Ever since its IPO back in the summer of 2013, Noodles & Co (NASDAQ:NDLS) has been trying following the steps of Chipotle Mexican Grill, Inc. (NYSE:CMG) to become the next big hit in the fast casual space.
NDLS has come up short — but its trying shake things up by going paleo with its new menu rolled out this month.
Yes, that’s right. NDLS created four items it calls “buff bowls” — protein-packed meals that are nods to the popular Paleolithic diet, but don’t include NDLS’ namesake ingredient.
It’s a counterintuitive move, and a desperate one. It’s another reason why NDLS stock is one to avoid.
Are Customers Getting the NDLS?
Noodles & Co has been struggling lately, reporting same-store growth of only 1.3% in the fourth quarter. While year-end revenue grew 15% to $403.7 million, it was driven primarily by 15% year-end new store growth. The price of NDLS stock has fallen 52% in the last year and 36% since mid-February.
Furthermore, CEO Kevin Reddy emphasized that Noodles & Co. needs to do more marketing to draw awareness to the restaurant.
“One of the biggest opportunities that we have been working on is confronting the challenges of lower brand awareness nationally and especially in many of our newer markets with less than 15 restaurants.”
Basically, customers don’t really know about NDLS if there isn’t a store nearby.
Reddy affirmed the challenges. NDLS is planning 12-14% unit growth in 2015, which addresses the first issue of not having enough stores — although growing brand awareness by adding new stores is an expensive way to approach that problem.
The company also hired the Kansas City-based advertising firm Barkley to address its marketing needs. Whether the new marketing push will make a difference remains to be seen. Reddy stated that most of the actual marketing activity will take place towards the end of next quarter.
Why is NDLS Going Paleo?
NDLS has been trying other ways to get more buzz about the restaurant. Taking a page from Chipotle, NDLS has promoted its high-quality healthy ingredients, including the introduction of antibody free chicken. It recently introduced catering, but that service only represented 1% of its current sales.
Its buff bowls are the latest attempt to draw interest to the restaurant, an acknowledgment that consumers are eating more protein while avoiding grains and dairy.
Many other restaurants meet the need for a paleo-friendly cusotmers, including CMG. This make NDLS a follower than a leader, a fact that Reddy notes in Fortune.
“(Buff bowls) happens to be perfect for anybody in the paleo diet. It wasn’t the inspiration but it certainly meets that need,” Reddy said.
The Bottom Line
NDLS has a brand awareness problem. People don’t know its stores because there aren’t enough of them or haven’t seen any of its marketing. Either way, it results in disappointing financial results for NDLS.
Futhermore, any of the other attempts to draw customers into the store, whether it be using healthy ingredients or catering, hasn’t caught the customer’s attention. Noodles & Co’s buff bowls are a latecomer to other competitors’ paleo-friendly menu choices and runs counter to the restaurant’s brand.
This is just the latest delayed or misstep move by the company, which once aimed to be the next CMG.
Right now, NDLS should lower its slights to being a just another relevant quick casual restaurant. Until it does that, NDLS is a stock to avoid.
As of this publication, Johnny Chen does not hold a position in any of the aforementioned securities.
