A Franchise Grows Up
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Buffalo Wild Wings, a bar and grill founded by two Midwest immigrants who missed the cuisine of their native New York, was a small company. It lacked an organized structure, and corporate employees were wearing several hats. To grow, the company needed direction.
Enter Sally Smith, 44. In 1994, the former CFO for Dahlberg Inc. (now Miracle Ear) came aboard as CFO for the chain. She established accounting practices within Buffalo Wild Wings, formerly named BW-3, and worked on franchisee selection. Two years later, Smith became president and CEO of the company and continued her work to organize and expand the business, which has grown from about 40 units to 201 during her eight years with the company.
Franchise Zone spoke with Smith about the initiatives she put forth at Buffalo Wild Wings and the future she sees for this developing franchise.
Franchise Zone: When you first joined the company, what was your impression of how it was running corporately?
Sally Smith: It was a very small entrepreneurial company--they had no home office, and everybody who worked there wore a number of hats. The president did many things; there were no finance or accounting departments, no marketing department or human resources. They only had five company stores and probably 30 franchise locations. They were selling franchises, meeting with franchisees and trying to run the stores they had. They were doing a very good job with the limited resources they had.
What gave you the impression the system was struggling?
My background is accounting and finance, and they had no ability to tell how the stores were doing, how the franchisees were doing, if franchisees owed them money, they had no profit-and-loss statement, no balance sheet, they hadn't filed their tax returns, so those were some of the key indicators.
How did you put these systems in place so they could keep better track of how things were going financially?
The first thing was to develop a chart of accounts and identify an accounting system that could capture financial information at the store level and put it into an accounts receivable system to show what the franchisees owed. I hired a controller to help with that and started developing the accounting department, adding a series of approval processes on purchasing, and then budgeting--they had never done any budgeting--in order to track performance.
How did the new accounting systems impact franchisees?
This was a program franchisees could use to budget their own stores, so they were excited about that. My ability to say, "Look, there's cash in the bank, there's inventory, our stores are performing profitably," was key to having other franchisees buy into our system.
Was the intention of the company all along to become a big company--to move away from its entrepreneurial roots?
I'm not sure when if that was [the founders'] intention when they started, but all along the way, we've stopped and said, "Are these the right steps to take? Do we want to get bigger?" and we've always thought the opportunity was too great to ignore.
What was the relationship like between the corporate office and franchisees back then?
When I got here, there was some concern over what impact I would have on the system. We started up bimonthly conference calls with our franchisees, we did a traveling meeting to talk with the franchisees. We hired a head of operations and really wanted to talk about the potential for the company, the vision. This was very well received--many of our franchisees opening stores today are our original franchisees.
What did you hope to achieve as president?
To know how best to grow the company, to develop a strategic plan. We set about re-energizing the company at that point. We were about 13 years old, we needed a new logo and to brighten up the interiors. My goal was to improve franchisee relations as well as raise additional private equity, money to help grow the company. In July 1996, we didn't have a HR function or a marketing function or real estate and development, information systems...the list goes on.
Also, I had to get to know the franchisees and figure out how we were going to put a franchisee approval procedure in place, because they didn't have a way to assess whether a [prospective] franchisee had either the operational or the financial wherewithal.
Were there any specific issues you wanted to work on on the franchisee side?
Consistency; making sure franchisees were using approved products and uniforms and keeping up their stores--things any franchise company would want.
Did you involve your franchisees in growing the company and making changes to the actual restaurants?
Somewhat. We would get opinions about the interior, furniture and qualifications. One of the things we instituted was a bimonthly conference call with our franchisees, so we could provide them with information and give them the opportunity to ask questions. We went on a road show and visited three regions in early '97. The conference call and the regional meetings did a lot to communicate where we thought the company could go. In any franchise system, some are going to embrace the change and be very excited about moving forward, and some are going to take a wait-and-see attitude.
Did the bimonthly conference calls come into play in maintaining consistency?
Those were to talk about the vision and expectations, and make them understand the benefits of everyone having the same signage and uniforms and of serving the exact same product in stores 20 miles apart so as not to confuse the customer. I have always felt that franchisees should be the best monitor of the system. They should want their neighboring franchisees to uphold the very highest standards, because it does affect them.
How important have the franchisees been to growth plans since you've joined?
I would say in the last eight years, not a lot has changed in terms of the franchisees and the franchise growth and relationships. We've stated since I came on board that our goal was to grow both the company side and the franchise side, and to have somewhere around a 70/30 split between franchise and company stores, and that's about where we are right now. We've put into place some great incentives to open additional stores. Franchisees were important then and no less important today. Franchisees have that opportunity to go out and develop a market probably quicker than we could on the company side.
What kind of incentives do you offer franchisees for opening more stores?
We've got some incentives for people wanting to open two or more in their existing territory. We'll look at the initial franchise fee, and if they're interested in a very large unit development, we've got some incentives in terms of abated royalties.
How long has this program been around?
Since late summer. Actually we filed it as an addendum to our UFOC. We unveiled it at our convention in August. We have several existing franchisees in the process of applying under those incentives.
Are you making any changes to the product?
We're always looking at our product and our menu. We want to stay current. We introduced some new sauces, salads and sandwiches. That continues to this day.
One of your goals was to implement a franchisee approval procedure. What had been the procedure before, and what did it evolve into?
They had no approval procedure. We wanted franchisees to meet certain financial criteria, because we didn't want them to open a store, get partially under construction and not be able to pay for it. If they've signed more than a one-store development, we want to make sure they can open stores two, three and four. As important as the financials are, one of their partners has to be an operator, with previous restaurant experience. Then the franchisees meet with the entire management team here to make sure they understand what the culture of the company is. We don't want somebody who says, " It would be great if you just added these things or if you didn't do this," because then we're not the right concept for them.
What is your expansion plan for the company?
Our three-year plan is to double in size, to go from 200 to 400 restaurants. Next year we will open between 55 and 60 restaurants, a combination of franchise and company owned, in markets that we currently are as well as some new markets.
Are you still going to maintain that 70/30 franchise/company store ratio?
That's our goal.
What is the current state of Buffalo Wild Wings?
The company is great. We're growing at a revenue rate of about 30 percent a year and our profits are growing at about the same rate. We have a lot of interest from franchisees; we're attracting some great employees in the field. The company looks really good.
How does the company now compare to where it was when you first joined in 1994?
It's just very different, to go from 35 restaurants to over 200, to go from $9 million in revenue to over $100 million. A lot of things change, but it still has that same culture, that same feel. We all realize our potential more now than we did eight years ago.
In the next eight years, is the company is going to keep making big leaps?
We'll certainly be making big leaps, but they'll be different leaps. As we're opening the restaurants, we have to figure out ways to do things more efficiently, while preserving that culture created by the original founders 20 years ago.
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