In this FDD Talk post, you’ll learn the following:
- Section I – Estimated initial investment (franchise costs) for a Noodles & Company franchise, based on Item 7 of the company’s 2022 FDD
- Section II – Initial franchise fee, royalty fee, and marketing fee for a Noodles & Company franchise, based on Items 5 and 6 of the company’s 2022 FDD
- Section III – Number of franchised and company-owned Noodles & Company outlets at the start of the year and the end of the year for 2019, 2020, and 2021, based on Item 20 of the company’s 2022 FDD
- Section IV – Background information on the Noodles & Company franchise opportunity, including relevant news updates
- Section V – Presentation and analysis of Noodles & Company’s financial performance representations (average revenues and/or profits), based on Item 19 of the company’s 2022 FDD, including information on the:
- 2021 average, median, high, and low net sales for the 365 company-owned, 76 franchise-owned, and 441 company-owned and franchise-owned Noodles & Company Restaurants open during the entire 52-week period ended December 28, 2021
- 2021 average and median net sales, cost of sales, gross profit, labor, controllable expenses, occupancy cost, non-controllable expenses, and restaurant EBITDA for the 365 company-owned Noodles & Company Restaurants open during the entire 52-week period ended December 28, 2021
- Section VI – Key ratios, comparables, computations, and analyses for the Noodles & Company franchise opportunity (exclusive content for Platinum subscribers)
Section I – Noodles & Company Franchise Costs
- Noodles & Company franchise costs, based on Item 7 of the company’s 2022 FDD:
- Leasehold Improvements: $477,000 to $638,000
- Architectural and Other Design Fees: $63,000 to $102,000
- Landlord Credits: ($125,000) to ($90,000)
- Kitchen Equipment: $164,000 to $181,000
- Millwork & Furniture: $34,000 to $54,000
- Computer Equipment: $19,000 to $31,000
- Signage: $24,000 to $30,000
- Permits and Licenses: $0 to $28,000
- Supplies and Smallwares: $3,800 to $4,000
- Opening Inventory: $6,000 to $10,000
- Safe and Cash on Hand in Registers: $1,000 to $3,000
- Utilities: $1,000 to $7,000
- Pre-Opening Cash Occupancy Costs: $0
- Training: $23,000 to $32,000
- Grand Opening Marketing Program: $1,500 to $2,100
- Legal Expenses: $0
- Additional Funds – 3 Months: $0 to $34,458
- Franchise Fee: $35,000
- Total Estimated Noodles & Company Franchise Costs: $727,300 to $1,032,642
Section II – Noodles & Company’s Initial Franchise Fee, Royalty Fee, and Marketing Fee
- Noodles & Company’s initial franchise fee, royalty fee, and marketing fee, based on Items 5 and 6 of the company’s 2022 FDD:
- Franchise Fee: $35,000
- Royalty: 5.0% of Net Royalty Sales
- Brand Development Fund: currently 0.0% of Net Royalty Sales
- Field Marketing Funds: currently 1.0% of Net Royalty Sales
- Marketing Administration Fee: currently 1.25% of Net Royalty Sales
- Cooperative: determined by cooperative
Section III – Number of Franchised and Company-Owned Noodles & Company Outlets
Franchised
2019
- Outlets at the Start of the Year: 65
- Outlets at the End of the Year: 68
- Net Change: +3
2020
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- Outlets at the Start of the Year: 68
- Outlets at the End of the Year: 76
- Net Change: +8
2021
- Outlets at the Start of the Year: 76
- Outlets at the End of the Year: 76
- Net Change: 0
Company-Owned
2019
- Outlets at the Start of the Year: 394
- Outlets at the End of the Year: 389
- Net Change: -5
2020
- Outlets at the Start of the Year: 389
- Outlets at the End of the Year: 378
- Net Change: -11
2021
- Outlets at the Start of the Year: 378
- Outlets at the End of the Year: 372
- Net Change: -6
Section IV – Background Information on the Noodles & Company Franchise
19 Things You Need to Know About the Noodles & Company Franchise
Continues Strong 2021 Performance
1. In late October 2021, Noodles & Company revealed its Q3 results. The company’s total revenue in the third quarter increased 18.1 percent to $125.1 million, up from $106 million in Q3 of 2020. The company continued a strong 2021 with positive margins across most categories, including comp sales, which increased 16.3 percent system-wide, made up of a 15.3 percent increase at company-owned restaurants and a 21 percent lift at franchise restaurants. Company average unit volume (AUV) was up as well, setting a record at $1.38 million, which represented a 16 percent hike compared to Q3 2020 and a 15.9 percent increase over Q3 2019.
2. According to CEO Dave Boennighausen, “In addition to strong sales performance, our restaurant-level margin in the third quarter expanded 270 basis points versus the prior year to 18.1 percent, despite the impact of the current inflationary environment.”
