Buffalo Wild Wings Inc (BWLD): Activist Richard McGuire’s Marcato Capital Demands Sweeping Changes

Page 12 of 49 – SEC Filing

tangible evidence or appropriate analytical support.  The management team of Buffalo Wild Wings communicates its strategic and financial rationale to the investment community with inveterate avoidance of specificity.  The chronic absence of detail around even the most basic of metrics causes us to question whether the right questions are being asked and answered.

We direct this concern not only toward management, but also toward the Board of Directors whose duty is to oversee, evaluate, and incentivize management in such a way as to ensure that the business is run in shareholders’ best interests.  We are committed to doing our part to help the business achieve its full potential.  We expect that the necessary changes will include the following:

1)

The introduction of fresh talent at both the Board and management levels.  The Company must improve its experience and sophistication in areas of restaurant operations, franchise system development, corporate finance, and capital markets.  We are confident that the Board would benefit from adding independent directors with operating experience in the restaurant industry, in particular with a franchised restaurant concept.  We note that no current director has direct restaurant operating experience outside of the CEO.  We would also stress that any changes to the Board should only be made after consultation with interested shareholders, and we would view any unilateral action to change the composition of the Board as a hostile act of entrenchment.

2)

A greater focus on operational excellence within Buffalo Wild Wings’ core business.  The Company must improve in key operational areas such as food quality, price/value perception, speed of service, technology implementation, food cost optimization, and labor engineering – all areas where it is substantially underperforming its potential, and, that if improved, can drastically help restore the Company’s customer value proposition. Efforts to drive “growth” primarily through new unit openings and franchisee acquisitions currently take unwarranted precedence over maximizing same-store sales and restaurant-level margin opportunities at core Buffalo Wild Wings.  Over the long-term, neither system growth nor franchisee acquisitions will be able to compensate for a decline in the profitability of the core concept.

3)

Cessation of “emerging brands” growth plans.  Buffalo Wild Wings’ continued success is not an inevitability; as such, we believe the Company should remain singularly focused on its largest earnings driver rather than placing wild bets, however small, on hit-or-miss “growth drivers”— particularly those in the highly competitive, non-core, fast casual space.  Experiments with new restaurant concepts are distracting management from advancing Buffalo Wild Wings’ core brand.  At this point in time, any corporate resources, be they personnel, capital, or attention, would be better allocated to addressing the operational improvement opportunities at core Buffalo Wild Wings.

4)

A profound increase in urgency, follow-through, and accountability.  A review of past years’ earnings reports reveals a number of Company “priorities” that have since dragged on without meaningful progress, the most obvious example being the bungled roll out of table-side order and pay functionality.  The commentary in the current period regarding the near-term goals