After shifting the menu last year to offer healthier-for-you options, Noodles & Company gained real sales momentum. Customers positively reacted to the Zoodles offering, which offered a low-carb option into the fast casual’s mix. Noodles' menu now even features a Zoodles-based section, which continues to grow with fresh additions and options for guests to choose from.
The second quarter of fiscal 2019 marked the first period where Noodles could lap results since the Zoodles launch in May 2018. Noodles executives were pleased and slightly surprised by the results. Same-store sales lifted 4.6 percent, marking a 9.8 percent two-year stack. Company-owned restaurants reported a 4.8 percent increase, slightly outperforming franchise locations, which appreciated a 3.7 percent rise during Q2.
The successful quarter also marked the brand’s fifth consecutive quarter of positive same-store sales.
“Our 2Q results reflected our best two-year stacked comparable sales growth in six years and our strongest quarterly restaurant level margins since the second quarter of 2015,” Noodles’ chief executive Dave Boennighausen during an August 6 conference call. “Our performance in the second quarter benefited from our continued culinary innovation, investment in the off-premises occasion, and further execution of our operational and people initiatives.”
Noodles is one step closer to becoming an all-inclusive restaurant where the menu reflects dishes that cater to all guests regardless of their dietary preferences. The introduction of the Zoodle offered guests a gluten-free, as well as low-carb, option for customers looking for an alternative to traditional noodles. That was just the first step for the brand, Boennighausen said.
Innovation on the menu continues to center around plant-based options. Noodles will roll out its latest offering this fall. Just like the Zoodle, the new cauliflower-infused rigatoni is a versatile option and can be incorporated in a variety of dishes. The rigatoni offers a different flavor profile and texture from Zoodles. Boennighausen said this is a good alternative for customers who want to get more vegetables in their diet without having to completely commit to a full plant-based noodle like the Zoodle.
Testing revealed that the Zoodle is popular, but, at times, it can be too polarizing for guests. The versatility of the cauliflower rigatoni is a happy medium and Boennighausen hopes will help transition guests to Zoodles down the road.
“Choice has always been a great strength of the brand, and we continue to innovate ways that allow guests to enjoy the world flavors they know and love as well as discover new ones with all the benefits of healthier noodle options,” Boennighausen said.
Noodles isn’t limiting healthier menu options to the regular menu. The brand is exploring different ways to introduce more plant-based dishes to the kids menu, too. “We're also excited to offer parents the opportunity to bring vegetables into their kids' diet without sacrificing the flavors that the pickiest of kids have come to love from Noodles & Company,” Boennighausen said.
As new noodle alternatives roll out on the menu, Zoodles will still remain Noodles’ go-to for educating guests about healthier alternatives. Over a year after the launch, guests are still discovering Zoodles.
“You will not see us shy away from zucchini, even as we launch cauliflower noodle,” Boennighausen said. “It will be part of an overall ‘how do you eat in a plant-based, healthy way’ from Noodles & Company. So, the research, the data, the results we're seeing still shows that there's quite a bit of upside in terms of articulating that offering to guests.”
As a premium menu item Zoodles are pushing check totals higher. This boost along with growth in delivery and the release of new digital menu boards drove the brand’s growth during Q2.
Noodles’ off-premises business continues to expand and now makes up 56 percent of sales. Delivery sales grew 6.6 percent during Q2. The company announced during the quarterly review it will start testing third-party delivery direct from the Noodles & Company website and app, which will help with costs.
“The brand is uniquely positioned to meet the increasing consumer demand for convenience as our food travels well and meets the variety, speed, and price point necessary to compete favorably for the off-premise occasion,” Noodles executive chairman Paul Murphy said.
Catering remains an area where Noodles sees potential to grow. At the end of Q2 only 2 percent of sales came from catering. The company plans on relaunching the program in 2020.
“We still are very excited with what we're seeing from a check perspective from both delivery, which is coming with a higher per person spend, as well as with the zucchini and, you know, which does continue to grow in mix,” Boennighausen said.
More of Noodles’ customers are ordering through its digital platforms, which is also contributing to the boost in off-premises sales. Digital ordering grew 47 percent year-over-year and represented 22 percent of total sales.
Boennighausen believes this share will continue to increase. Noodles will be completely relaunching its digital platform—including the app, online ordering, and rewards program. The revamped digital assets have simplified the guest experience and improved processes, like meal customization.
Noodles’ current “surprise and delight” rewards program will transition to a new platform. The updated program will still offer surprise and delight capabilities, while incorporating a tiered points system, which will offer better rewards that are tailored specifically to each customer’s preferences.
“We believe our new rewards program and digital capabilities will transform our ability to communicate with guests from a marketing perspective in a more personalized, targeted, and relationship-driven manner,” Boennighausen said.
Continuing to grow
The 457-unit chain, which is comprised of 395 company-owned restaurants and 62 franchise restaurants, is on track to meet its expansion goals for 2019. Six new restaurants—five company-owned and one franchise location—are set to open by the end of 2019. So far in Q3, three of the five company restaurants have opened.
Beginning in 2021, Noodles is targeting 5 percent unit growth systemwide and accelerating to 7 percent a few years down the line.
“Our approach will be disciplined, factoring in strict site and economic characteristics as well as ensuring that our people pipeline is robust enough to support the unit expansion and provide operational fulfillment of the brand promise,” Boennighausen said.
The evolution of the store’s design is also changing as the company expands. In order to meet customer demands, new locations reflect the overall shift towards the off-premise side of business. A pickup window and a smaller footprint are some of the new elements that have been incorporated into the new model.
Noodles has completed the first stage in a process to optimize operations, layout, and equipment needs to update the system as a whole. Boennighausen said the company will start testing kitchen remodels in existing restaurants in Q4. The new operating model will be incorporated in new restaurants beginning in Q1 in 2020.
“We expect these changes will yield improvements to labor efficiency, throughput and food quality while also creating the flexibility for future culinary innovation,” Boennighausen said. “As we do the work on the back-of-the-house kitchen design, smaller square footage units, the pickup window, we feel it's imperative that we're able to prove those out in order to more aggressively pursue franchising as a part of the growth strategy.”
Executives expect the smaller more efficient model will attract franchisees, both new and existing, to Noodles. Boennighausen announced the company recently inked a deal for six new franchise restaurants in South Carolina set to open over the next few years. In July, Noodles also refranchised five restaurants “to a strong existing franchisee [Dallas Five Restaurants], expanding their territory and allowing the acceleration of the brand's growth in their respective market,” Boennighausen said.
Noodles expects growth to be company-driven in the beginning and transition to franchises over the next few years.
“We think that the economic model will be very compelling from a franchise point of view,” Murphy said. “So we see that starting to layer in as we move through time and then, hopefully, becoming a real driver of our unit growth or restaurant growth.”