The nature of COVID-19, and how it’s spotlighted digital strengths, opened the aperture for Noodles & Company to reimagine it store designs and future growth.
Boennighausen says the company anticipates meaningful disruption in the real estate arena for restaurants in the coming years. And Noodles & Company will be poised to take advantage with a more efficient, off-premises-oriented footprint.
He referenced the “many proof points,” coming into focus. For instance, in Q2, Noodles & Company had 50 company restaurants with annualized volume above $1 million flowing solely from digital transactions.
“As you can imagine, that provides us greater confidence not just in reduced square footage in general but, additionally, in the potential to test extremely cost-effective build-outs that only incorporate off-premise and/or digital sales,” he said during the company’s quarterly review.
How it could unfold: Traditional Noodles & Company restaurants, only closer to 2,000 square feet than 2,600, complemented by a pickup drive-thru window. Then, a gamut of restaurants that are potentially off-premises only, whether it’s digital-only, or just a drive-thru pickup window with no lobby. “We feel that there is a spectrum of real estate opportunities that, as we look four or five months ago, we maybe didn’t realize we had quite as many opportunities as we now do think we have in terms of some of the trade areas and how we can service guests in a wide variety of manners,” Boennighausen added.
Pre-virus, there were a lot of trade areas Noodles & Company’s left off the radar. Chipotle has made similar comments lately as it’s pushed further into drive-thru windows as well. Landlords are rethinking tenants. Restaurants are reconsidering the ROI of traditional boxes.
It’s mostly going to be new growth for Noodles & Company. Boennighausen says, at most, perhaps 4–5 percent of its current footprint will retrofit pickup windows. “But what we will look forward to, though, is as we eventually start testing less square footage that potentially opens up more opportunities in the long term for relocations to much smaller square footage sites that are maybe better positioned in the trade area,” he says.
Resurfacing a previous aim, Boennighausen says Noodles & Company’s economic and operating model will not just drive corporate growth, but reignite a more aggressive franchise push.
Today, 380 of the brand’s units are company-run. Only 76 are franchises. The mix has looked that way, more or less, for going on seven years.
In November 2019, Boennighausen said Noodles & Company “absolutely believes” the franchise model will represent a larger part of its growth. He said the brand was conservative to date due to the “tremendous upside with our prototype,” especially in regards to labor initiatives.
“… we firmly believe that Noodles & Company has the inherent strengths necessary to become one of the premier growth concepts in the restaurant industry,” he added at the time, noting growth would first center on current markets, like Chicago and the heartland, as well as Colorado, and that 15 of Noodles & Company’s areas boasted 10 or fewer restaurants. Nine had five or fewer.
Franchise growth, however, is where a lot of the new market growth will take form.
In the near-term, as the industry battles out of the COVID-19 trough, Boennighausen says to expect more company dominated expansion than a longer-term growth equation.
“That said, our franchise community, which we’re very proud of and very pleased with their performance, they’ve shown a great amount of interest and potentially also being some of the test vehicles for some of the lower square footage profile,” he said. “So there are indications that we might be able to have a good solid mix of company and franchise growth.”
On the landscape itself:
“We already think the dust is starting to settle there in terms of identifying and seeing opportunities that maybe weren’t there in a pre-COVID perspective,” Boennighausen added. “Franchise might take a little bit longer for that to ultimately—for the dust to settle. But you will see us over the next several months become more aggressive in terms of identifying sales opportunities, identifying growth opportunities from the franchise side.”
That should get off the ground in 2022.
Noodles & Company’s “Kitchen of the Future” refresh, which centered on labor savings with new equipment capable of improving speed, flexibility, and holding temperatures, was back-tracked by COVID-19 after promising early tests.
While certain elements were delayed, Boennighausen says Noodles & Company now anticipates expanding the most alluring elements, such as the introductions of steamers to improve the throughput and efficiency of its cook line, in Q4 and into 2021.