On May 15, 2014, Sally Smith, CEO of Buffalo Wild Wings (NASDAQ:BWLD), announced plans to attempt to repeat the widespread success of the Buffalo Wild Wings franchise by investing in the new franchise PizzaRev. PizzaRev specializes in offering 11" pizzas for $7.99, which it claims only take seven minutes to make. Currently there are about 10 PizzaRev locations in the US, with 15 more being built. Following the the immensely successful model of Chipotle (NYSE:CMG), cooks at PizzaRev make food in front of the customers promptly from fresh ingredients. Although PizzaRev faces heavy competition from a wide range of pizza restaurants, with the support of Buffalo Wild Wings PizzaRev may be able to become a significant player in the US pizza market.
Chipotle Mexican Grill, the originators of the eponymous style, has already entered into the pizza frey by partnering with Pizza Locale of Boulder, CO. The two opened a Denver location that is able to make pizzas in only two minutes using a gas and infrared rotational oven for $4.75-$8.25. Although Pizza Locale has gotten strong reviews, Chipotle has not given investors much insight into its plans for expanding the concept and does not seem committed to expanding the business in the near future which eliminates Pizza Locale as a significant threat. However, there are numerous other new restaurants attempting to apply the Chipotle model to pizza in direct competition with PizzaRev, including MOD Pizza, Pieology, Project Pie and 800 Degrees. According to Buffalo Wild Wings' chief strategy officer, Kathy Benning, Buffalo Wild Wings considered over 500 possible pizza franchises before deciding to back PizzaRev, which shows that Buffalo Wild Wings is very confident in PizzaRev's restaurant model but also that this is a market with a lot of competition. With the support of Buffalo Wild Wings, PizzaRev may be able to establish a strong reputation and brand recognition which would help it differentiate itself from similar competitors.
PizzaRev also faces competition from well-established, fast pizza delivery chains like Domino's Pizza (NYSE:DPZ), Papa John's Pizza, Little Caesars, and Pizza Hut, which is owned by Yum! Brands. Together, these four companies have a 44% share of the United States pizza market. Part of Domino's recent success has been from the advancement of its digital ordering system, which now accounts for 40% of its sales. Orders can be placed from an iPhone, iPad, Android, Windows Phone 8, Kindle Fire and now even hands-free through Ford vehicles; one can then track the order using Domino's Pizza tracker. Domino's has also spent around $1.4 billion on advertising over the last five years according to its 2013 investors report. Between the advanced ordering system and the high advertisement budget Domino's has been able to keep market share away from its smaller competitors, leading to an over $100 million increase in revenue from 2012 to 2013.
PizzaRev could not compete with pizza giants like Domino's on its own, but with financial backing from Buffalo Wild Wings it may be able to develop a successful app for ordering and be able to advertise effectively. Buffalo Wild Wings is willing to support the rapid expansion of PizzaRev through its pre-established franchise partners if the first 25 locations are successful.
Buffalo Wild Wings has been able to achieve remarkable success through its restaurants, which have proven very profitable and have expanded very quickly. If it could mimic this success with PizzaRev, or perhaps even with the soon-to-be-announced new franchise, it would greatly increase Buffalo Wild Wings' potential for growth. If these new endeavors do not prove to be profitable and successful, Buffalo Wild Wings can simply elect to no longer pursue PizzaRev and focus on its already profitable Buffalo Wild Wings locations. Even with only Buffalo Wild Wings restaurants, Buffalo Wild Wings seems to be a good investment. The addition of new PizzaRev franchises creates an opportunity for strong upside potential if they prove successful with limited losses if they fail – which makes Buffalo Wild Wings an appealing buy.