Buffalo Wild Wings (NASDAQ:BWLD) has a serious weight problem.
Sure, the restaurant chain reported strong sales growth again this week. Revenue was up by better than 21%, marking the eighth consecutive quarter where sales rose by 20% or more.
Those are results that other restaurants can only dream of. Fast-growing Chipotle Mexican Grill, Inc. (NYSE:CMG), for example, increased sales by just 13% last quarter. Ditto for Panera Bread Co (NASDAQ:PNRA), which grew by 13%.
But B-Dubs’ profits told a much different story. Earnings were a disappointment — falling by 10%. And that’s another trend that’s been going on for years.
It’s no secret that the company’s profits are getting squeezed by rising costs. Chicken wing prices, which make up a huge chunk of B-Dubs’ food costs, are up about 50% since the third quarter of 2011:
The good news for B-Dubs is that the tide might finally be turning. The company says that wing prices are trending down so far this quarter.
But adding to that cost spike has been an even bigger problem for the company: Birds are getting fatter.
Producers have been growing bigger chickens lately. And, as a result, B-Dubs is getting fewer wings per pound from its suppliers. While that’s good news for customers, who’ve had meatier wings to munch on, it has amplified the cost pressure on Buffalo Wild Wings (NASDAQ:BWLD). Last quarter, for example, wing costs rose a high — but manageable — 9%. However, because of the increase in average wing sizes, B-Dubs’ costs were up an incredible 30%.
And that’s not even the worst of it. Two quarters ago, wing prices and chicken sizes combined to drive the company’s costs 90% higher than in the year-ago period.
No longer winging it
That obviously can’t continue for long. Thankfully, the company has a plan to deal with the oversized poultry. Starting this summer, B-Dubs will begin selling wings by portion size, and not by piece. Instead of ordering wings by the dozen, customers will choose from “snacks, small, medium, and large portions.” With that switch, the company will line up the way it sells its wings with the way it buys them — by weight.
While it should help B-Dubs get a handle on its costs, there’s no denying that this change will be a huge transition for its customers. Many of them could be confused by the new portion system, or see it as a sneaky way to increase prices. Restaurant traffic might even take a hit as customers adjust to the switch. But the truth is that B-Dubs really doesn’t have a choice anymore. The birds are getting too big.
The article 1 Thing Buffalo Wild Wings Absolutely Has to Fix originally appeared on Fool.com.
Fool contributor Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings, Chipotle Mexican Grill, and Panera Bread. The Motley Fool owns shares of Buffalo Wild Wings, Chipotle Mexican Grill, and Panera Bread.
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