Before the COVID-19 pandemic, Wingstop’s biggest priority was growing the digital business.
The company’s objective was simple, but lofty—digitize every transaction. The coronavirus crisis amplified and accelerated those plans, even beyond expectation.
Pre-COVID-19, digital represented about 40 percent of sales. That has since grown to 65 percent. A significant driver of that rise is delivery, which went from mixing in the low-to-mid teens in Q4 to around 30 percent in April.
To drive consumers toward the channel, the brand offered free delivery with DoorDash through the end of April.
“It did a great job of anchoring the business in delivery and building the business arguably faster than we would’ve expected under our pre-COVID 19 strategy,” said CEO Charlie Morrison during the company’s Q1 earnings call. “I would call that a fantastic return on investment. We certainly do need to see repeats. The beauty of it is, all that business with free delivery was through wingstop.com, which means we have complete access to who those customers are. We can engage our CRM platform to market directly to them and encourage them to come back.”
Digital and delivery transactions bring an average check that’s $5 higher than traditional channels. When compared to dine-in transactions, digital can be as much as $10 higher. That growth in average check coincided with carryout essentially capturing the missing dine-in sales. Although no specific numbers were provided, the chain said much of the growth has come from new users.
As a result, same-store sales at U.S. stores ballooned 33 percent year-over-year in April.
“We believe that the strategic investments that followed our strategy to build a world-class digital platform plus the rollout of national delivery in 2019 provided a strong foundation for us and have led to the success we’ve seen during this time,” Morrison said.
In addition to the message of delivery, advertising during live sporting events pivoted to streaming services (i.e. Hulu, Twitch) and social media and paid search.
“Wingstop doesn’t need the sports occasion in order to be strong, and I think there’s no better testament to that than what’s happening right now,” Morrison said. “… We did have some media positioned against sports, but the vast majority of our media is pointed toward lifestyle occasions.”
Domestic same store sales jumped 9.9 percent in Q1 while company-owned stores increased 6.2 percent. Total revenue in Q1 increased 15.4 percent to $55.4 million. Wingstop ended Q1 with an unrestricted cash balance of $31 million.
Here’s a look at how U.S. same-store sales have trended:
- Q1 2020: 9.9 percent
- Q4 2019: 12.2 percent
- Q3 2019: 12.3 percent
- Q2 2019: 12.8 percent
- Q1 2019: 7.1 percent
- Q4 2018: 6 percent
- Q3 2018: 6.3 percent
- Q2 2018: 4.3 percent
- Q1 2018: 9.5 percent
- Q4 2017: 5.2 percent
- Q3 2017: 4.1 percent
- Q2 2017: 2 percent
- Q1 2017: –1.1 percent
After 28 net openings, the brand ended the quarter with 1,413 units (1,221 U.S. franchises, 160 international franchises, and 32 company-owned stores).
In February, Morrison said that Wingstop had more than 600 stores in the pipeline and that it had the potential to reach 6,000 units—split internationally and domestically.
The CEO said he’s still hearing bullish feedback from franchisees, who are excited to reignite development once things open back up.
“We’re evaluating all the possible opportunities, but it goes without saying that this appears to be for Wingstop a great opportunity to accelerate the pace of growth,” Morrison said.
A small number of nontraditional domestic locations—casinos, college campuses, malls—are temporarily closed, and 26 units are shut down outside the U.S. Overall, the closures represent less than 3 percent of Wingstop’s footprint.
International business has been adversely affected because its model relies heavily on dine-in sales. Morrison said most of the units are experiencing sales declines in the 50 percent range.
There were plans to resolve the reliance on casual-dining services before the pandemic, as seen by a ghost kitchen opening in the U.K in Q4. Some ghost kitchens are planned for the U.S., as well, Morrison noted.
“This pandemic has further validated our international growth strategy we unveiled in January, which prioritizes future growth in markets that can support higher off-premises sales, a premium price positioning, and leverages our efficient operating model to deliver a high-quality flavor experience similar to our domestic operations,” Morrison said.
Morrison said there hasn’t been any issues with the supply chain and the brand continues to benefit from the deflation of bone-in wing prices. The prices have risen somewhat during the crisis, but are still below the pre-COVID-19 range. The improvement in food costs has allowed operators to reinvest funds into payroll to provide incentives for employees, the CEO noted.
Wingstop partners with around nine companies that provide chicken, but that product comes from almost 20 different places. While the brand doesn’t prefer to have frozen wings in the system, Morrison said Wingstop can get those if necessary.
“We’ve been bringing in more chicken than we’ve ever brought before, and [suppliers] really haven’t missed a beat,” Morrison said. “… The risk of any sort of impact to a particular plant is mitigated by the availability of supply in other areas. We built this chain to be diverse.”
Morrison said he’s unsure of how dining rooms reopening across the industry will impact business, but he feels strongly that consumers will continue to seek Wingstop because of the product and flexibility of ordering. He also believes consumers will still be tentative, which is why Wingstop won’t rush to reopen its own dining rooms.
The CEO also said Wingstop can persevere through a recession like it did a decade ago.
“We don't have a direct competitor,” Morrison said. “We tend not to have to fight a price war if one exists in an environment like that. And our customers clearly tell us, and we've researched this even during this time frame, the reason they come to Wingstop is because of that crave, because of that unique product positioning that nobody else has, and so it becomes a real advantage for us.”
For its employees, Wingstop made investments in frontline incentive pay, enhanced sick leave policies, critical supplies (gloves, masks, and thermometers) and charitable contributions. The incentive pay allows employees to earn up to $150 more a week. It was supposed to end in April, but was extended through May.