McDonald’s is No Threat to Buffalo Wild Wings, Starbucks
Salvatore "Sam" is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Shares of Buffalo Wild Wings (NASDAQ: BWLD) dropped on Wednesday amid fears that McDonald's (NYSE: MCD) plan to launch its new Mighty Wings nationwide could hurt the popular wing chain. But, like fears that the fast food giant would topple Starbucks (NASDAQ: SBUX) years ago, McDonald’s is no threat to Buffalo Wild Wings.
McDonald’s thought to plan nationwide rollout of Mighty Wings
McDonald’s first tested its Mighty Wings -- its name for fried chicken wings -- in Atlanta last year. Evidently, the company thought the tests went well, because last month McDonald’s began selling the wings at its Chicago locations.
Speculation grew on Wednesday that McDonald’s would soon launch the wings nationwide. Shares of Buffalo Wild Wings dropped nearly 4%.
A nationwide rollout of Mighty Wings is believed by some to be a threat to Buffalo Wild Wings for two reasons. First, it could raise the demand for chicken wings and hence their price. Second, consumers could opt for McDonald’s over Buffalo Wild Wings to satisfy their hunger for wings.
Ultimately, neither factor should pose a significant threat to Buffalo Wild Wings.
McDonald’s has tried Mighty Wings before
I wrote that McDonald’s first tested Mighty Wings last year, but that statement wasn’t wholly accurate. Well over a decade ago, in the late '90s, McDonald’s offered wings. But, as Businessweek points out, they quite literally ended in disaster -- a customer found a fried chicken head amongst her wings. By 2003, they had been completely pulled from the menu.
Food inflation is a definite threat to Buffalo Wild Wing’s profit margins, but to believe that demand from McDonald’s would pose a major threat is wildly premature. There’s no guarantee that the wings would catch on -- they didn’t in the 90s. Even if they did, there are dozens of restaurants with significant wing demand, from KFC (owned by Yum Brands) to Domino’s Pizza to the local sports bar. In short, McDonald’s would be just another fish in a very big pond.
Buffalo Wild Wings isn’t just wings
Buffalo Wild Wings’ slogan is “wings, beer, sports” -- not, “wings, wings and more wings.”
While its hot wings are its signature food item, the restaurant has a larger business model: that of a casual sports bar. Buffalo Wild Wings’ appeal to consumers lies in its ability to provide a comfortable atmosphere to watch a game, drink a beer and enjoy some wings.
McDonald’s, even with Mighty Wings on the menu, cannot challenge Buffalo Wild Wings for its core customer base. Simply put, a group of friends will not decide to forgo their weekly trip to Buffalo Wild Wings in favor of a stop at McDonald's -- no matter how much cheaper or better McDonald’s wings might be.
McDonald’s proved to be no threat to Starbucks
It seems silly now, but about six years ago, people viewed McDonald’s effort to push into the coffee business as posing a legitimate threat to Starbucks’ empire. A Bloomberg article from 2007 was titled “McDonald’s Challenging Starbucks with Cheaper Lattes.”
That “challenge” never materialized. McDonald’s McCafe line proved to be a hit, but it didn’t take away from Starbucks (following the financial crisis, Starbucks shares set a new all-time high just last year).
Even though it tried by remodeling some restaurants and offering wifi, the fast food giant could never truly replicate the appeal of Starbucks. Perhaps Starbucks’ customers simply couldn’t be swayed with cheaper drinks, or perhaps it just wasn’t possible to replicate the feel of a real coffee shop with the smell of french fries wafting through the air.
At any rate, McDonald’s expansion into coffee proved that there was room for another major player in the space. Likewise, its entrance into the chicken wing market won’t force Buffalo Wild Wings out.
Buffalo Wild Wings has a number of issues that might keep investors away: For example, it’s a bit of an expensive stock; its PE ratio (a common measure of relative cheapness) is 25, more than the S&P 500’s 17. Meanwhile, creeping food inflation could curtail the company’s bottom line.
But investors shouldn’t shy away from the stock simply because they fear McDonald’s. Anyone who sold Starbucks for that reason likely regrets that decision today.
joekurtz has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings, McDonald's, and Starbucks. The Motley Fool owns shares of Buffalo Wild Wings, McDonald's, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!