Noodles & Company has identified 20 underperforming restaurants that may be closed before their leases are up, the company said Wednesday.
The Broomfield, Colorado-based fast-casual chain saw some good results in the second quarter from its turnaround efforts, launched earlier this year. CEO Drew Masden plans to update or replace two-thirds of the menu, and tests of new items so far are going well, he said.
But the turnaround effort has also included a review of the portfolio, which is mostly company-operated. The 20 potential closure candidates have combined losses of about $2 million, the company said.
During the quarter, Noodles refranchised six units in the Portland, Oregon area, and five new company units opened, for a total of 473, including 379 company-owned and 94 franchised locations.
For the year, however, the chain expects to close 10 to 15 restaurants, which includes some of those underperforming locations, though Madsen said the timing of the potential closures is unclear and will be determined on a case-by-case basis.
The company has hired a national broker, which was unnamed, to begin discussions with landlords for those 20 underperformers.
Noodles earlier this year said a “targeted headcount reduction” would help cut expenses, though he did not offer specifics. [The company later said that effort resulted in the elimination of 15 positions in the central support office across various departments.]
Madsen said further cuts in expenditures would come from areas that have been deprioritized in the short term, like new unit openings, as well as employee benefit adjustments that save money while keeping the company competitive in the labor marketplace, and supply chain savings through improved vendor management and product optimization. Noodles’ expects to see more than $5 million in savings this year as a result.
Same-store sales increased 2% for the July 2-ended quarter, but that was largely the result of pricing and guests choosing more premium items on the menu. Traffic declined 1.1%.
Revenues increased 1.8% to $127.4 million. But Noodles’ net loss deepened to $13.6 million, from a loss of $1.3 million a year ago.
Three new menu items are scheduled to roll out nationally in October after successful tests, Madsen said.
The chain began testing a new Crispy Chicken Bacon Alfredo in June, and so far it has sold 50% more, and has higher guest satisfaction, than the current Alfredo MontAmoré, which will be coming off the menu.
Also being added is a Lemon Garlic Shrimp Scampi, which will address a need for lighter menu options, he said. And a Chipotle Chicken Cavatappi will be added to address the need for a Latin-inspired flavor profile.
Other items to be deleted: Zucchini with Garlic Cream Sauce, Leanguini Rosa and Leanguini Fresca. The Leanguini items are made with a higher-protein, lower-carb pasta.
Last week introduced five more dishes into test, and deleted one more existing dish. If those test well, they will be added in the first quarter next year. Limited-time offers will bridge the gap and drive traffic until the menu transformation is complete next year, he added.
The recent LTO featuring Baked Alfredo with Grilled Chicken didn’t do as well as the recent Steak Stroganoff, despite having stronger test scores and similar media support. Madsen blames the fact that three of the last four LTOs have all been Italian comfort foods, and “felt too similar to each other to generate special visit interest.”
So Noodles plans to jazz things up a bit with Spicy Korean Steak Noodles coming as an LTO in mid-August, which Madsen said will appeal to younger consumers, in particular.
Noodles is also looking to better leverage data to personalize marketing and reactivate loyalty members, rather than using discounts to drive traffic. Third-party delivery and catering also offer opportunities for driving traffic and sales growth, he said.
But don’t look for Noodles to participate in the value wars.
“We’re avoiding broad-based discounting,” Madson said. “It’s really hard to get enough traffic to offset the margin loss.”
UPDATE: This article has been updated with new information about the staff reduction.
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