When Drew Madsen became Noodles & Company’s permanent CEO in March, the chain had experienced three quarters of same-store sales declines. The chain ended 2023 with a 1.9% dip in comparable systemwide sales and a net loss of nearly $10 million, according to an earnings release. By contrast, rival fast casual brands like Wingstop and Chipotle grew same-store sales last year, making it clear that the chain needed a change of direction. 

“If traffic is down, that’s an indication that you’re not competitive,” Madsen said. 

To become more competitive, Noodles is in the process of deploying a five-point strategic turnaround plan that focuses on improvements to operations, menu and marketing.

“Our focus on operational excellence will elevate the guest experience, while a revamped menu caters to evolving preferences for fresh, globally inspired dishes,” Madsen said. “Leveraging our digital channels, we’ll engage guests with personalized marketing through our rewards program. Additionally, our catering expansion will drive revenue diversification.”

The company also plans to reduce capital expenses by slowing new unit growth and looking into lower-cost restaurant prototypes, Noodles said in its year-end earnings release. 

That doesn’t mean Noodles will stop adding franchisees to its system, however.  In 2021, the chain said it would recruit more multi-unit operators. Existing franchisees are opening additional locations, as well — SA Restaurants Group plans to open a second location in Myrtle Beach, South Carolina, this quarter as part of a multi-unit deal with Noodles, Madsen said.

“Our focus on multi-unit franchisees remains a key initiative for Noodles & Company. While the rollout of this strategy has been progressing steadily, we have adapted our focus in light of our new strategic priorities,” Madsen said. “As we look to the future, we are strategically evaluating potential franchise partners who not only share our vision but also possess the operational expertise and resources to drive growth and success in their respective markets.”

Enhancing menu with new flavors

Noodles isn’t the only chain focusing on ways to improve operations and ease traffic declines that have plagued the industry for a few years. 

Many restaurants have turned to menu innovation to draw in new and lapsed customers. Red Robin revamped its menu last year while IHOP added new items. Applebee’s is in the process of updating its menu, as well developing a smaller prototype to reduce franchise expenses. Earlier this year, Panera revamped its menu with more salads and sandwiches and removed some categories like flatbread pizza. Dave & Buster’s debuted 20 new menu items as part of a phased roll out this month. 

When Noodles analyzed guest experience and the frequency of its loyalty members, accuracy and food taste issues stood out, especially since they strongly correlate with traffic, Madsen said. In particular, the dinner daypart, which is a big percentage of the company’s sales, has had more traffic declines and a lower guest satisfaction compared to lunch.

Madsen said that the chain has a compelling platform since its menu focuses on freshness, flavor, variety and convenience. The chain makes everything fresh and doesn’t have steam tables or freezers. 

“Even though we have this great platform … we think our menu is a) a bit expected and b) has some gaps in it,” Madsen said. The brand hired The Culinary Edge, a food and beverage innovator, to help work through these issues, he said. 

Today’s guests are more diverse and food savvy, craving more distinct flavors, Madsen said, adding that Noodles’ menu only has Italian, Asian and American noodle favorites.

“We need a little bit more of what we call twisted classics. We need to put a stamp on those dishes. … We need to offer a few dishes with a bit more of a trendy flavor profile,” he said. 

That could mean more Latin or Cajun flavors. Madsen referenced Chili-Crunch Shrimp Pasta at The Cheesecake Factory that is approachable and on trend as an example. 

“We don’t have dishes like that,” he said. “That’s why we think our menu is a bit dated.” 

With the help of TCE, the company identified that it has gaps in light and fresh, twisted classics and trendy flavors. The next step was developing 30 to 35 menu items to help address those gaps, which then led to testing those concepts to make sure they appeal to its target demographics. 

The company found several opportunities for improvements that led to dish development with TCE. Now, it is in the process of taking these dishes to test in a central location and rating them against existing dishes, Madsen said. Assuming that the central test is successful, Noodles could start rolling out new dishes into three or four different markets that have six to eight units. 

In-unit tests will assess guest satisfaction levels, operational feasibility in terms of cook time, peak hour throughput and food waste. Madsen said a test could run as long as 12 weeks to ensure that they can see the impact on operations prior to rolling out menu changes nationally. 

Roughly 40% of Noodles’ menu will be updated with about three or four improvements to existing items and three to four new dishes added, Madsen said. 

“On the one hand, we do want to transform our menu to make it more compelling, more up to date, a little more contemporary and either increase frequency or attract new users,” Madsen said. “But we don’t want to make it more complex, which means we have to take a few items out.”

While that could impact loyal customers that go to Noodles for one specific dish, Madsen said the chain wouldn’t take anything off unless the replacement is “demonstrably better.” The company also won’t take items off the menu all at once, but phase them out over time, especially since staff need time to learn how to prep and produce the new dishes. 

During testing, the company asked staff not to change anything about the dishes, but to provide feedback instead on what’s working and not working. That way, management will have a better idea of what needs to be improved. 

“Then we’ll come back in a few weeks and make some adjustments,” Madsen said. “That’s why [the menu update] is in phases.” 

Leverage digital capabilities to boost consumer engagement

In addition to updating its menu, the company is planning to lean on its digital channels, which are already strong sales drivers, to boost customer engagement. 

Fifty-five percent of Noodles’ orders are placed digitally, Madsen said. The chain also boasts 5 million loyalty members, which account for 25% of all transactions. It’s adding about 50,000 new members monthly. The chain’s members produce two times the annual revenue non-members generate.

While its more recent focus has been on building frequency of its most loyal customers, Noodles is looking at ways to attract more customers who have similar psychographics and demographics as its best loyalty members, Madsen said. The chain is experimenting with more digital advertising, such as posts on social media, to target like-minded customers instead of doing mass marketing. 

Another way the chain is using marketing is through digital menu boards, which are in all of its company-owned restaurants and some franchised locations. These boards help highlight limited-time offers, such as its current LTO, Chicken & Prosciutto Tortellini with Smoked Gouda. One franchisee said he highlighted the LTO in one of his restaurants where he had a digital menu board and he sold out of it compared to his other restaurant where he had a static menu board, where the item garnered average sales. 

Digital menu boards can also highlight company commitments, such as sourcing fresh vegetables and not using freezers. 

“We can use it to build attachment [and] get people to buy our Krispies that we make everyday fresh or one of our shareables, our appetizers. So we can build it to build the check strategically,” Madsen said. “We can change all of that by restaurant, by geography, by trade area.” 

Following the execution of its five-point strategy, Madsen said he expects Noodles to “experience substantial growth and brand transformation” five years from now. 

“I envision Noodles & Company thriving with enhanced operational excellence, innovative menu options, expanded digital presence, a successful catering business, and financial stability,” he said. “Ultimately, Noodles & Company will continue to emerge as a strong, competitive brand in the restaurant industry drawing a diverse customer base and delivering value to shareholders and stakeholders,” Madsen said.