Activist investor sends a brutal letter to turn Buffalo Wild Wings franchisees against management

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Buffalo Wild Wings on Facebook

Activist investor Marcato Capital just sent a letter to Buffalo Wild Wings franchisees, publicly ripping into the company for keeping “the best opportunities for itself.”

On Tuesday, the San Francisco-based company – which has a 5.2% stake in Buffalo Wild Wings – released an open letter to franchisees, condemning Buffalo Wild Wings’ management and business model.

In recent months, Marcato has been advocating for its own game plan for the future of Buffalo Wild Wings. Marcato wants to increase the ratio of restaurants run by franchisees to company-operated locations, with plans to refranchise roughly 600 restaurants.

“Franchising will be the top priority of the business, and the franchisor will no longer be conflicted by aspirations of company-operated unit expansion,” stated the letter to franchisees, signed by Marcato CEO and founder Mick McGuire, who has been called a Bill Ackman “protégé.

In the letter, Marcato also announced the launch of WinningAtWildWings.com. The website is intended to share Marcato’s plan for revamping Buffalo Wild Wings with franchisees and other stakeholders, as well as get feedback – specifically, details on how the company has failed franchisees.

“The observable discontent among the company’s stakeholders has not gone unnoticed by us,” the website reads. “Marcato wants to hear your ideas about how Buffalo Wild Wings can be improved. Please share your comments in the submission box here.”

The public battle between Buffalo Wild Wings and Marcato began in August, when McGuire released a harsh letter to the board’s chairman James Damian.

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Buffalo Wild Wings’ sales are soaring.
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Buffalo Wild Wings on Facebook

The letter accused Buffalo Wild Wings management of ignorance and inaction, and demanded the addition of new board members. McGuire called for “interested shareholders” – like Marcato – to be consulted in adding these board members, calling independent changes “a hostile act of entrenchment.”

In October, Buffalo Wild Wings announced it was appointing three new independent directors – a shake up that failed to satisfy Marcato.

In Tuesday’s letter to franchisees, Marcato claimed Buffalo Wild Wings had “ignored” its viewpoints, and that the company’s board and senior executives lacked the necessary urgency to remain competitive. The activist investor once again argued that the company’s board of directors needed new directors.

Marcato emphasized in its letter to franchisees that a “franchise-first” model would be to their benefit, as it could provide opportunities to open more Buffalo Wild Wings locations in more desirable areas. Up until this point, Marcato argued, Buffalo Wild Wings has kept some of the best franchise opportunities to itself.

“The Company has retained many choice ‘greenfield’ markets in high-AUV regions, such as California, Florida, Texas, and Washington, D.C, for its own development, effectively capping the growth opportunities available to existing franchisees and deterring investments from new entrants,” the letter states.

Buffalo Wild Wings did not respond to Business Insider’s request for comment.

In October, the company reported that same-store sales dropped 1.6% in the third quarter, less than the expected 1.7% decline expected by analysts.