Noodles & Co.'s Digital Sales Skyrocket 135%
Digital sales climbed 135% accounting for 74% of Noodles & Co. sales during Q2.
“Digital sales have continued to grow rapidly relative to the prior year thus far in the third quarter even as on-premise dining resumes in many restaurants, with 148% growth during the fiscal period ending July 28,” said CEO Dave Boennighausen in an earnings call with analysts.
Comparable restaurant sales decreased 30.9% system-wide, comprised of a 30.1% decrease at company-owned restaurants and a 35.4% decrease at franchise restaurants. A full earnings report is available here.
On-premise dining continues to re-open, and as of August 5, 92% of company locations and 100% of franchise locations offering either in-dining room or patio seating.
At the end of Q2 there were 456 Noodles & Co. locations, including 380 company-owned restaurants and 76 franchise restaurants.
Drive-Thru Demand
Noodles has joined Chipotle in adding drive-thru pickup lanes for digital orders. Newer locations with drive-thrus are stars of the class, outperforming locations without drive-thrus by double digits. Many reached sales volumes 14% above company averages and combined for restaurant level margin of 19.4%, and the average transaction was only one minute, said Boennighausen.
The company plans to open three new locations later this year and will launch “a more rapid acceleration” of new stores in 2021, more than 70% of new locations will include the order-ahead, drive-through pickup windows, said Boennighausen.
Smaller Packages in the Forecast
The order-ahead, drive-through pickup windows are also being retrofitted into select, existing locations.
Expect more digital pickup windows and smaller on-premise dining rooms. Also Boennighausen pointed to the possibility of having “purely off-premise” locations. “We feel that there is a spectrum of real estate opportunities,” said Boennighausen.
The average store size is about 2,600 square feet, but new construction these days is measuring about 2,000 square feet “…Next year, you will see a much smaller square footage that’s much more off-premise oriented, incorporating those drive-through windows, etc,” he said.
“…We do anticipate that there is going to be meaningful disruption in the real estate environment for restaurants in the coming years. And we’re excited about the opportunity for us to take advantage of that disruption with a more efficient off-premise-oriented footprint.
Meeting Consumer Demands
The noodle bowl concept resonates with today’s consumers seeking off-premise options. “Even prior to the onset of the COVID pandemic, off-premise sales have grown to 60%... Our concept possesses the speed of service, value and the variety necessary to meet the consumer need for convenience. Additionally, our food travels extremely well relative to many competitors, and we resonate with younger demographics and families who have gravitated towards off-premise occasions,” said Boennighausen.
A competitive advantage, Boennighausen said, is the brand’s strong digital program, including loyalty, which has been bolstered by investments made over the last few years.
In recent months Noodles has made several significant enhancements to its digital and off-premise offerings, including the national expansion of its partnership with Uber Eats, the implementation of curbside delivery at most restaurants and the ability to order delivery directly from the brand’s website and app. “Our digital strength has been a tremendous driver of our improving sales trends over the past several weeks, culminating in digital growth during the June fiscal period of 155% over last year in pure dollars and accounting for 67% of overall sales,” said Boennighausen.
In early August, digital sales continue to represent almost two-thirds of all revenue. “Our initial results as we reopen dining rooms do support our thesis that much of the digital sales gained during the COVID pandemic have come from increased trial and market share gains as guests have either newly discovered the brand or they’ve discovered new ways to use us,” he said.
Membership in its updated loyalty program, NoodlesREWARDS, has topped 3.3 million members.
Incenting Guest Behavior
Expect data gleaned from its digital platform to be leveraged more in the future. “During the COVID pandemic, we’ve seen record number of daily sign-ups with an average 46% increase relative to pre-COVID levels. While we’ve been able to target specific messages and promotions based on certain guest behavior, we really believe we are still very early in unlocking the ability to utilize guest data to better engage with our guests,” explained Boennighausen. “We expect our rewards program to be a meaningful driver of AUV growth during the balance of 2020 and beyond.”
The brand will also push its guests to order delivery through its app and fulfilled by UberEats.
“You’ll continue to see us testing how to drive more and more people towards the direct delivery experience through our native digital channels,” said CFO Ken Kuick. “That allows us to have just a better experience for the guests. They’re able to participate in the rewards program. Certainly, there’s margin benefits to that as well.”