Chicken prices are causing Wingstop headaches

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Photo courtesy of Wingstop

High chicken prices are weighing on Wingstop’s profits, and the fast casual is looking for ways to better control their supply chain in order to control future volatility.

Wingstop CEO Charlie Morrison told analysts on Wednesday that the chain would increase menu prices by 4% to 5% in the coming weeks, for a total of 10% price increase this year, to deal with soaring food and labor costs. Typically, the company increases the prices of its menus by 1% or 2% each year.

“This environment we find ourselves in, which we don’t think is transient in any way, leads to the need to take prices,” Morrison said. “It will be a level for the future, and we will come back to our pace.”

For the quarter ended September 25, food, beverage and packaging costs represented 48.1% of Wingstop’s sales. For the same period a year ago, that number was 36.4%.

Regardless, the Dallas-based wing chain continued its nearly 18-year string of positive same-store sales, with same-store sales up 3.9% for the quarter from last year, or 29.3% over two years. System-wide sales climbed 16.7% to $ 594.3 million and total revenue increased 2.8% to $ 65.8 million.

Wingstop’s share price was down about 11% on Wednesday’s midday results.

Bone-in wings fetched a record $ 3.22 per pound in the quarter, an 84% increase over the previous year, which the chain was able to partially offset for an effective price increase of 49 %. Now wing prices are around $ 2.87 a pound and stocks of frozen wings are rebounding, Morrison said, leading him to believe more price cuts are coming.

He said the chain would like to see wing prices well below $ 2 a pound “to make us feel comfortable.”

“We are exploring strategies where we can take more control of the supply chain,” he said. “Follow the lead of other large-scale brands like Dunkin ‘, Starbucks and pizza (chains) that are taking more control of the supply chain to eliminate volatility. Wingstop is a brand that finds its place in this level of scale.

Morrison said he is discussing the issue with franchisees, but did not give more details on how the brand might ease future price swings.

One of the ways the chain, which has 1,461 US units, is coping with high wing prices has been its “whole bird strategy”. In June, Wingstop launched a virtual brand called Thighstop to sell boneless thighs and boneless thigh bites.

Shortly after, the chain announced that it would add Thighstop’s offerings to its regular menu. Wingstop refuses to highlight its mix of menus, but said sales of thighs have doubled in volume since switching to a larger menu.

“It makes a significant contribution to the brand,” Morrison said. “It will be built over time. It follows a trajectory that we saw many years ago when we introduced boneless wings. We have a long way to go, but it gives us confidence.

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