In 2017, Zoës Kitchen launched its largest menu overhaul in eight years and brought a fresh, bold prototype to market. Yet these significant upgrades are really just precursors to an innovative-driven future at the 243-unit Mediterranean fast casual, CEO Kevin Miles said in a conference call.
At the same time, tepid sales growth and somewhat uneven results were part of what Miles called “a foundational year for long-term healthy growth.” Zoës reported adjusted loss of 12 cents in the fourth quarter, which was wider than the year-ago figure of a loss of 7 cents. Revenues of $71.4 million missed the Zacks Consensus Estimate of $72 million, although it did improve 15.2 percent year-over-year thanks to new restaurant openings (five company-owned units in the quarter with 25 expected in 2018). Same-store sales grew 0.3 percent, driven by a 1.6 percent decline in transactions and product mix, and a 1.9 percent rise in price. This was an improvement over the prior quarter’s decline of 0.5 percent but worse than the year-ago growth of 0.7 percent.
But much of this loss can be credited to investments Miles and the company believe will position Zoës for a brighter future, even if the results take a short-term hit.
The menu revamp, introduced in June, added a new appetizer, two new protein options, three new pita sandwiches, three new bowls, and four new sauces.
“The new menu items have outperformed our initial expectation and are now top-performing items in the menu mix,” Miles said.
While many brands are seeking that value customer, Zoës will continue along this path of innovation. Starting in March, Zoës will launch a new baked falafel nationwide. It’s been piloted, and is also on the menu at the brand’s Raleigh, North Carolina, store, which opened in January with the new design package.
The falafel comes in a pita sandwich, as an appetizer, and as a protein choice in Zoës existing bowl category. Miles said it contains about half the calories as a traditional fried falafel. “It’s something that we've had consumers really request for many years, but we wanted to land in a better-for-you category with a baked falafel and it took some time to innovate,” Miles said.
In March as well, Zoës plans to expand its Med Family Meal offerings as the company focuses “on capturing incremental sales in our dinner daypart,” Miles said. This comes with the introduction of a new Moroccan chicken and baked Ravioli Sorrentina. Turmeric rice is also joining the brand’s healthy side offerings.
On the beverage side, major changes are coming, too. In the first quarter, Zoës will test a better-for-you beverage program that includes a variety of all-natural drinks made with a proprietary blend of ingredients, Miles said. Additionally, the wine program is being enhanced and a new Moroccan-inspired sangria, which is currently being poured at the new prototype, is coming. Miles said Zoës has fresh sandwich options in the works for a late 2018 rollout.
“Menu and beverage innovation will be a core focus in 2018 as we look into expanding our Mediterranean and better-for-you positioning,” he said. “We've been hard at work, building a strong culinary pipeline for 2018 and beyond.”
As for the new prototype, which features a slew of major changes, including a bright color scheme, improved patio, open kitchen, and area dedicated to off-premise business, Miles said Zoës expects to open another later this year. “And we'll use learnings from these two new restaurants, as well as results from our value engineering efforts, to determine the pace of rollout of this new design and to inform future refresh programs of existing restaurants,” he said.
Zoës is also targeting 2018 as a year for digital innovation. The key tenets: enhancing the brand’s loyalty program; evolving its digital marketing strategies; and improving the guest experience on web and mobile platforms with upgrades to ordering, gift cards, and payments.
The loyalty program changes are coming in the second quarter, Miles said. The big difference being that guests would be able to earn points for every dollar spent, redeemable for rewards based on certain thresholds.
Miles added that Zoës recently finished the design and development of its first CRM tool focused specifically on catering. “This tool allows our catering sales force to develop strategies for new customer acquisition and better maintain existing client relationships,” he said.
Zoës’ catering holds great potential for its business, Miles explained. In the third quarter, Zoës relaunched its new website and mobile app that connects its online technology with in-store point-of-sale technology. Since, Miles said online sales, including catering, grew about 25 percent in the fourth quarter. The chain’s email database has increased by about 50 percent.
Zoës is working to “close the convenience loop” with online catering orders as well, Miles said, by expanding the company’s ability to deliver via its internal employees.
“With $200-plus check sizes, it's advantageous to execute catering deliveries ourselves in terms of costs, customer service and top line growth potential,” he said. “Furthermore, this capability opens the door in the longer term for potential delivery opportunities in the dinner day part, where recent customer research confirms our incremental sales growth opportunity at dinner. Already in 2018, we have finished designing, developing and deploying new in-store software in a small set of restaurants to help our teams execute delivery.”
The delivery angle of this is evolving. Miles called Zoës’ approach to third-party delivery “methodical,” in 2017. The company is offering the platform in just over 100 restaurants and has seen sequential improvement every quarter in its delivery sales mix, Miles said.
“And as we said before, we believe our food's proven portability, unique and diverse menu, and dinner relevancy create a set of strategic advantages to capture growth in this developing fast-changing channel,” Miles said.
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