Upstart looks to borrow Chipotle's special sauce

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With an uncomplicated menu of carbohydrate-packed comfort food-noodles, whether Italian penne pastas, Japanese pan noodles, Wisconsin macaroni and cheese or pad Thai-the simply named Noodles & Co. is an unlikely choice for a red-hot restaurant chain.

But the Boulder Colo.-based eatery, which tripled its revenue in three years, is streaking its way to the top of industry hot lists. Its graced the Inc. 500 four years running, was named Hot Concept and Top 50 Quick Casual Concept by Nation's Restaurant News and Entrepreneur of the Year by Ernst & Young, among other plaudits. Having made it through the nationwide noodle-no vote-its sales climbed 34% to $91 million last year during the anti-carb craze-the 107-unit chain across 10 states has begun an aggressive bid for wider consumer appeal with a new president, new board members, a new store design and new advertising.

The 10-year-old company has snared Kevin Reddy, chief operating officer from fast-casual darling Chipotle, as its president-chief operating officer to serve as the operational yin to the brand yang of Aaron Kennedy, founder and CEO. "Kevin has an incredible track record in driving same-store sales," said Mr. Kennedy. Mr. Reddy will also join the privately held company's board of directors as the fourth addition in a year following Betsy McLaughlin, CEO of Hot Topic; Deborah Smith Hart, former chief financial officer of Chili's parent Brinker International; and private-equity guru Scott Hedrick, who also is on the board of Office Depot and Hot Topic.

Mr. Reddy "was part of putting the team together that we have today," said Steve Ells, founder and CEO of Chipotle. "Noodles is lucky to have him on their team now."

Mr. Reddy will spend the next several weeks getting familiar with Noodles operations after many years of being a regular customer. "There's a buzz in this building and excitement in the restaurants that reminds me of Chipotle in many respects, yet it's uniquely different," he said. "It has the ability to be relevant to customers at a variety of levels from quick casual to casual dining to fine dining. What makes it special is it's more sophisticated against its typical competitors."

Since the late '90s, the East-meets-West chain's growth strategy has been to saturate the American heartland. From its first store in Denver's upscale Cherry Creek neighborhood, it has spread to each coast through a dual target of wealthy urban locales and college towns where worldly, health-conscious consumers tend to root. With its diverse menu, it is equally appealing to young moms and kids as it is college students.

The average store brings in $1.1 million per year in sales, but Mr. Kennedy wants to see that number grow to $1.5 million. To get there, the marketer must grow traffic and the average check, which stands now about $7, and grow to 500 restaurants over the next decade."Its success depends on how much better they can make their unit economics," said Malcolm Knapp, president of Malcolm M. Knapp restaurant consultant. Noodles would be "much more robust at $1.5 million [per store] because something that may have worked economically five years ago is now marginal and real estate is getting expensive and that changes your returns."


Two years ago the company began franchising stores and will add 15 to 20 company-owned stores and 10 to 15 franchised stores this year. In all, 155 restaurants have been committed via franchise agreements, many with owner/operators of Wendy's, Taco Bell, Burger King and Krispy Kreme.

Noodles is "proving that it has legs," said Tom Miner, principal at consultant Technomic, noting that the key is enough variety "so the whole family wants to go," and to go frequently.

Considering its whole concept relies on one main ingredient, Noodles' menu has evolved into many variants. First launched in October 1995, its offerings began with dishes made of noodles with Asian and Mediterranean flavors. It later added salads, sauteed and grilled meats and recently added a Noodle-less menu of meat-based sauteed dishes to appeal to heartier appetites. On Jan. 1 Noodles added a Whole-Grain Tuscan Fettuccine made with a fiber-packed 100% whole-wheat noodle.

First inspired by its 40-year-old CEO's frequent meals at Asian noodle shops when he was a brand manager at Pepsi, Mr. Kennedy didn't design the concept to fit into a segment. "I designed it from a customer perspective," he said, noting he relies heavily on "mother-in-law" research. "There's a tremendous amount of intuition in it." As a result, the mishmash of items that get put on the menu don't fit the typical fast-casual menu. "Even restaurant analysts have struggled with where Noodles & Co. fits."

Technomic has lumped the chain with Asian quick-casual brands such as Mama Fu's Asian House, Chin's Asia Fresh, Pei Wei Asian Diner and Pick Up Stix. That Asian noodle segment is small but growing quickly. Asian/noodle chains account for 5%, or $325 million, of the $6.5 billion quick-casual category, according to Technomic, with a combined three-year annual growth rate of 25%

Its more direct rivals are a sub-segment of emerging brands Nothing But Noodles and Wild Noodles, considered "global" noodle chains for their wider ethnic palettes. To further differentiate itself from the Asian noodle shops, Noodles & Co. has redesigned its store concept and is preparing to break fresh advertising. "Only 30% of our sales are Asian food," said Mr. Kennedy.

changing tack

It's also expanding its traditional out-of-home advertising, with radio, promotion and a Web component, while changing creative tack. The print and outdoor effort, shot by photographer Erik Almas, is aimed at bringing the brand's attributes of colorful, fresh and comfortable to life, through scenes of a Tuscan farmer tending his field, a quirky car with a large noodle bowl on top to promote takeout and a man breathing fire after eating a spicy dish. Sukle Advertising & Design, Denver, handles.

Noodles & Co.'s original out-of-home ads were built on "noodle doodles," which has since evolved from stark white and yellow creative to include color and more texture. "We've moved away from the noodle doodle to something that elevates the brand and give customers a more direct sense of where the food comes from," said Rich Miller, VP-marketing.This year, the marketer is also adding a seasonal-menu program starting with fresh asparagus for spring and supported by a whimsical marketing campaign that includes the chain's first contest, the Asparagus Queen contest.

Marketing spending is about 3% of sales and will include radio for the first time this year, along with a revamped Web site to build a better platform for relationship marketing. Mr. Miller is reviewing interactive agencies now and expects to soon assign the work. He declined to disclose the contenders.

store design

Store design, too, is changing. To-go service will have a dedicated door, seating, counter and parking to help drive takeout sales from one-third to half of total revenue. In addition to brighter colors, American B-side pop and European-inspired music, there is more diverse seating with single bar stools, u-shaped booths for families and a massive community table.

But the biggest change will be in the show kitchen where customers can watch the saute action. "The show kitchen really demonstrates to people that the food is made for them, made to order," said Mr. Kennedy. "As they absorb that intuitively and think `maybe I could have them hold the mushrooms or add more broccoli,' that allows mass customization."

Some observers muse that the chain is dressing up for sale. While Noodles & Co., which has 300 shareholders, acts like a public company and is "keeping its options open" for possible sale or public offering, "we do not have any imminent plans to become a public company," said Mr. Kennedy.

The big idea

To hit a target of $1.5 million per store, Noodles must grow traffic and the average check, which now stands at about $7

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