Wingstop chairman and CEO Charlie Morrison has only known explosive growth for his chicken wing chain — and its stock price — since coming on as its top executive in 2012.
And it looks like that dynamic may not change anytime soon.
Wingstop (WING) said Thursday morning its fourth quarter domestic same-store sales surged 12.2% in the fourth quarter, beating guidance for 10% to 11%. The pre-announcement came ahead of Wingstop’s first-ever investor day in New York City later in the day. Wingstop’s strong fourth quarter capped off another impressive year for the wing chain, where same-store sales gained 11.1%. It marked the 16th consecutive year of same-store sales growth for Wingstop.
Shares fell 5% Thursday, likely on Wingstop not hiking its fourth quarter profit outlook despite its sales beat. The stock has returned a total of more than 400% since Wingstop’s 2015 IPO.
“I think they are learning today [about our international growth potential]. I think our investor presentation outlined a great strategy for where we want to go and what the brand should look like. We have been careful and methodical just like everything we do. This, if you will, is the coming out party of sorts. We are ready to go,” Morrison exclusively told Yahoo Finance on the sidelines of the event.
Yahoo Finance spoke at length with Morrison about Wingstop’s 2020 outlook and its long-term plan to reach 6,000 restaurants globally, from 1,385 currently. What follows is an edited and condensed version of the chat.
Brian Sozzi: You have pretty much only known high growth since taking over as CEO of Wingstop. What’s that like as a leader?
Charlie Morrison: It’s very rewarding because you get an opportunity to run a brand like this that has all the right pieces and parts and that has had staying power over the past 25 years. For a CEO, this is a dream come true.
Sozzi: What keeps you up at night then? You just put up 12.2% same-store sales growth, that’s not the norm in the restaurant industry.
Morrison: I would like to say that if it was a one-time event I would be worried as a CEO. But I have seen this brand be able to comp strong performance after strong performance. As we outlined in our investor day presentation, we see cycles where we make meaningful shifts in strategy that drives staying power. While I don’t worry about our ability to deliver it based on what we control, it’s those things out there that we can’t control that could impact it. Some include market conditions and the economy.
Sozzi: Why is the chicken wing so popular with people?
Morrison: We are in a category all by ourselves. There is nobody that replicates what we do and because of that, we are able to garner fantastic results. We are introducing people to the idea that you might know what a chicken wing is, but you aren’t thinking about it as a center of the plate item. But that’s exactly how we are building this brand. We believe we have growth potential that could take us to 6,000 restaurants around the world.
Sozzi: Who is coming to your restaurants?
Morrison: We have an audience that loves to eat chicken, notably bone-in chicken. They love wings. But what we have been trying to transform is people’s minds beyond just bone-in chicken but also boneless wings. We sauce and toss them in 11 bold and distinct flavors. What that gives us is to allow everybody permission and enjoy this great product.
Sozzi: Are you selling family-friendly food like the pizza players?
Morrison: Absolutely. If you look at our big packs we have something for everybody. Our flavors span the spectrum from mild to spicy and sweet to savory. So kids like chicken tenders. Dads like bone-in wings. Moms like wings. Our fries and sides are shareable.
Sozzi: You highlighted in the presentation you have started to test the use of a smaller sized chicken. Why?
Morrison: What we want to do is to mitigate any volatility associated with the commodity of chicken wings. We know they could be volatile. People love to eat them in big occasions and the market reacts to that aggressively. We think what differentiates us is not the wing itself, it’s the vessel and the flavors. People rave about them. So, there are other products like thighs and wings on smaller birds that we could use to optimize our purchasing strategy and contract more of that product instead of just buying it off the spot market.
It’s going to be a game-changer for us.
Sozzi: Do you get higher margins using smaller chickens?
Morrison: Definitely. It’s definitely a higher profit margin.
Sozzi: Wingstop just signed an exclusive delivery deal with Doordash. What are the specifics?
Morrison: We believe we will quickly become one of the largest partners of Doordash in terms of share volume. Our business is perfectly setup for Doordash and delivery. Notably 80% of our business is takeout and 20% is dine-in. So we are built for off-premise occasions. Second, we enjoy a high ticket average. So the unit economics for delivery are predicated on more dollars per transaction which creates leverage. Doordash could then provide us with a lower commission rate. That’s why the $20 average ticket for delivery we are able to actually deliver a much more profitable occasion.
Sozzi: Did you talk to Uber Eats? Why not go with them?
Morrison: I have talked to everybody. We know them all. We speak to them frequently. We have had some experience with all the other players in the marketplace. What we like the most about Doordash is they are focused on the merchant first, which is us. They make sure that the occasions between the guest and us is optimized to a high quality level. Not that others don’t aspire to do that, but we found Doordash to be more predictable and more willing to work with us not just drive us to their marketplace as a place to get revenue.
Sozzi: I recently talked to Domino’s Pizza CEO Richard Allison. He said there could be a shake-out in the third-party delivery space because of their weak economics. Does that worry you?
