Buffalo Wild Wings 2014 Annual Report Download - page 9

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Food Preparation, Quality Control and Purchasing
We strive to maintain high quality standards. Our systems are designed to protect our food supply, from procurement
through the preparation process. We provide detailed specifications to suppliers for our food ingredients, products and supplies.
Our restaurant managers are certified in a comprehensive food safety and sanitation course, ServSafe®, which was developed
by the National Restaurant Association Educational Foundation.
We negotiate directly with independent suppliers for our supply of food and paper products. Domestically, we use
McLane Foodservice to distribute these products to our restaurants. To maximize our purchasing efficiencies and obtain the
lowest possible prices for our ingredients, products and supplies, our purchasing team negotiates prices based on the system-
wide usage of both company-owned and franchised restaurants. We believe that competitively-priced, high-quality alternative
manufacturers, suppliers, growers and distributors are available should the need arise.
T. Marzetti Company produces our signature sauces, and they maintain sufficient inventory levels to ensure consistent
supply to our restaurants. We own the formulas for our sauces and seasonings, which prevents them from being supplied to, or
manufactured for, anyone else.
Chicken wings are an important component of cost of sales at our Buffalo Wild Wings restaurants. We work to
counteract the effect of the volatility of chicken wing prices, which can affect 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. The price we pay for
chicken wings is determined based on the average of the previous month’s wing market plus mark-up for processing and
distribution, but if a satisfactory long-term pricing agreement for chicken wings were to arise, we would consider locking in
prices to reduce our price volatility.
Restaurant Franchise Operations
Our Buffalo Wild Wings concept has a strong group of franchisees, many of whom have substantial prior restaurant
operations experience. Our franchisees execute a separate franchise agreement for each restaurant opened, typically providing
for a 20-year initial term, with an opportunity to enter into a renewal franchise agreement subject to certain conditions. The
initial franchise fee for a single restaurant is $40,000.
Franchisees typically pay us a royalty fee of 5.0% of their restaurant sales. We also assess franchisees an advertising fee
in the amount of 3.5% of their restaurant sales, of which 3.0% was contributed to our National Advertising Fund (NAF) in 2014
and the remaining 0.5% was spent directly by the franchisee or through marketing co-ops in the applicable local market. Our
current form of franchise agreement permits us to increase the royalty fee and to increase the required contribution to the NAF
by 0.5% per year so long as the NAF contribution does not exceed 4% of restaurant sales during the initial term of the franchise
agreement. The royalty fee is not expected to increase in 2015, but the portion of the advertising fee contributed to the National
Advertising Fund will increase from 3.0% to 3.15%.
All of our franchise agreements require that each franchised restaurant operate in accordance with our defined operating
procedures, adhere to the menu established by us, meet applicable quality, service, health and cleanliness standards and comply
with all applicable laws. We ensure these high standards are being followed through a variety of means including mystery
shoppers and announced and unannounced quality assurance inspections by our franchise consultants. We may terminate the
franchise rights of any franchisee who does not comply with our standards and requirements. We believe that maintaining
superior food quality, an inviting and energetic atmosphere and excellent guest service are critical to the reputation and success
of our concept; therefore, we consistently enforce the contractual requirements of our franchise agreements.
The area development agreement establishes the number of restaurants that must be developed in a defined geographic
area and the deadlines by which these restaurants must open. For area development agreements covering three to seven
restaurants, restaurants are often required to open in approximately 12-month intervals. For larger development agreements, the
interval is typically shorter. The area development agreement can be terminated by us if, among other reasons, the area
developer fails to open restaurants on schedule.
We work hard to maintain positive and productive relationships with our franchisees. We have formed and maintain the
FAC, which, as described previously, is an advisory council made up of twelve franchisees that engage with BWW on matters
of system-wide importance; six of these FAC members are elected by their peers, and the remaining six are appointed jointly by