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• Content META

  Title	Third-Party Delivery Takes Sudden Hit at Noodles & Company
  ID	4414829
  External ID	7293386770
  Author	Ben Coley
  Published Date	Nov. 11, 2024, 7:38 p.m.
  Summary	Noodles & Company's rebound strategy under CEO Drew Madsen faced challenges in the third quarter, with same-store sales dipping 3.3 percent and traffic down 5.8 percent—steeper declines than the prior
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  URL	https://www.qsrmagazine.com/story/third-party-delivery-takes-sudden-hit-at-noodles-company/
  Sentiment	Negative: 0.73442    Neutral: 0.03717    Positive: 0.22841
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• Content Details

  Content ID	2632304
  Key	a0be7be2-101b-458d-b8e6-adcc84e8a8c0
  Content	Noodles & Company's rebound strategy under CEO Drew Madsen faced challenges in the third quarter, with same-store sales dipping 3.3 percent and traffic down 5.8 percent—steeper declines than the prior quarter. Madsen, who moved from interim to permanent CEO earlier this year, attributed the results to industry-wide volatility, heightened competitive discounting, and a tough consumer environment. He also pointed to two specific factors impacting Noodles: elevated discounting levels last year and a recent dip in third-party delivery sales. In 2023, Noodles pursued aggressive discounts to counter consumer resistance to price increases, which peaked at 13 percent last spring. It has normalized its discount level this year and invested the savings in targeted loyalty program outreach, broader digital messaging, and increased third-party marketplace spending. This strategy was effective in helping improve month-by-month from a significant gap in sales and traffic versus the fast casual industry benchmark in January. But intensified competitor discounting, combined with Noodles' high prior-year discounts, proved challenging in August and September for its same-store sales. In response, Noodles began boosting promotions, adding a kids-eat-free offer in September and a buy-one-get-one deal for three new menu items in October. Madsen noted a “significant improvement” in Q4 sales so far, even after the BOGO offer ended. On the third-party delivery front, Madsen said the company saw a “sudden and significant” decline in sales with the largest partner starting in late July—despite continued investment in sponsored listings, exclusive dishes, and profitable promotions. “We didn't change our strategy or our investment or our approach to engaging on the third-party channel,” he said. “We believe that our existing menu markup was what caused the problem, and we're evaluating alternative menu markups to make ourselves more compelling to the algorithm on that platform.” READ MORE Noodles is now about a month into testing different menu markups and has seen promising early results, he added. It plans to finalize the test and introduce a new optimal pricing strategy next month. With the comp sales and traffic declines, Noodles' AUV in Q3 was $1.27 million, down from $1.32 million in the prior quarter. Restaurant-level margin was 12.8 percent, versus 16.4 percent in the same period a year ago. Still, Madsen remains confident in Noodles' strategic plan set this spring, structured around five key priorities: operational excellence, menu transformation, digital advancement, catering growth, and financial resilience. “Creating a foundation of operations excellence remains our top priority,” he said. “Building this foundation demands that we be brilliant with the basics of staffing, training, and consistently executing to standards that will make us a better competitive alternative.” On the staffing front, turnover at both the hourly and management levels continues to improve, he added. On the training front, Noodles has implemented biweekly sessions across the system to review proper execution of a new food execution standard, a new service standard, and a new accuracy standard. The primary training focus is to improve the dimensions of our guest experience that correlate most directly with traffic growth—overall satisfaction, taste of food, and accuracy. On execution, the combination of team members who are better trained and managers who are in restaurants more consistently during the busiest periods to provide immediate coaching has led to guest satisfaction scores accelerating each month of the quarter on all three of those priority measures. “For perspective, a one percentage point improvement in our guest satisfaction surveys is statistically significant, and our overall satisfaction has improved by 10 percentage points in the last six months,” Madsen said. “As a result, our gap between the fast casual industry average on overall guest satisfaction has already been reduced by more than half, with all of this progress coming before our new menu transformation.” The chain's second priority centers around that menu overhaul, which is being conducted through a partnership with The Culinary Edge consulting firm. The first phase of this process involved concept testing to identify the most compelling ideas for both new and improved dishes. In the second phase, Noodles placed the new and improved dishes in a central location taste test with customers to ensure they exceeded the guest satisfaction average on the current menu. Both of the first two phases have been completed. The third phase kicked off this summer when the company placed the best new and improved dishes in test locations to assess real-world guest satisfaction, operational feasibility, and any related financial implications, including menu mix shifts. “Our goal is to impact roughly two-thirds of our menu through new or improved offerings over the next year,” Madsen said. “Given the magnitude of change involved for both guests and operations, we are taking a very thoughtful and strategic approach to testing, and we plan to stagger the national introduction of the complete updated menu