Charlie Morrison realized investor dreams with IPO
Jun 7, 2016
Seated at an oversized conference table inside the serpentine bowels of a Las Vegas conference center, Wingstop CEO Charlie Morrison was relaxed for someone about to deliver a keynote address to a room full of industry peers and besuited bankers.
Maybe it had something to do with completing the company’s second stock offering earlier that morning, or that he and his wife were jetting off to Hawaii the next day. It may have been related to finally finishing the marathon of IPO prep work, or that the Morrisons were about to officially become empty nesters as their last of four kiddos heads to college.
After digging into his personal life and four years at the helm of Wingstop as I jotted notes, it became clear Morrison wasn’t nervous at all, but excited to talk about a brand that’s likely the envy of many business people gathering in the next room to hear his address. “I’ve seen and been a part of some great companies in my career, but I’ve never seen one growing quite like this,” Morrison told me before his keynote. “I’m having a blast—I’m absolutely having a blast.”
At 47, Morrison looks the part of a CEO, but there’s nothing imposing or intense about his presence. He doesn’t roll with an entourage or overly energetic handler, nor does he have the flashiest shoes or absurd jewelry.
It would’ve made this profile easier if he was loony or overly brash, but there’s no shortage of talking points for a good guy who’s taken a fast-growing, promising fast-casual brand through its adolescence and early adulthood with no scandals, stumbles or negative reforecasting to show for it.
Wingstop is on fire, and he was ready to politely, calmly shout it from the rooftop.
Keeping it simple
On stage and in person, Morrison has his narrative down to a science—painting a picture of a publicly traded company on the fast track. He’s been down this road on countless occasions since Wingstop’s initial public offering last summer and all the subsequent investor relations hoopla.
Priced at $19, WING soared more than 60 percent by the end of its first day on the market, enough to raise nearly $70 million in 24 hours. Following a second offering in March that padded investor Roark Capital rather than injecting new money into the brand, Wingstop’s shares have undulated with the market, settling around $25.
Whether Morrison is preaching Wingstop to a room full of investors, potential franchisees, developers or industry peers, his watchword is simplicity. “We’ve really been able to keep ourselves focused on just what we do and doing it really, really well, which is fresh, really high quality wings, fries and sides—it makes up 90 percent of what we sell,” he said. “With that comes the simplicity of operations, which means we don’t have the complexity in the kitchen that demands all of our people be necessarily in the kitchen, and we can focus more on hospitality, taking care of the guests, cleaning the restaurant and everything.”
Andy Barish, a San Francisco-based equity analyst at Jefferies, said a minimal menu and focus on its unit-level economics has delivered results placing Wingstop in “rarified air” including players like Fogo de Chão and Dave and Busters.
“They are approaching close to $1,000 per square foot” in sales, “which is very high productivity for restaurants and retail,” he said. “That points to the labor efficiency of the model and lower rent structure.”
The average Wingstop is just 1,700 square feet with average unit volumes of $1.1 million. Handling that kind of volume in such a small space has led to an increased focus on carryout orders, 75 percent of the average store’s total. That reduces staffing requirements and the burden during peak dine-in times.
Its customers tend to be middle income, young and ethnically diverse—over-indexing Hispanic and African American—key reasons Wingstop focuses on urban locations over the ‘burbs, contrasting the majority of brands attacking new territories with a suburbs-first approach.
“We work an inside-out strategy—totally backwards, but totally perfect,” Morrison said. “What we look for is this young millennial, ethnically diverse customer base, and they’re living in these areas, so our real estate strategy is a strip center-only focused concept—1,700 square feet is a very small piece of real estate in the urban core.”
He added there’s no shortage of urban real estate, and that Wingstop works best in “B or B- or even C” locations, places many fast-casual brands would never consider. They’re also much cheaper than shiny, new lifestyle centers. “There might be a grocery-anchored center that has a nail salon, a dollar store…and maybe a check cashing place,” he said.
“These are perfect for us, and it’s where our customers are.”
Barish added by focusing on customers that are younger and more diverse “than the typical high-income Caucasian” most fast-casual brands covet bolsters profits, while simultaneously reducing real estate costs.
Simple also comes from the chicken wings themselves. Wings can be a volatile commodity but remain one of the most inexpensive parts of the bird—even as they’ve become a “center of the plate” item, as Morrison likes to say.
Asked about the longevity of wings as an entrée, Barish said that Wingstop’s 22-year history suggests staying power, as does the high level of customer engagement on social media.
To insulate from future price shocks, Wingstop buys its wings on the spot market, rather than contracting ahead. Even so, prices can range from $1.25 per pound to more than $2 per pound in a given year.