3. Boennighausen credited several factors. He said both AUV and the company’s margin expansion could be attributed to the success of newly-opened units, specifically those that debuted between 2019-2021. Those stores continue to perform above company averages. Also, Boennighausen said the fast casual’s continued implementation of a three-tiered strategic plan has generated quantifiable results. The tiers are: continued differentiation of the company’s concept to appeal to a broad range of lifestyles, further activating the brand through digital assets, and accelerating unit growth to take advantage of an operating model the concept feels is ideally suited for a post-COVID world.
4. Noodles & Company’s rewards program continues to be a boon for the company, with membership approaching 4 million. The CEO said the program is a key factor in customer acquisition, and allows Noodles & Company to develop more personalized, relevant communication.
5. Boennighausen added, “We have made significant progress with our digital capabilities and their impact on driving new guests, new usage occasions, and increased frequency among a broad group of consumers. Digital continued to account for 52 percent of our sales in the third quarter, even as in restaurant ordering returned to 70 percent of pre-COVID levels.”
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6. Some of the restaurants that opened between 2019-2021 feature order-ahead, drive-thru windows, and Boennighausen credits this new feature with helping drive an increase in sales. He said the company estimates, on average, that the new feature increases sales by approximately 10-20 percent relative to traditional new restaurants. “We continue to expect at least 70 percent of new restaurants to incorporate the order-ahead, drive-thru windows as they improve convenience for our guests and are easy to execute for our operations teams,” he said.
7. Although new units are surging, Noodles & Company hasn’t been entirely immune to issues like supply chain shortages that have plagued others in the industry. CFO Karl Lukach said several openings were pushed back. Lukach said, “We and our franchisees have seen delays in construction, landlord building delivery, and equipment availability over the last several months. As a result, we have pushed three company openings and two franchise openings originally slated for 2021 into early 2022.”
8. For 2021, the company expected seven to nine new restaurants systemwide compared to a previously predicted 10-15. The change in the number of stores opening in 2021 did not overly affect broader growth predictions. Lukach said the larger pipeline remains strong as the company looks to eventually open at least 1,500 units nationwide.
9. Additionally, the CFO provided an update related to the rollout of new steamer equipment. He said the company is 75 percent done so far and expects up to 90 percent of steamer equipment to be added by the end of the year. “We remain encouraged by the positive results demonstrated by improved cook times, reduced labor hours, and better taste of food scores,” Lukach said.
10. Noodles & Company’s operating costs were 280 basis points higher than 2019. Lukach said this can be attributed to third-party delivery fees. “Delivery fees were 5.3 percent of sales in the third quarter, compared to 5.5 percent in the third quarter of last year. We expect third-party delivery to remain an important driver of the business going forward. And as such, we expect our operating cost percentage in the fourth quarter to be at similar levels to the third quarter,” he said.
11. As inflation and supply shortages continue to affect the costs of goods, menu prices have been steadily increasing throughout the industry. Noodles & Company is no exception, with a planned price increase of 2 percent being applied to their core menu for Q4. “This increase will coincide with the lapping of price actions taken last year in fourth quarter, and we expect full fourth-quarter pricing to be approximately 7.5 percent,” Lukach said.
12. For Q3, cost of goods sold was 25.1 percent of sales, an increase of 30 basis points from 2020 and 20 basis points better than Q3 2019, which is a better outcome than was predicted in Q2 2021. That can be attributed to three things, Lukach said. “Our ability to offset the current inflationary environment was driven by temporarily securing shorter-term inventory at more favorable rates than the spot market, driving efficiencies in our discounts, and the 3 percent pricing we took on our core menu during the third quarter,” he said.
Announces Signing of 55-Restaurant Franchise Deal in California with Warner Foods
13. In mid-January 2022, Noodles & Company announced a partnership with Warner Foods as its new exclusive franchise partner for the state of California. With a 12-year growth plan commitment, Warner Foods, which will operate as NorCal Noodles, LLC (NorCal Noodles) under this agreement, will develop 40 new Noodles & Company locations throughout the state. Additionally, as part of the agreement, all 15 current company-owned Noodles & Company locations in California will be re-franchised to NorCal Noodles. The transaction was expected to close on Wednesday, January 12, 2022.
14. Dave Boennighausen, CEO of Noodles & Company, said, “We are thrilled to announce our partnership with Warner Foods to expand our brand further into the California market. Importantly, this also marks the second announced new franchise agreement in the last few months, reflecting momentum towards our goal to significantly increase our franchise locations as part of our overall growth plan. Warner Foods has a proven track record of superior operations, coupled with a people and guest-centric culture, making them the perfect fit to bring the Noodles & Company brand to more communities throughout California. Our economic model, on trend culinary innovation, and ability to meet the needs of today’s consumer through our off premise and digital strengths, position the brand well as an attractive growth vehicle for franchise investment.”
