Noodles & Company is banking its future on off-premises and digital channels through investments in the pick-up experience, kitchen renovations, and delivery.
In 2019, digital sales grew 46 percent to 23 percent of sales. That boosted overall off-premises business to 56 percent of sales. Year-to-date, digital has grown to 28 percent of sales and off-premises business overall has grown to 60 percent.
Noodles & Company believes back-of-house optimization will play a significant role in speed of service and the growth in off-premises. The chain has tested a change in the time of day in which it prepares food, and that’s saving about one to one-and-a-half hours of labor per restaurant per day.
“Those process changes were tested pretty rigorously,” said CEO Dave Boennighausen during the brand’s Q4 and annual review. “So we're happy with what we're seeing thus far. It’s making the lives easier for the team members.”
There’s also new steamers, which Boennighausen said are supposed to create efficiency, hotter temperatures, better quality, and better accuracy. Another improvement includes updating how the kitchen cooks proteins.
The goal is to save 10 hours of labor per day. Units are being retrofitted with the equipment and new stores will incorporate the changes. The CEO said at the ICR Conference in January that the brand hasn’t updated its equipment in a decade and that new equipment could potentially save the brand at least $1.8 million per hour across the system.
In 2019, system-wide same-store sales increased 2.8 percent (457 units). Comp sales rose 2.9 percent and 2.5 percent at corporate and franchise units, respectively. Yearly comp sales at corporate units breaks out to a 3.6 percent growth in average check and a 0.7 percent slip in traffic. In Q4, comp numbers grew 1.5 percent system-wide, the seventh straight quarter of positive growth. Fourth-quarter same-store sales rose 1.4 percent at company-owned stores (389 units), and 1.8 percent at franchises (68 units).
Here’s a look at the recent comp sales trend at corporate units:
- Q1 2017: –2.5 percent
- Q2 2017: –3.9 percent
- Q3 2017: –3.8 percent
- Q4 2017: –0.9 percent
- Q1 2018: –0.3 percent
- Q2 2018: 5 percent
- Q3 2018: 5.2 percent
- Q4 2018: 3.4 percent
- Q1 2019: 3 percent
- Q2 2019: 4.8 percent
- Q3 2019: 2.2 percent
- Q4 2019: 1.4 percent
It seems likely the chain will reach eight positive quarters in a row; through February 25, comp sales have leaped 5.7 percent system-wide, 5.8 percent at corporate units, and 5 percent at franchises. Total revenue in 2019 reached $462.4 million, up 1 percent from 2018. Average unit volume increased 3.9 percent to $1.2 million. Four company-owned restaurants opened in 2019.
Another main initiative has been the evolution of pick-up orders. Boennighausen said the chain’s pick-up areas are functional, but they’re not personalized and don’t remove enough friction from the customer experience. To combat this, many stores will remove their third cash register in favor of an emphasis on pick-up orders. Drive-thru pick-up windows will be introduced in many new locations, as well.
“So when all is said and done, it's really about removing as much friction as possible from that experience,” said Boennighausen during the company’s Q4 and annual review.
In response to rising third-party fees, Noodles & Company is launching direct delivery in Q2 to enhance its margins. The brand instituted a 10 percent pricing premium on delivery system-wide in Q4, but hasn’t reported any negative effects. Delivery accounted for 7 percent of sales in 2019 and 8.8 percent in Q4. The channel is available in 99 percent of company locations.
To further increase digital innovation, the brand hired new chief marketing officer Stacey Pool in December. Before she came on, the company relaunched a new digital ordering experience in Q4 and revamped its rewards program.
The CEO said 2020 will be spent “picking off some of the low-hanging fruit in terms of better engagement with our guests.”
“But at the same time, just growing the overall program in terms of membership and getting the data set up to where we can really have the tools to become really much more personalized than we are today,” Boennighausen said. “We believe firmly that we're better positioned than most brands in terms of capturing this enormous growth opportunity. This is a brand that resonates for the digital experience, whether it be how we do with younger generation, to how the food travels, etc.”
Regarding menu innovation, the restaurant released Grilled Orange Chicken Lo Mein in Q1 and brought back its Zucchini Shrimp Scampi. Later in the year, Boennighausen foresees innovation around the catering menu (will be relaunched in May), the mac and cheese lineup, and healthy noodle alternatives.
In 2020, Noodles & Company expects 10–15 new restaurants, with eight to 11 being corporate locations. As part of an aggressive franchising strategy, the chain refranchised nine restaurants in Charlotte and Orlando to existing franchisee River City Restaurant Group. The franchisee is expected to open at least 22 locations in the next few years.
Boennighausen said Noodles & Company is targeting 5 percent unit growth system-wide in 2021 and potentially 7 percent growth in the future.
Same-store sales in 2020 are projected to be between 3 percent and 5 percent, and revenue is expected to jump to $470–$480 million.
“I believe our recent performance indicates the strong trajectory that our business is on as well as the sustainability of our strategy,” Boennighausen said. “And at the same time, I feel that the best is yet to come.”