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Can zucchini save Noodles & Company?

Happy with slower growth, the fast-casual chain is going on offense, with zucchini noodles and takeout.

Dave Boennighausen is excited about zucchini.

Specifically, the CEO of Noodles & Co. is excited about zucchini noodles, which the chain plans to introduce in May.

In an interview during the Restaurant Leadership Conference in Phoenix in April, Boennighausen doesn’t hide his enthusiasm for the product. “It’s awesome,” he says.

It’s not simply because the product can help drive frequency by “filling a gap in the menu” with something that is healthy and gives consumers a low-carb meal option. Or because it tested well.

It’s because the product does something that Noodles hasn’t done for well over a year: It puts the chain “on offense.”

“Our teams are extremely excited about it,” Boennighausen says. “Now we’re on offense. The brand has been on defense the last year and a half because it had to be. But now we’re doing things to bring the brand forward.”

Boennighausen has been with the brand for 14 years, having started with the Denver-based noodle chain in 2004 as a senior financial analyst. He was the CFO in 2016 when former CEO Kevin Reddy left, leaving Boennighausen with the interim CEO title.

Boennighausen last year was named permanent CEO, and former Del Taco CEO Paul Murphy was named executive chairman.

Murphy had helped turn around Del Taco by improving operations and adding higher-end items to what is otherwise a low-cost menu. The chain also slowed growth.

Boennighausen called Murphy “a great cultural fit” and said he “has done a great job mentoring me.” He also said that Murphy helped the chain with its processes and execution.

Still, by the time Boennighausen was named interim CEO, Noodles was a mess. The chain had the strongest first-day performance of any restaurant company initial public offering in modern history when it went public in 2013. Investors largely abandoned the chain in the years afterward amid weak sales and profits, sending the stock down from highs above $45 a share to below $4.

It was up to Boennighausen to help the chain play that defense. It shored up its finances with investments from private-equity groups L Catterton and Mill Road Capital.

The former was unusual, given that L Catterton typically invests in upstart restaurants and not publicly traded chains in need of a lifeline. But the firm was Noodles' private-equity sponsor during the 2013 IPO, and the investment was a sign of faith in its future.

Under Boennighausen, the company worked to simplify its menu, removing poorly selling items such as sandwiches, and to reduce turnover.

At the time of the changeover, Boennighausen said, turnover at the chain was 200%—sky high for any chain, let alone a fast-casual concept. The company has continued those efforts, adding paid maternity leave and adoption assistance as part of a beefed-up benefits package.

The company also signaled that its days of fast, unfettered growth were over. The chain closed 55 underperforming locations last year and drastically scaled back new unit openings.

To Boennighausen, the turnover and complexity made new unit development particularly challenging. He cites a lesson he learned in business school: “Don’t outgrow your people.” But that’s something Noodles had done in recent years.

“We’d depleted the bench,” he says. “With 200% turnover and building 40 locations a year,” he adds, it was difficult to find people to put into the new locations. And the menu, which had grown complex over the years, made it even more of a challenge.

The streamlined menu now “is easier to teach.”

The company has also slowed its growth and is already seeing positive results from its slower growth. The chain opened just 14 locations last year, down from about 40 a year. “It’s better than any class we’ve had since 2009,” Boennighausen says. “We felt comfortable we could execute on these locations from a people perspective as much as real estate.”

Noodles has also shown some results in its earnings. The company earlier this year reported a 320-basis-point improvement in restaurant margins in the last three months of the year.

Some of that was the “natural result of closing restaurants,” Boennighausen admits, but the company under new leadership also added some operational discipline.

For instance, the company used to hand-cut all of its vegetables in-house. It now uses a chopper. “They’re still the same, fresh vegetables,” Boennighausen says. “I can’t believe we had 500 restaurants and didn’t use a chopper.”

The company also has a new loyalty program, which will help gather data to improve the way the chain markets to its customer base.

And it is putting considerable efforts behind takeout. Over the years, Noodles focused much of its attention on improving its dine-in business. And yet consumers still took their noodles with them—takeout increased from 35% to 50% of sales.

The company has added quick-pickup counters where customers can get takeout orders purchased online without standing in line. It is also testing pickup windows for online orders, as well as curbside service.

All of these efforts are getting some attention on Wall Street. Noodles stock is up nearly 50% this year, making it the top-performing restaurant stock thus far. Of course, it still has a way to go to get back to its 2013 level, but it’s a strong performance.

Boennighausen believes more is coming. “We’ve got a lot of great news coming out this May,” he says.

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