15. Eddie Nieves, partner and operator at Warner Foods, commented, “We are excited to add Noodles to our portfolio of brands. Noodles is one of the strongest brands in the fast-casual space, and over the past couple of years we’ve seen Noodles emerge as a leader in its ability to innovate its menu, its culture, and its brand. We’re excited about the opportunity to partner with them and further grow Noodles in California, where we already do well with our other brands.”
Company History
16. Noodles & Company was founded in 1995 by Aaron Kennedy in Denver, Colorado. Kennedy, who was a marketing executive for Pepsi at the time, came up with the idea for Noodles & Company while eating at Mamie’s Asian Noodle Shop in New York. He realized that there wasn’t a dedicated noodle restaurant in the quick-service restaurant (QSR) sector. A year before opening the first Noodles & Company restaurant, Kennedy and future COO, Joe Serafin, and head chef, Ross Kamens, began developing recipes for the concept.
17. Unfortunately, Noodles & Company really struggled in the beginning. In the first three months, Noodles & Company lost $42,000 ($72,567 in 2021 dollars). The restaurant almost went out of business after a scathing review was published in the Wisconsin State Journal. Other highly negative reviews followed and Kennedy decided to rework everything, including the menu and operating procedures.
18. Kennedy and his team re-grouped in mid-1996 and implemented several changes, including overhauling the menu, décor, the prices, and the way the noodles were cooked. All the changes worked and Noodles & Company recovered. Kennedy began opening additional locations and franchising started in 2003. In 2010, a majority interest in Noodles & Company was acquired by an investment group led by Catterton Partners. Today, there are Noodles & Company restaurants across 29 states and Washington, D.C. A majority of these locations are company-owned, but Noodles & Company has recently invested in additional franchise expansion.
Entrepreneur’s Franchise 500
19. Noodles & Company did not rank on Entrepreneur’s 2022 Franchise 500 list.
Section V – Financial Performance Representations (Average Revenues and/or Profits) for the Noodles & Company Franchise (Item 19, 2022 FDD)
- Noodles & Company is providing statements of and information regarding average and median net sales of company and franchise Restaurants for its 2021 fiscal year. Noodles & Company is also providing statements of and information regarding restaurant contribution to gross profit and restaurant EBITDA of company Restaurants in its 2021 fiscal year.
Part 1 – Statement of and Information Regarding Average and Median Net Sales of Noodles & Company Restaurants for the 52-Week Period Ended December 28, 2021
- As of December 28, 2021, Noodles & Company operated 372 domestic company-owned Restaurants, and there were 76 franchise-owned Restaurants, for a total of 448 Restaurants.
- However, the Statement of Average and Median Net Sales consists of averages and medians of the reported Net Sales only for those Restaurants open for the entire preceding 52-week period. Therefore, the Restaurants that were excluded were those that opened in 2021.
- 365 company-owned Restaurants were open and operating for the entire 52-week period. There were also 76 franchise-owned Restaurants open and operating for the entire 52-week period, for a total of 441. The remaining 7 company-owned Restaurants were not open for the full preceding 52-week period.
- In 2021, Noodles & Company permanently closed 11 company-owned Restaurants (none of which had been open less than 12 months) and 1 franchisee permanently closed 1 franchise-owned Restaurant. Their performance also is not included in this Item 19 because those Restaurants were not open during all of 2021.
Company and Franchise Net Sales
- Average Net Sales: $1,300,003
- Median Net Sales: $1,275,552
- High Net Sales: $2,576,075
- Low Net Sales: $481,796
Company Net Sales
- Average Net Sales: $1,310,605
- Median Net Sales: $1,277,951
- High Net Sales: $2,576,075
- Low Net Sales: $481,796
Franchise Net Sales
- Average Net Sales: $1,244,795
- Median Net Sales: $1,243,670
- High Net Sales: $2,031,536
- Low Net Sales: $672,960
- 205 of the 441 Noodles & Company Restaurants used for calculating the Average and Median Net Sales for the period referenced above, or 46.5%, attained or surpassed the Average Net Sales of $1,300,003.
- 166 of the 365 company-owned Restaurants used for calculating the company Average and Median Net Sales, or 45.5%, attained or surpassed the Average Net Sales of $1,310,605.
- 38 of the 76 franchise-owned Restaurants used for calculating the franchise Average and Median Net Sales, or 50.0%, attained or surpassed the Average Net Sales of $1,244,795.
- Net Sales is defined for this Statement as the aggregate amount of all sales of food, beverages, and other products sold in or by a Noodles & Company Restaurant during the entire 52-week reporting period ended December 28, 2021 whether for cash or credit, but excluding: (1) all federal, state, or municipal sales or service taxes collected from customers and paid to the appropriate taxing authorities, (2) all coupons, promotions, discounts, refunds, employee discounts, or other adjustments made by Noodles & Company Restaurants, and (3) adjusted for temporarily closed Restaurants.
