Buffalo Wild Wings 2010 Annual Report Download - page 11

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Fluctuations in chicken wing prices could impact our operating income.
The primary food product used by our company-owned and franchised restaurants is chicken wings. We work to
counteract the effect of the volatility of chicken wing prices, which can significantly change our cost of sales and cash flow,
with the introduction of new menu items, effective marketing promotions, focused efforts on food costs and waste, and menu
price increases. We also explore purchasing strategies to reduce the severity of cost increases and fluctuations. We currently
purchase our chicken wings at market price. If a satisfactory long-term pricing agreement for chicken wings were to arise, we
would consider locking in prices to reduce our price volatility. Chicken wing prices in 2010 averaged 7.1% lower than 2009
as the average price per pound decreased to $1.58 in 2010 from $1.70 in 2009. If there is a significant rise in the price of
chicken wings, and we are unable to successfully adjust menu prices or menu mix or otherwise make operational adjustments
to account for the higher wing prices, our operating results could be adversely affected. For example, chicken wings
accounted for approximately 24%, 25%, and 21% of our cost of sales in 2010, 2009, and 2008, respectively, with an annual
average price per pound of $1.58, $1.70, and $1.22, respectively. A 10% increase in the chicken wing costs for 2010 would
have increased restaurant cost of sales by approximately $3.9 million. If the avian flu were to affect our supply of chicken
wings, our operations may be negatively impacted, as prices may rise due to limited supply. Additional information related to
chicken wing prices is included in Item 7 under “Results of Operations.”
If we are unable to successfully open new restaurants, our revenue growth rate and profits may be reduced.
To successfully expand our business, we must open new Buffalo Wild Wings
®
restaurants on schedule and in a
profitable manner. In the past, we and our franchisees have experienced delays in restaurant openings and we may experience
similar delays in the future. Delays in opening new restaurants could hurt our ability to meet our growth objectives, which
may affect our results of operations, the expectations of securities analysts and shareholders and thus our stock price. We
cannot guarantee that we or our franchisees will be able to achieve our expansion goals. Further, any restaurants that we, or
our franchisees, open may not achieve operating results similar or better than our existing restaurants. If we are unable to
generate positive cash flow from a new restaurant, we may be required to recognize an impairment loss with respect to the
assets for that restaurant. Our ability to expand successfully will depend on a number of factors, many of which are beyond
our control. These factors include:
• Locating suitable restaurant sites in new and existing markets;
• Negotiating acceptable lease or purchase terms for new restaurants;
• Recruiting, training and retaining qualified home office, field and restaurant team members;
• Attracting and retaining qualified franchisees;
• Cost effective and timely planning, design and build-out of restaurants;
• Obtaining building materials and hiring satisfactory construction contractors;
• Obtaining and maintaining required local, state and federal governmental approvals and permits related to the
construction of the sites and the sale of food and alcoholic beverages;
• Creating guest awareness of our restaurants in new markets;
• Competition in new and existing markets; and
• General economic conditions.
We must identify and obtain a sufficient number of suitable new restaurant sites for us to sustain our growth.
We require that all proposed restaurant sites, whether for company-owned or franchised restaurants, meet our site
selection criteria. We may make errors in selecting these criteria or applying these criteria to a particular site, or there may be
an insignificant number of new restaurant sites meeting these criteria that would enable us to achieve our planned expansion
in future periods. We face significant competition from other restaurant companies and retailers for sites that meet our criteria
and the supply of sites may be limited in some markets. Further, we may be precluded from acquiring an otherwise suitable
site due to an exclusivity restriction held by another tenant. As a result of these factors, our costs to obtain and lease sites may