Noodles & Company is among the fastest growing restaurant chains in the United States. This year innovation is on the menu for the Broomfield, Colo.-based fast-casual brand.
Despite the recession, the company has had two years of positive transactions and same-store sales. Earlier this year, the brand drove traffic with an “adult mac-and-cheese” line that included fine-dining ingredients like truffle oil and portobello mushrooms. This summer the company is promoting new salads and continues to explore catering, a new kitchen design and possible overseas expansion.
Noodles’ system-wide sales increased almost 15 percent to $261.3 million in 2010 compared to the prior year. And it currently has 255 units, up from 229 in 2009, according to research derived from Nation’s Restaurant News’ annual Top 200 report. The chain’s sales per unit rose 2.6 percent to $1.08 million in fiscal 2010, according to NRN estimates.
In December an investment group led by Catterton Partners took a majority stake in the chain and continued the brand’s growth.
Kevin Reddy, Noodles’ chief executive, president and chair, spoke with Nation’s Restaurant News about menu innovations and upcoming challenges in 2012.
How have you been focusing on the “& Company” side of the brand?
I’m really proud of how our culinary team has inspired guests to think of the brand a little broader. We’ve always been known for globally inspired noodles and pasta, but at the same time our guests are interested in variety and want different tastes.
We introduced sandwiches last year and we had a successful and fun limited-time offer with mac-and-cheese dishes. We had a truffle mac, which we called “fancy pants,” with baby portobellos. And we had a southwestern chili mac and one with bacon cheeseburger. Everyone knows we have the best mac and cheese in the world, but it was a chance to make it new and refreshing for them.
Now we have two fantastic summer salads. The berry spinach salad has blue cheese and a drizzle of balsamic. It is loaded with fresh strawberries and pecans and crispy bacon and homemade croutons. It is wildly popular.
The other is a backyard barbecue chicken salad, which is a little more hearty. It’s made with chicken breast and there are sheets of [sliced corn on the cob] on the salad with tomatoes and a smoky coleslaw dressing.
How have these affected traffic?
A lot of the offerings we put together have two purposes. One is to increase frequency and the second to attract new customers. Because most of our marketing is local-restaurant related, we first see the movement in frequency. After about four to five weeks, you see a slight lift again as word of mouth spreads. We have seen an uptick in sales and traffic with both the mac and cheese and salads in the last few weeks.
Any plans to add new categories to the menu this year?
No new categories this year yet. We believe there are opportunities to drive the selection process. We could add to the variety in appetizers and desserts, for example. We’re also thinking about alcohol as part of the dining experience. A lot of dishes pair nicely with beer and wine. We think there’s some low-hanging fruit there.
You’ve been looking at catering for a while. Will we see that this year?
We’ve done more work on what we’re calling Square Bowls, or bowls designed to serve a group, which is halfway catering. We get a lot of requests to cater weddings and other events, though we don’t have a formal catering program with chafing dishes and set-up.
But the Square Bowls have been growing in popularity. We have nice packaging around it and it does a wonderful job feeding large families, or for meetings or mid-size groups.
We’ll probably take it to the next step, especially as we’ve had some nice success with core business districts in urban areas. We will see more catering, but it won’t be a primary push this year.
I understand you’re looking at a new kitchen design.
We’re constantly trying to improve the capabilities of the kitchen, to make it more effective. We’re looking at a new kitchen with better sightlines and visibility, which is also more energy efficient. One of the things about Noodles & Company is that we really prep food and make it to order, which isn’t the case for all restaurants. We believe there’s an opportunity to showcase the kitchen.
We’ve been working on a couple of designs with a little more of an open kitchen that we’ll see in the third quarter.
You’re also looking at grab-and-go offerings?
Down the road we will look at grab-and-go. I think about our rice crispy treats, which is one of the best examples of grab-and-go because it’s so craveable. That space is growing. But it’s too early to share what we’re thinking. We will do some limited testing this year and look at that decision next year.
How is the business growing?
We have 261 restaurants in 20 states. We have grown beyond being a regional chain. About 20 percent, or 43 units, are franchised. Over the past six years, the significant amount of growth has been company-owned, and we will continue that.
We have a strong operating team and we’ve actually been building new restaurants at a double-digit pace. Few concepts have growth in the double-digit range and we’ll do that again this year with company units alone.
We have added a franchise sales person recently and we’re focusing more on that, but we think that will be incremental. For some of those slower areas or pockets we might not get into yet as a company, we might go into as franchise.
Are you also looking at overseas growth, as many companies are now?
Overseas growth involves risk tolerance and it also involves focus. But when you look at world in general, 86 percent of world’s population is outside the U.S. There is clearly opportunity out there.
We have looked at it, but haven’t made any commitments yet. I do think the successful restaurant brands in the U.S. are looking at it more and seeing opportunities. We’re in same bucket.
At same time, we’re also very disciplined. We’re still very much focused and committed to delivering a great dining experience. I think that’s what the brand has been built on and that formula is working.
How have rising commodity costs impacted Noodles?
Over last three years, commodity costs have had a lot going on. We’ve had crazy weather patterns. For 2011, we were well ahead with a lot of ingredients contracted for. This year we’ve come into issues like flooding and weather around the world. A few acts of God have impacted clauses.
Food costs have been higher than expected but we have been able to manage in other areas of our P&L.
The real challenge going into 2012 is: When do you lock in? Commodities will be something every management team is already paying close attention to. They’ll be looking at price value and the strength of their partners. It will be interesting to see how those things play out in 2012.
Have you raised prices?
We have not raised prices so far this year and we’re managing the commodity line pretty well.
What about the second half of 2011?
We never take the price increase possibility off the table, but we’ve always been begrudgingly the last one to the party when it comes to taking price. We don’t cut corners, and we have never put less quality ingredients in or made portion sizes smaller. We don’t play that game.
I think most of the industry is looking at 2011 taking between a 1.5-percent and 2-percent price increase. That’s the estimate for 2011, and next year is a question mark. Depending where commodities go, it might be something above that.
Contact Lisa Jennings at [email protected].
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