over several months.” The national introduction began last month with the rollout of three dishes. There's the new Crispy Chicken Bacon Alfredo, which Madsen said is a “more contemporary” version of the current Alfredo Montamore, which it replaced. In just a few weeks, it has become the most viewed item on the chain's digital menu and its second best-selling dish overall, with average daily unit sales more than double the original alfredo dish. The second dish introduced nationally, Lemon Garlic Shrimp Scampi, addresses the need for lighter and fresher menu items. The third dish, Chipotle Chicken Cavatappi, was added to address the need for a Latin-inspired flavor profile on the menu. Both have guest satisfaction equal to or better than the current menu average and are meeting sales expectations based on prior test market results. The introduction of these three dishes was supported with a new commercial shot inside a Noodles restaurant called “Taste the Start of Something Great”, emphasizing a commitment to what Madsen called “bold, exciting culinary innovations.” To encourage trial, the company also offered the buy one get one free exclusive offer to rewards members. Customers are starting to notice. Traffic has improved from a run rate of approximately negative 6 percent before these changes were introduced to just negative 0.8 percent for Q4 to date. Madsen said that's not yet where he wants to be, even in a challenging environment, but it's encouraging to see that the menu innovation work has the ability to positively impact traffic trends. To help maintain this momentum, advertising during November and December will continue to focus on these three new dishes, supported by an increased level of media investment compared to last year. Looking ahead to further menu innovation, this month will see Noodles introduce three new signature Mac & Cheese dishes into its test restaurants. The offerings—Garlic Bacon Mac Crunch, Pulled Pork Barbecue Mac, and Buffalo Chicken Ranch Mac—have been the strongest performers in the central location taste test so far. When combined with an improved version of the current Wisconsin Mac & Cheese, they're expected to account for the chain's largest sales mix category. Assuming the success of these new dishes in test markets, they'll be introduced nationally in early 2025. Noodles' third strategic focus is driving profitable traffic growth by harnessing its robust digital ecosystem, which now generates 55 percent of the company's total sales. Loyalty members play a significant role, contributing 26 percent of sales and spending twice as much annually as non-members. The efforts with the third-party delivery partner to address the recent sales dip fall under this bucket, but the company is also focused on fine-tuning its own digital channels. Last year, Noodles invested in a customer data platform that aggregates all information about its known customers in one area. Madsen said this has enabled it to engage those customers using “smart, relevant, and personalized” offers with fewer discounts. In particular, it has focused on reactivating lapsed loyalty members, since active members have frequency more than 50 percent higher and have 2.5 more visits per year than the loyalty program average. In Q4, the chain will launch a revamped app for Android and iOS with a new home screen and rewards store experience. The update is geared toward strengthening the conversion rate once guests start an order, with easy-to-use actions like reorder, order a favorite, and order a saved order, while also allowing loyalty members to attach their most relevant active loyalty reward. On the catering front, Noodles is focused on maintaining double-digit growth while laying a foundation for even more robust gains in the future. Catering sales have steadily increased from 1 percent of sales in 2022 to 1.7 percent year-to-date in 2024, with Q3 system-wide catering sales up 27 percent year-over-year. Madsen believes catering could ultimately represent 4-5 percent of total sales as the company continues to refine and expand the channel. The program saw notable successes in Q3, including a new back-to-school occasion in August, which brought in the year's third-highest catering sales week. Noodles is leveraging dedicated messaging on menu innovation to encourage repeat purchases and attract new users to the channel. Another win has been the addition of fractional catering managers, who work to foster relationships with schools and local sports teams in key markets. In operational improvements, the company recently integrated ezCater into its system, eliminating the need to rekey orders from the third-party platform. Noodles is also exploring outsourced delivery options for online catering orders and a tech solution that enables transferring orders between restaurants. The final priority at Noodles is to strengthen the financial foundation with proactive cash management and a bigger emphasis on operational efficiency across the business. This includes a $21 million to $23 million reduction in capital spending compared to 2023. Noodles also has performed a detailed portfolio review that identified around 20 restaurants for potential closure before the end of their lease terms. Reflecting this review, the company closed five corporate locations and one franchised unit in Q3, followed by four corporate and three franchised locations in October. Noodles opened three new company-owned restaurants and one new franchised restaurant in Q3. It ended the period with 471 total units, 377 of which are company-owned and 94 of which are franchised.
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  Publisher Name	QSR Magazine
  Publisher URL	https://www.qsrmagazine.com/
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  Trust Flow Score	22
  Citation Flow Score	36

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  Data Source Name	Quantexa News
  Data Source Type	news
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