Morrison: It doesn’t worry us because we have partnered with what we believe is the best in class player. Is there a possibility of that? Perhaps. We all know what the economics are for some of these players. Our partnership with Doordash is a high quality one. One we know well. We share information with one another. We chose them when they weren’t the biggest player in the industry knowing they will emerge to that. We are very confident of our approach.
Sozzi: Do sales instantly increase because you are on a delivery platform?
Morrison: It’s pretty close to instant. We have been able to just turn it on in markets around the country. We are already at 94% penetrated across the brand. What we have seen is about a low- to mid-teens delivery sales mix right out the gates with almost no advertising. In 2020, we are going to turn on our national advertising power to delivery so guests know Wingstop delivers.
Sozzi: Someone on your team compared Wingstop to Starbucks. Is that really a fair comparison?
Morrison: Each of the brands are uniquely positioned in the space. Both are premium priced brands that deliver a unique commodity — coffee and chicken wings. Hard to source. Volatile at times. But these are products people have a lot of passion for. So as we look at Starbucks, especially as we look at our international expansion plans, they have done a brilliant job of showing us a roadmap we think works.
Sozzi: Wingstop revealed it would like to open 1,000 to 1,500 restaurants in China. How do you compete with the category leader there KFC?
Morrison: I don’t think KFC is a competitor anywhere we go. Just because they sell chicken and we sell chicken it doesn’t mean they are a direct competitor. At the end of the day, what sets us apart is not the chicken itself but the flavors.
Sozzi: You told me years ago that Wingstop shouldn’t be compared to Buffalo Wild Wings. But, B-Dubs has been trying to turn itself around. Have those efforts hurt Wingstop at all?
Morrison: I don’t exactly have enough knowledge for what they do. I will tell you that our model is better defined. We aren’t looking for the bar occasion to drive the business. We sell some alcohol. In an environment like they have they are restricted by the asset strategy they have. Those restaurants have to produce.
Sozzi: Do investors understand how fast you are about to ramp up growth overseas?
Morrison: I think they are learning today. I think our investor presentation outlined a great strategy for where we want to go and what the brand should look like. We have been careful and methodical just like everything we do. This if you will is the coming out party of sorts. We are ready to go.
Sozzi: Why is China ideal for Wingstop?
Morrison: Chicken is the most consumed protein in the world. The Chinese eat a lot of chicken. Brands like Pizza Hut and KFC have paved the way for Western brands to be accepted into China. I do believe there is a great opportunity, but again we have to do it right.
Sozzi: Wingstop has started to test the use of ghost kitchens. Why?
Morrison: We are evaluating it. We do know it takes the real estate costs way down. And in today’s digitized environment where delivery is a big thing, there is less of a reliance on street side points of distribution to get your product into people’s mouths. Ghost kitchens take advantage of real estate opportunities. We can then take that money and spend it on marketing instead of expensive restaurants.
Sozzi: What do you think of the ghost kitchen model more broadly?
Morrison: It’s interesting and emerging. It’s trendy. People are still trying to figure it out. It has to work through its own kinks. But I think it’s sustainable, I really do. We recently opened a ghost kitchen in the U.K., it’s doing great. It’s our own, we don’t partner with anyone.
Sozzi: What’s the timeline on hitting 6,000 restaurants?
Morrison: We haven’t stated a timeline. What we have stated is that it is a vision. What I have impressed upon my team is to take that vision and think about it. When you put time constraints on things people tend to navigate to that number and it sometimes constrains thinking. Sometimes they don’t think far enough out.
Sozzi: BlackRock is one of your shareholders. I am sure you saw Larry Fink’s latest annual letter. What he is talking about in terms of ESG investing could shake industries up.
Morrison: It could I suppose. It’s incumbent on us to make sure regardless of what BlackRock is telling us, I think they are leading on this in a big way. I think they are painting the right picture of what it means to be both a corporation that’s for profit but also responsible and sustainable. Not only is it because what they have said, but because our customers demand this of us. Companies must have a moral purpose. They must have a soul. They must be believable in their efforts.
So a lot of the work we are doing is making sure we are recognizing how we impact the world. How we make sure we evaluate diversity and pay and food waste. Good example. We use a lot of celery in our business. There is so much waste that happens in the field associated with harvesting a stock of celery. Same thing with potatoes when they make French fries. That is upstream from what we waste in the restaurants, which is very little. But the upstream impact is important to recognize.
My goal as a leader is to partner with others in the industry to create a logistics chain that could take left over food in the hands of people that need it.
Sozzi: So just knowing BlackRock’s stance, is this the year Wingstop starts selling plant-based chicken?
Morrison: I don’t know if it makes us more or less responsible to have a plant-based product. What is more or less responsible is taking care of our people first and mitigating waste. Those are the things we can control. If there is consumer demand for plant-based foods, we will look into it. But right now we are going to stay focused on the strategy we have employed.