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Third-party delivery costs as a percentage of sales for Noodles & Company more than doubled in 2020.

Noodles & Company raises third-party delivery premium as costs cut into profits

Fast-casual chain sets growth goals to reach 1,500 units

Noodles & Company customers who order their food via third-party delivery now pay a 15% premium as the high fees the chain pays to those delivery companies continue to bite into profits.

The fast-casual chain based in Broomfield, Colo., raised the premium by 5 percentage points in early December, the company said while reporting earnings on Thursday for the year ended Dec. 29, 2020.

Chief financial officer Carl Lukach said that third-party delivery fees accounted for 5.7% of sales in the fourth quarter, up from 2% a year earlier.

The chain doesn’t charge any delivery fee for orders placed through its own digital channels.

The economics of delivery are becoming increasingly important at the chain, as they are at many restaurants.

Digital orders from Noodles & Company have skyrocketed during the pandemic, increasing by 128% in the fourth quarter compared to a year earlier. They accounted for 62% of sales during the quarter. More than half of those transactions were for takeout orders, but the remainder were for delivery — a trend that is likely to continue.

“Even as dining room restrictions have recently loosened in many of our markets, with over 90% of our restaurants now offering in-restaurant dining, digital sales continue to contribute roughly 65% of our total sales year-to-date,” CEO Dave Boennighausen said, adding that, as in-restaurant dining has increased in recent weeks, digital sales have remained strong.

He said the chain was well-suited to the changing times, as its food travels well and offers items to suit many lifestyles, especially since the introduction in 2018 of low-carbohydrate zucchini noodles.

“The variety inherent in our menu has been and will continue to be a meaningful strength of the brand as we offer favorites from kids to adults, healthy to indulgent and flavors both familiar and new,” he said, adding that the food travels well, has a relatively low price point and strong speed of service.

The menu has been bolstered by recent innovations, including new gluten-free cauliflower gnocchi introduced in January.

“We’ve been very pleased with the early results and feedback from this launch as the cauliflower gnocchi reinforces the concept’s ability to meet the varied dietary preferences of our guests and give them more reasons to visit Noodles & Company,” Boennighausen said.

He also expressed enthusiasm for tortelloni tests that were started in December.

“For years, a stuffed pasta has been the most requested item from our guests and we’re incredibly encouraged by our test’s initial results,” he said, adding that they have surpassed all the other tests in the 17 years he’s been with the company. He said the best-performing ones will be launched systemwide this summer.

Although same-store sales were down for the quarter by 4.7% compared to a year earlier, before the pandemic started, executives said they expected same-store sales to increase by the mid-to-high single digits in the first quarter of 2021.

For the fourth quarter of 2020, revenue decreased by 5.9% $107.2 million. The company reported a net loss of $3.8 million, or nine cents per share, for the quarter.

For the year, revenue was down by 14.9% to $393.7 million, and the company lost $23.3 million, or 53 cents per share. That’s compared to net earnings in fiscal 2019 of $8.1 million or 18 cents per share.

Boennighausen laid out goals for growth of the chain, which currently has 454 restaurants, of which 378 are company-owned and 76 are franchised.

He said he wanted to see unit growth of at least 7% starting in 2022, increasing to 10% with the ultimate goal of 1,500 restaurants.

He also said he wanted to see annual average unit volumes reach $1.45 million by 2024, up from the current $1.15 million, and profit margins of 20% that same year.

Lukach said margins in 2020 were 13.6%, down from 17.2% in 2019.

He added that he expected 10-15 restaurants to open in 2021 of which 8-11 would be company-owned. He also said that around five restaurants would close in the first quarter that were either nearing the end of their lease or were heavily reliant on office workers.

Contact Bret Thorn at [email protected] 

Follow him on Twitter: @foodwriterdiary

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