- Net Sales may not be the same as Net Royalty Sales as the term is defined in the Franchise Agreement.
- The financial performance representation figures do not reflect the costs of sales, operating expenses, or other costs or expenses, that must be deducted from the gross revenue or gross sales figures to obtain your net income or profit.
Part 2 – Statement of and Information Regarding Restaurant Contribution to Gross Profit and Restaurant EBITDA of Company-Owned Restaurants for the 52-Week Period Ended December 28, 2021
- This Statement consists of the averages and medians of 365 company-owned Restaurants open as company Restaurants during the entire 52-week period ended December 28, 2021 and excludes those Restaurants that the company closed in 2021.
- Net Sales is defined for this Statement as the aggregate amount of all sales of food, beverages, and other products sold in or by a Noodles & Company Restaurant during the entire 52-week reporting period ended December 28, 2021 whether for cash or credit, but excluding: (1) all federal, state, or municipal sales or service taxes collected from customers and paid to the appropriate taxing authorities, (2) all coupons, promotions, discounts, refunds, employee discounts, or other adjustments made by Noodles & Company Restaurants, and (3) adjusted for temporarily closed Restaurants.
- Net Sales may not be the same as Net Royalty Sales as the term is defined in the Franchise Agreement.
- Cost of Sales includes the cost of food, beverages, paper, and other products included in the preparation and sale of food, beverages, and other products to customers. The cost of sales may vary considerably based on where a Restaurant is located within the geographical area serviced by the company’s approved suppliers and distributors, and based on potential fluctuations in commodity costs.
- Labor includes wages paid to management and employees of the Restaurant, including restaurant managers and shift supervisors, management bonuses, payroll taxes, health insurance, workers’ compensation, vacation and other employee benefits. This amount does not include wages or overhead from the Noodles & Company Central Support Office. Labor is as reported, and was not adjusted to be annualized for a full year to account for labor efficiencies that were implemented during 2021 or for the impact related to one-time staffing and retention initiatives during 2021.
- Controllable Expenses include repairs and maintenance, smallwares, cleaning supplies, office supplies, trash removal, uniforms, employee activities, and other miscellaneous operating expenses. In 2021, third-party delivery fees increased relative to 2020 resulting from a sustained demand for Noodles & Company’s use of third-party delivery related to the COVID-19 pandemic.
- Occupancy Cost includes base rent, percentage rent, common area maintenance, real estate taxes, and other miscellaneous lease expenses.
- Non-Controllable Expenses include personal property taxes, credit card processing fees, bank charges, restaurant marketing, leased equipment and licenses, utilities, insurance, and other miscellaneous fixed expenses.
- Restaurant EBITDA means Restaurant contribution to profit before interest expense, income taxes, depreciation, and amortization. Calculation of Restaurant EBITDA for this Statement excludes the 5.0% Royalty Fee, which these Restaurants are not charged.
- Because the Noodles & Company Restaurants whose results appear below are company-operated Restaurants, they paid no Royalties or Marketing Administration Fee. You must consider your Restaurant’s required Royalty payment (currently 5.0% of Net Royalty Sales) and Marketing Administration Fee (currently 1.25% of Net Royalty Sales) as part of its expected operating expenses.
Average Amount
- Number of Restaurants: 365
- Net Sales: $1,310,605 (100.0%)
- Cost of Sales: $330,590 (25.2%)
- Gross Profit: $980,014 (74.8%)
- Labor: $398,565 (30.4%)
- Controllable Expenses: $167,000 (12.7%)
- Occupancy Cost: $128,236 (9.8%)
- Non-Controllable Expenses: $69,443 (5.3%)
- Restaurant EBITDA: $216,770 (16.5%)
Median Amount
- Number of Restaurants: 365
- Net Sales: $1,277,951 (100.0%)
- Cost of Sales: $322,333 (25.2%)
- Gross Profit: $955,619 (74.8%)
- Labor: $394,056 (30.8%)
- Controllable Expenses: $161,985 (12.7%)
- Occupancy Cost: $122,138 (9.6%)
- Non-Controllable Expenses: $68,267 (5.3%)
- Restaurant EBITDA: $209,174 (16.4%)
Annual Franchise Expense Not Encompassed in Table Above (Assuming Average Annual Net Sales)
- Royalties (5.0% of Net Sales): $65,530
- Marketing Administration Fee (“MAF”) (1.25% of Net Sales): $16,383
Section VI – Noodles & Company Franchise Ratios, Comparables, Computations, and Analyses (Exclusive Content for Platinum Subscribers) ⬇️
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