restaurants and seven franchised locations in three U.S. markets. You can expect many more franchised locations to pop up soon now that Buffalo Wild Wings has a majority stake in the company.

What it all means for Buffalo Wild Wings
Buffalo Wild Wings' investment in these start-up businesses is a smart long-term move that supports the company's drive to build a portfolio of emerging brands that could become national chains down the road. It also positions Buffalo Wild Wings as a more dynamic restaurant company by diversifying its revenue streams.

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Read/Post Comments (4) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 03, 2014, at 3:36 PM, FrankoJames wrote:

    mmm, pizza...

  • Report this Comment On September 05, 2014, at 7:43 PM, FrankoJames wrote:

    I have always wondered if the inside of a BWLD was designed to inspire the creation of an iPad just as the writing on the walls of a secret location detailed the introduction of Yahoo advertisements and eventual tumbling of the creation of BABA (figuratively speaking). Long live the wings...

  • Report this Comment On September 05, 2014, at 10:40 PM, FrankoJames wrote:

    Sorry about that last post, I copied a pasted the wrong text. As far as I know, Yahoo did not create advertisements and BABA is not even publicly traded as of this point in time. Long live the lions...

  • Report this Comment On September 10, 2014, at 9:34 PM, FrankoJames wrote:

    Tamara Walsh,

    I just wanted you to know that Steve Symington, one of your Foolish colleagues, just recommended BWLD for his Foolish stock pick of the month. Since you also detail to the world in the same publication your pick of the month, I thought you and the free world would enjoy a link to the following article! enjoy:

    http://www.fool.com/investing/general/2014/09/10/8-stocks-to...

    Fool on,

    Jim Franko

    FYI,

    I still like the DE company for my September stock pick of 2014.

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