Drew Madsen, who became interim CEO of Noodles & Company in early November following two challenging quarters, said the fast-casual chain has a bright future, though some changes need to be made.
“Noodles has a lot of opportunity. They compete in a need state that is only going to grow,” he said — specifically affordable, fresh, portable comfort food with a twist. “We have a unique operating platform to capitalize on that. We’re just maybe a little dated in what we’re offering.”
Noodles reported declining sales in the past two quarters in response, at least in part, to higher menu prices, resulting in the departure of Dave Boennighausen, who had been CEO of the company since his promotion from chief financial officer in June of 2017.
“The board decided after much discussion that it was in the best interests of all stakeholders for a transition, which is what led to Dave leaving the company,” Madsen said. “They asked if I’d be willing to be interim CEO until they found a permanent replacement, which is what we’re doing. We’re in the process now of kicking that [search] off.”
Madsen, left, a former chief operating officer of Darden Restaurants and Panera Bread, joined Noodles’ board at the end of 2017.
One of his first priorities as interim CEO is to add some sophistication to the chain’s pricing strategy.
Madsen said most chains have multiple pricing tiers across their system, based in part on labor cost but also on how customers in each market, or at each restaurant, respond to changes in price: If customers at Restaurant A don’t balk at higher prices but those at Restaurant B do, then it’s important to respond accordingly, generally resulting in a pricing spread of 10%-15%.
“We don’t have that today,” he said.
Electronic menu boards that are currently being rolled out at Noodles’ 465 restaurants, and which should be completed at company-owned locations by the end of the year, will help make those adjustments more quickly, he said.
Madsen and his team also hired consulting firm The Culinary Edge to help rework the menu layout to make it easier for low-frequency customers to understand, as well as to develop new menu items.
He said the Chicken Parmesan that was rolled out in early September was the best performing new item in several years and underscored the fact that the chain’s customers were looking for comfort food.
“It’s cheesy, it’s yummy, it’s gooey. It’s comfort food and we need to do a little more of that,” Madsen said.
Although Noodles & Company offers items from a global pantry, including its Japanese Pan Noodles, Spicy Korean Beef Noodles, and Roasted Garlic Cream Tortelloni, its best-selling items are mac & cheese.
Madsen said the decline in traffic in recent quarters, double digits in the 2nd quarter and 6.7% in Q3, was too steep for the previous price increases to be the only factor in the drop off.
“Our traffic is really down,” he said. “Our customers are telling us that what we’re offering isn’t as compelling as it used to be. I think pricing is part of it but the magnitude of our traffic drop suggests that we’ve got a bigger opportunity.”
That adjustment will include culinary innovation and a menu redesign, he said.
A company spokesperson said the next menu change will likely occur at the end of January.
“To me the opportunity starts with stepping back and understanding really who your customer is and why they come to you, and then [asking] how can you be a better competitive alternative,” Madsen said.
A bit down the road, Madsen sees more opportunity in catering, which only accounts for 1.5% of sales, as opposed to a more usual 5%-7%, he said.
He added that Noodles’ five million loyalty program members have remained loyal, with less drop off in purchases than lower-frequency customers, and account for around 25% of all transactions. So increasing membership is another key goal for the chain, as is making use of its recent investment in a customer data platform that “helps us understand and market to people in a more personalized way,” Madsen said, such as tailoring promotions based on when specific customers visit the restaurant and what they order.
Contact Bret Thorn at [email protected]