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Analysis of buffalo wild wings company

Introduction

Buffalo wild wings Inc, owns, operates, and franchises restaurants, which take part in the made-to-order menu items. Buffalo wild wings are among the ten fastest growing restaurant chains in the country. It has more than 375 company owned and franchised restaurant outlets in thirty-six states (Chinowsky, 2008, p.120).

The company’s main menu items include; buffalo, new York-style chicken wings, chicken tenders, popcorn shrimps, wild flat breads, buffalo soft tacos, hamburgers, sandwiches, wraps, appetizers and salads. The company is extensive and incorporates a bar and; therefore, not only offers dining but also bar services.

External environmental factors

The essential external environmental factors affecting the company include franchising; the main expansion strategy employed by the company is that of franchising given the advantages and success of this concept. Given that, it becomes inherently necessary to check and ensure that the franchises provide the same quality as this plays an essential role in maintaining the status of the company. When a franchisee offers products of a compromised quality the company is affected as the franchised store carries the company’s name. Attracting and maintaining qualified franchisees translates to the success of the company.

Another factor to put into consideration is the element of competition and advertisement. Based on the level of competition in the industry it is clear that company discipline and good strategies alone cannot position a player in a profit maximization situation. Consequently, it becomes vital to incorporate the element of advertising to gain an advantage over the other players. That said the use of technology in achieving this end is important, and as such the company needs to keep in touch with technological advancements in this area. Equally important in the case of Buffalo wild wing are risk factors associated with price fluctuation of it’s inputs especially the prices of chicken wings.

Strengths

Innovation

Buffalo wild wings with its innovation have managed to do business globally, for example, doing business in People’s Republic of China. Their attempt to turn to global markets has enhanced increased profits.

Financial strength

Buffalo wild wings have financial strengths they have low debt the debt ratio of buffalo wild wings is as low as 0.07%, and this gives the company opportunity to expand.

Market multiples

The use of market multiple helps the company to determine alternative values. The company uses Applebee’s, cheesecake factory and champs as comparable competitors. It enables the company arrive at clear value estimates concerning pricing and strategies.

Analysis

Through calculation of free cash flow, it is noteworthy that buffalo’s wild wing value estimates to $41.23. This is because of free cash flow, having a weight of 42%, market multiples having weight of 11%, and an analysis weight of 32%. This reveals that assumptions’ concerning market multiple models needs to be revised while free cash follow meets the standards. It also portrays that the company is currently slightly undervalued. New markets and increased same store sales are of great significance in the success of valuation. The company will ultimately face some risks, but there is hope that they are well gathered for within the company and can be able to boost the growth of the market and capitalize on the excellent economy (David, 1999).

Weaknesses

Reliance on chicken sales

The main food product used by Buffalo Wild Wings are fresh chicken wings.  The company purchases these chicken wings based on up to date market prices that are subject to change. Any material increase in the cost of fresh chicken wings could seriously influence the operating results. There is no option for this since the company cannot dictate prices to purchase chicken wings. The company also fails to make its customers of variety in its menu.

Competition

Given the number of players in the industry and the level of competition the company faces it is inherent that in order to remain relevant the company must face many hurdles.

Global Expansion

Over expansion and under expansion of the company can be of no benefit whatsoever, especially with the restaurant facility. Expansion of the company has it is demerits for instance, due to its expansion it strains available resources hence can lead to standstill of activities and especially, challenges can arise in the management.

If the company does not expand, it fails to take advantage of emerging markets. The essence of entry into emerging markets is that the outcome is reliant on the quality of products as the competitors are placed on an equal footing with a littler advantage over each other.

Competitive position and possibilities

There are over seven million restaurants and approximately three hundred thousand restaurant players in the world and each company is struggling for competitive position it is noteworthy that the competition within the industry is high and each player wants  a better portion of the market.  Given the spending habits of the clients especially in this industry the industry players have to develop good strategies in order to attain their goals.  This is a merit to restaurants since it gives them the opportunity to locate themselves in an appropriate physical position as well as positioning itself within the consumer’s realm.  Additionally the desire of every market player to expand fueled by the concept of franchising it becomes inevitable to have a good strategic plan.

Some main operational statistics affecting the industry include:

  Market Capitalization P/E Ratio (forward) Revenue Growth (5 year) Beta
Applebee’s 1.80B 18.54 11.98 (%) 0.51
PF Chang’s 1.36B 30.51 28.27 (%) 0.87
Buffalo Wild Wings    267.52 M 23.03 35.19 (%) 0.72
Cheesecake Factory 2.88B 28.12 20.31 (%) 0.37
Outback Steakhouse 3.41B 17.65 12.60% 0.82

 

Considering these financial statistics, it becomes clear where each player has positioned itself within the restaurant industry. In this regard, the Outback Steakhouse has the greatest market capitalization while Buffalo Wild Wings has the least market share. However, the Betas of every company fall within the same range, this indicates that they have increasingly low risk and positively correlate to the entire market. PF Chang’s has the largest P/E ratio, and the same mean that it is selling above what it is gaining and that the market has adopted future growth in its ongoing stock price. All the restaurants are selling at rates above their earnings. Every company also has improved growth rates anticipating the next five years. Buffalo Wild wings has the biggest growth rate while others including Outback Steakhouse and Apple bee’s have little growth rates.

Conclusion

It is imperative to note that the foregoing analysis depicts that Buffalo Wild Wings has an elaborate operational strategy. The strategy employed aims to maintain the product quality of the provider while maintaining profitability. Additionally, the operating standards of the franchise should also be maintained as the same affects the image of the company.

 References

Al Ghambdi, S.M. (2009). The Use of Strategic Planning tools and Techniques in Saudi Arabia: An Empirical Study”, International Journal of Management, Poole, Vol.22, Iss.3, pp.376

Chinowsky, P.S. & Meredith, J.E. (2008). “Strategic management in Construction”, Journal of Construction Engineering and Management. January/February 2000.

David, F.R. (1999). “Strategic Management Concepts”, 7th Edition, Prentice Hall, Upper Saddle River, New Jersey.