Please ensure Javascript is enabled for purposes of website accessibility

Why Buffalo Wild Wings Is Spending More on Its Employees

By Demitri Kalogeropoulos – Jun 24, 2015 at 8:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Labor costs hit a new high as a percentage of sales last quarter.

Source: Buffalo Wild Wings

It isn't just rising chicken wing costs that are crimping Buffalo Wild Wings' (BWLD) profits. The sports bar chain recently posted its highest labor spending in years: Employee costs jumped by 25% last quarter, outpacing the 20% sales gain.

Labor costs are sitting at a new high for B-Dubs. The figure had held steady at 30% of sales through most of the last five years. But it jumped by a full percentage point to start off 2015.

2015 represents labor costs for the first quarter. Source: company financial filings

The extra spending has a real impact on profitability. Even though revenue improved by 20% last quarter, B-Dubs' earnings rose by just 2%. The restaurant chain's profit margin is now down almost 4 percentage points from the high it set in 2011.

BWLD Gross Profit Margin (TTM) Chart

BWLD Gross Profit Margin (TTM) data by YCharts

Blame the captain(s) 
The extra labor cost is due to a new staffing position, called "guest experience captain," that B-Dubs has added to each of its 500 company-owned locations. According to job postings, this employee's job is to ensure an "authentic and unique experience for each guest that will build loyalty and help continue to deliver the ultimate social experience for sport fans." 

Here's a more detailed rundown of this new position's responsibilities:

  • Deliver customized guest experiences
  • Introduce new guests to the Buffalo Wild Wings brand, as well as product and promotional offerings
  • Manage audio/visual equipment, programming, and maintain sports scheduling for the restaurant
  • Support local sporting events, activities, and initiatives
  • Team up with the service staff to make sure every customer receives the experience they seek
  • Actively participate in and drive marketing and community outreach, including facilitation of fundraising efforts, event planning, and community outreach
  • Build brand awareness in the community

Experience is important
The dining experience is a core part of what distinguishes Buffalo Wild Wings' from its restaurant and sports bar competitors. In fact, management describes its overall goal as achieving "the ultimate guest experience" with its B-Dubs locations.

That's why a typical restaurant has 60 high-def TVs, several massive projection screens, trivia games, and customizable programming. "We believe the design of our restaurants enhances our guests' experiences, drives repeat visits and solidifies the broad appeal of our concept," the company explained in its latest 10-K.

Source: Buffalo Wild Wings investor presentation

Guest experience captains fit into the goal by helping guests take advantage of all these entertainment perks so they can get the most out of their trip to B-Dubs. 

The payoff
And they're already making a positive contribution to the operation. B-Dubs' management credited these new employees with helping boost customer satisfaction and loyalty toward new highs since they started the position less than a year ago. 

And higher guest satisfaction is showing up in the restaurants' growth. Comparable-store sales increased by 7% at company-owned locations last quarter, one percentage point higher than at franchisees. That marked the seventh straight quarter that B-Dubs' corporate sales growth beat its franchisees. A key reason for that outperformance, management believes, is the fact that guest experience captains have made their way into all company locations but haven't yet been adopted by most franchisees.

It shouldn't be long before they jump on board, though. And as for the company's costs, its labor bill is expected to climb again next quarter to as high as 32% of sales. Investors can then expect costs to come back down as the company crosses a full year of having guest experience captains in place. Without another big investment in that area the higher customer traffic should drive labor costs back down toward the long-term average of 30% of sales.

Demitrios Kalogeropoulos owns shares of Apple and Buffalo Wild Wings. The Motley Fool recommends Apple and Buffalo Wild Wings. The Motley Fool owns shares of Apple and Buffalo Wild Wings. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Buffalo Wild Wings Inc. Stock Quote
Buffalo Wild Wings Inc.
BWLD

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.