Drew Madsen took the reins of Noodles & Company as its permanent CEO earlier this month, after having been named the fast-casual chain’s interim chief executive in November, and in an earnings call discussing the chain’s losses for fiscal 2023 he outlined his plans for the chain’s turnaround.
And a turnaround is in order: The chain booked a net loss of $9.9 million for the year and same-store sales were down 1.9%. Results were worse for the fourth quarter, ended Jan. 2, 2024, when revenue was down by 8.9% and same-store sales were off by 4.2%.
The Broomfield, Colo.-based chain’s troubles began in February of 2023 as it took the last in a series of recent price increases, but Madsen, a veteran of Panera Bread and Darden Restaurants, said the sharp downturn in sales indicated that more was wrong with the fast-casual concept than just prices.
Previous CEO Dave Boennighausen had hired restaurant consulting firm The Culinary Edge to rework the menu, and that work has continued under Madsen, who recently shared his thoughts with Nation’s Restaurant News.
You’ve said that the drop in traffic at Noodles & Company indicates that customers are disenchanted with more than higher prices, so what are the other issues?
Let me back up. I think the basic pricing strategy that all brands should follow is, A, protect margins by pricing to cover inflation; B, protect your competitive position in the market by making sure you don't price beyond inflation, just price up to the inflation you have to cover.
And, C, for whatever amount of pricing you have to take, make sure you do it in a way that respects elasticity: Put the most [increased] pricing in regions and restaurants and dishes that proved to be relatively inelastic, meaning people don't change their behavior when you take [the price] up.
We probably didn't fully respect that framework. We priced beyond inflation, it hurt our competitive position, and the way we put the pricing in the market wasn't fully aligned with the elasticity. But still the magnitude of our drop in traffic just suggested it wasn't only the pricing.
How’s it going now?
It's going to take a little while. It's not going to be a quarter or two before you change the way people think about you. It's going to take two or three occasions.
And your frequent users only come in around once a quarter, right?
A little less than one and a half times per quarter.
We're going to have to get new users, but we're not going to try and bring in a lot of them until we have a better menu, and that's what we're working on now.
We've got a platform that does what today's customer wants: Fresh food. We prep a dozen vegetables every day. We sauté [dishes] to order.
A more ethnically diverse customer base wants more interesting flavors, more distinctive flavors. We have some of those; we need more, but we’re built to deliver that.
Then they want convenience and we’ve got a very good digital ecosystem for a company our size [as of the end of the fiscal year Noodles had 470 locations, of which 380 were company-owned and 90 were franchised]. Digital orders are more than 50% of sales.
So we offer all those things. We're just not capitalizing on them fully.
But you have already started making changes, right?
In January we increased sauce in the Mac & Cheese by 50%, and menu mix is up a little bit on that, and then we introduced a limited-time offer: Chicken Prosciutto Tortelloni with smoked Gouda sauce, and that's been out five or six weeks. It’s doing fine.
We were talking about our digital menu boards a minute ago. Most of our franchisees don't have digital menu boards yet. All the company units do.
But one of the franchisees that I had dinner with a couple of weeks ago said in one unit where he's got digital menu boards, he put the tortelloni on the board with some video we had about saucing it in a pan — giving it a little romance. And he sold out of it in that unit.
And in his other three units that didn't have digital menu boards it was at best an average seller.
And it's a little above average price so it's a good mix for him, but it did demonstrate the opportunity to use those boards differently.
Isn’t mac & cheese already your best seller?
It is, and it doesn’t get many complaints, but the complaints it gets tend to be related to the amount of sauce, and we get a lot of requests for added sauce.
And as more of our business has shifted to off-premises, and it sits a little bit [so the pasta absorbs more of the sauce], we wanted to make sure there were no complaints.
You’re also working on some operational efficiencies, right?
We've got such an opportunity at dinner compared to lunch in terms of traffic and guest satisfaction, particularly on the things that matter most: Order accuracy and food taste. And we've got such a big opportunity in my mind in the bottom quartile of restaurants.
It’s all the same menu. It's the same building [design] and the same training. I think the way they've been led and the coaching and redirection they've gotten, and the standards they've been held to, need to be examined.
Same thing at dinner. When we're busiest, we need the best people there, and too often we don't have general managers there or we don't have area managers showing up at dinner to make sure they're reinforcing all training standards.
Dinner’s our busiest daypart in terms of sales, but our guest satisfaction isn't as good and our traffic loss over the last two or three years [is higher]. And the presence of management isn't as good.
How satisfied are you with the progress that you're making?
Well, on the menu, we're really satisfied, but we're also following a very, very disciplined process, more so than we have in the past, but we’re definitely through the first two phases. The first phase was working with [The Culinary Edge] and with their help assessing our menu.
We have a gap in light and fresh [items], we have a gap in “twisted classics.” We've got buttered noodles, mac & cheese, fettuccine Alfredo, spaghetti and meatballs.
They’re mainstays, but you can get those things in a lot of places. We need to put our twist on at least a couple of them. That’s “twisted classics.”
And then [our third gap] is trending flavor profiles. We really don't have much in the Latin, spicy chile crunch kind of world, as an example.
The other thing that TCE recognized was that our sauces in general are good, but the balance in our dishes isn't that good, meaning too much pasta, not enough vegetables, and not enough visible vegetable and protein — just the way we plate it, We don't need to put in more protein. We do need to put in more vegetables, and we need better balance in the dishes.
Given that work, we developed about 35 concepts for new recipes and we tested those plus a number of benchmarks from the current menu. We had to identify some new items that scored statistically higher than the benchmarks and proceed to develop dishes for those. We got those developed and ate those about a month ago.
Now we’re in the third phase of putting those into a central location test with a number of benchmarks from our current menu.
We’re doing it differently than the way Noodles tested in the past. We're recruiting customers who are aware of Noodles and that expressed an interest in that particular type of dish. We’re going to do that next month, and assuming we have success there, then we're going to take those to an in-market test in three or four different cities with about six or seven restaurants in each city.
We hope to get one franchisee to join us so that we get their learning and support. That would start sometime this summer.
Then the biggest unknown is how long we have to read that test to get a real feel for … what the future menu mix is going to be.
Are you considering any kind of moves toward incremental purchases, like different beverages, or desserts other than your popular rice crispy treats?
We’re trying to develop some new shareables that are lighter and fresher than our cheesy breadsticks or pot stickers. Those are pretty popular, but our main entrées are fairly heavy, and one of the things our target guest is asking for is some lighter, fresher things.
We’re also taking a look at our ready-to-drink beverages. It's been a while since we refreshed that, but there’s nothing to report on that yet.
Contact Bret Thorn at [email protected]