“We have a very simple operation that, at peak volume, can run with five or six people running the restaurant—very, very efficient,” Morrison said. “Our labor costs can be in the low 20 percent range, our occupancy costs, rent and everything else is in the low- to mid-single-digits, which affords us the opportunity to have some flexibility in our food costs without dramatically affecting the brand in any way, shape or form, including future development.”
I pointed out that he was perhaps unwittingly presenting a case for the IPO, a function that’s hard to shut off after years of preparation. “It is no accident,” he conceded. “We’ve been able to capitalize on the great success of the brand and how it’s built, and translate and amplify that into something that has been one of the best growth stories over the past few years.”
Working in a higher gear
At the brand’s Dallas headquarters, Chief Marketing Officer Flynn Dekker jokes he’s professionally stalking Morrison, as this is their fourth consecutive job together back to Kinko’s in the early 2000s. They’ve become close friends, as evidenced by their amusing banter on Twitter (@WingstopCEO and @WingstopCMO).
Dekker said the brand’s unique positioning allows his marketing team to focus its message on things beyond product and price, making the job much more fun.
“When they say ‘Wingstop and…’ I’m more interested in what they say after the ‘and,’” Dekker said of his online interactions with customers. “You have to understand what that consumer is better than anybody else, what makes them tick and what do they care about—it’s not necessarily your food 24/7.” Aside from the obvious sports, Dekker said those customer interests run the gamut from music, video games and dance to random pop culture—and they try to hit them all on the brand’s social sites. Recent examples include a wing-slathered bracket during March Madness, shout-outs to popular TV show premiers, a trippy animation on 4/20 and skateboard videos that only casually include shadowy clips of the crew chowing down on wings.
“Indecisiveness and not owning the issue are the two things that probably cause him the greatest frustration,” Dekker said of his boss, reiterating that Morrison never gets visibly heated in the office. “He wants people that understand things from a very granular level to begin with, before they get to big strategic ideas.”
Posing the question to Morrison himself, he had a quick response: cell phones in meetings. “Today we way over-communicate, we’re trying to multitask constantly between what’s coming in over the phone, what’s coming in over the computer and everything else,” he said. “There are so many inputs that it’s hard for people just to have a conversation, so I get triggered when I feel like we’ve lost focus in a meeting or wherever we are—there are times when you have to set those things aside, listen, observe, get a feel for the business, talk to people and get out of your office.”
Maintaining his focus, Morrison reiterated during our interview and his keynote his belief that Wingstop resides in a “category of one,” and not really competing with the Buffalo Wild Wings or Wing Zones of the world for a variety of reasons including product mix, alcohol and ambiance.
Compared to its natural competitors—wing-focused restaurants and pizza chains adding wings to their menus—Barish agreed with Morrison’s claim of having the wing-based fast-casual market to itself. He predicted that, even with increased regional and national competition, customers “tend to choose the top player out there, and that’s Wingstop in a lot of markets.”
Soaring on a wing
Danny Sonenshine, a Wingstop franchisee since 2003 whose father, Ygal, was an early investor in the concept—now owns 32 locations in Nevada and Southern California. He said its efficient model and low cost of entry has become even more appealing in his 13 years with the brand.
“What’s changed over the years is that our AUVs continue to rise, so that sales-to-investment ratio is even better than it was before,” he said.
Compared to previous administrations, Sonenshine said Morrison is much more hands on, adding that he flew to California for a surprisingly in-depth, detailed meeting shortly after Morrison took over as CEO.
“With so many franchisees, he probably can’t do that for everybody all the time, but I’ve talked to other franchisees that only have a handful of units, and they feel like they’re heard and get the respect that they’re due.”
While there have been growing pains as the brand scales up, namely trouble implementing a new point-of-sale system and streamlining distribution, he’s pleased with the management team’s responsiveness—as well as its much-improved marketing. He added that the IPO helped raise the brand’s profile, which has greased the wheels in conversations with landlords and developers.
Hopefully that goodwill is nationwide, as Wingstop’s latest 10-K acknowledges a number of challenges that may hinder its plans to hit 2,500 units in the coming years, including the ability to find suitable locations to open such a gargantuan number of additional locations.
“Additionally, we face the risk that new or existing competitors will copy our business model, menu options, presentation or ambiance, among other things,” the report continued.
Whether or not its store count milestone is achieved, Morrison stressed that life at Wingstop HQ would still be exciting even if unit growth or sales slowed or stalled.
“If something were to go the other direction, my feeling is we could react quickly,” he said. “We’re a very adaptable group and we have to be able to adapt to change and make some adjustments if we’ve left our eye off the ball on any one particular thing—we’re a very adaptable company, because we’re quite simple.”
For a brand that’s nearly halfway to reaching the billion-dollar mark, Morrison is comfortable thinking big, acting small and keeping it simple enough to make his soaring-on-a-wing dreams come true.