Investor wins control of Buffalo Wild Wings; CEO Smith says she'll retire

In 21 years, Smith built the chain into a restaurant giant

By Evan Ramstad  • evan.ramstad@startribune.com

The Sally Smith era ended at Buffalo Wild Wings on Friday.

The announcement at the company's annual meeting was so brief that it conveyed no recognition of its dramatic importance, that Smith was out after building Buffalo Wild Wings into a restaurant giant. It happened so swiftly, it was met with silence.

A short time later, the company announced that an activist investor won three seats on its board of directors after battling Smith and company executives over strategy for the past year. By electing the investor, shareholders triggered a new direction for Golden Valley-based Buffalo Wild Wings.

The company is already contending with the saturation of its chicken-and-beer concept in the United States, higher-than-expected costs for chicken wings and a sudden downshift in sports TV viewing that drove customers to its 1,250 restaurants.

The investor, Mick McGuire, principal of San Francisco-based Marcato Capital Management, will influence the selection of a new leader and is likely to push the board to reshape the rest of the management team, begin selling hundreds of company-owned restaurants and perhaps move its headquarters.

The company's shares jumped 5 percent after the meeting but ­finished the day with a smaller gain of 1.8 percent.

Company Chairman Jerry Rose started the annual gathering of shareholders — attended by about 100 people at a Minnetonka hotel — at its appointed time and then announced it would be delayed by an hour. When it resumed, Rose announced that Smith, the company's CEO, had informed the board that she would retire by the end of the year and was no longer a candidate in the board ­election.

In a statement later, the company said it would begin searching for a new leader immediately and that Smith will stay until a successor is found or until the end of the year.

"I had decided," Smith said as she left the meeting. "I needed to tell the board."

Smith, 59, is one of the longest-serving chief executives in Minnesota and one of the most successful. Investors who owned what was then known as BW3 Inc., short for Buffalo Wild Wings & Weck, moved the company in 1994 from Cincinnati to the Twin Cities for Smith to become its chief financial officer. Two years later, they selected her as chief executive.

In the 21 years since, Smith oversaw the growth of Buffalo Wild Wings from $55 million to about $2 billion in annual sales. Since becoming a publicly owned company in 2003, its shares surged 15-fold in value as the company mined the growing popularity of chicken wings and emergence of high-definition TV.

But new restaurant openings and revenue growth slowed in the past two years. Chicken wing costs soared and sports viewing shifted to smartphones and on-demand apps. Smith also took heat for the company's purchase in 2015 of about 41 restaurants from franchisees and for attempts to repeat the success of ­Buffalo Wild Wings with pizza and taco restaurant concepts.

During the meeting, McGuire said the company's share value, which is about 20 percent below its 2015 peak, is "unsustainable" and that executives had no time to lose in fixing things. After the vote results were announced, McGuire said in a statement he was pleased other shareholders "recognize that additional change on the board is warranted to return Buffalo Wild Wings to a path of growth and long-term value creation."

In addition to himself, McGuire nominated Scott Bergren, a former Pizza Hut executive; Sam Rovit, chief executive of an Idaho-based food distributor; and Lee Sanders, a former Buffalo Wild Wings executive. Buffalo Wild Wings interviewed all four and nominated Rovit on its slate, as well.

Shareholders chose McGuire, Bergren and Rovit, as well as company nominee Janice Fields, a former McDonald's executive, and five incumbent members.

But with Smith departing and McGuire's slate elected, the Buffalo Wild Wings board will have only two members — Rose, a former Cargill executive, and Cynthia Davis, a former Nike executive — who have served on it more than a year. Aiming to fend off a proxy battle with McGuire, the company last fall replaced several long-serving board members.

McGuire, over a year in which he and company executives met or conferred more than 40 times, pressed intensely for changes at Buffalo Wild Wings. His chief demand was for the sale of most of its 634 company-owned restaurants to franchisees. McGuire believes that process, called refranchising, will raise cash, lower capital spending and let the corporate staff concentrate on innovations around the menu and concept of the brand, rather than restaurant operations.

Smith decided to test the strategy by selling 70 to 80 restaurants this year to franchisees. She, other executives and some outside analysts argued that McGuire's strategy will not generate the returns he believes. They said a large sell-off may not generate the proper values for the properties. Meanwhile, cost savings that franchisees create will go to them, not the company.

"You can't refranchise and claim you're going to run the stores more efficiently," said Nick Setyan, analyst at Wedbush Securities in Los Angeles. "Either you're going to keep the stores, run them more efficiently and the shareholders can benefit or sell them to franchisees and they'll run them better. But you're not going to see the benefit of that."

Evan Ramstad • 612-673-4241