Dive Brief:

• Noodles & Company's digital sales grew 46% in 2019, comprising 23% of total sales, according to a company press release. Digital sales for the year also contributed to off-premise sales, which comprised 56% of total sales.
• During Q4 2019, digital sales increased 34% over the year-ago period and drove 25% of total sales and helped lift total off-premise to 58% of sales. 
• "To date, our initiatives have included enhancements to our digital ordering and quick pickup experiences as well as the introduction of drive-up pick-up windows in many of our new locations," CEO Dave Boennighausen said during the company earnings call. "Additionally, during the second quarter of the year, we expect to roll out direct delivery executed by third parties but ordered through our native digital channels to enhance delivery margins."

Dive Insight:

Noodles aims to eventually bring guests from third-party delivery partners to direct delivery as digital demand grows, Ken Kuick, Noodles & Company CFO, said on the call. The company also wants to negotiate fees with aggregators and implement a 10% premium on delivery systemwide to offset the costs of working with them.  

"[Direct delivery] brings a substantially lower fee for us. And then in the longer term, as digital continues to grow, we'll look at modifying our labor model, particularly in the front of the house," Kuick said. 

In some markets, customers can order directly from Noodles' app and enjoy lower fees due to the native delivery service. Although this increased cost may cause some consumers to seek food elsewhere, Kuick said the chain hasn't experienced a negative impact on guest value perception of delivery.

This seems a savvy way to maximize off-premise opportunity as digital ordering becomes more habitual for diners. According to the NPD Group, digital restaurant orders grew by 23% between 2015 and 2019 and represent 3.1 billion visits and $26.8 billion. They are also expected to continue growing at a double-digit clip through this year. For 2020, Boennighausen said that almost 30% of sales so far have come through digital channels, and 60% through off-premise. Delivery accounted for 8.8% of sales overall during Q4. 

The chain is also looking to bolster its loyalty program membership by creating tools to optimize diner engagement. With a new CMO that has "significant experience activating brands and engaging guests from a digital perspective," it will be interesting to see how the chain hones its promotional strategy going forward. Noodles revamped its loyalty program alongside the relaunch of its digital platform in Q4 2019, and now offers customized rewards based on a member's eating habits.

Previously, the loyalty program only offered surprise rewards at random, but currently offers a points-based tier system to better reward guests. Its website now features a personalized nutrition calculator as well so guests can create dishes that fit their dietary preferences, and launched digital menu boards. This broad-stroke approach to digital modernization is in keeping with broader industry trends, and ensures that the brand can better engage with diners both for delivery, pickup or in-store ordering, a three-pronged approach that is crucial to driving loyalty in today's market.