Zoes Kitchen plots new turnaround plan after Q1 losses

The fast casual hopes to reverse its plunge with a set of strategic initiatives.

Zoes Kitchen is slowing future development plans and may close older locations in light of disappointing sales and traffic, CEO Kevin Miles said during the chain’s first quarter earnings call last week. Comps were down 2.3% and sales were slower than expected going into the first weeks of Q2.

Several challenges led to Zoes’ poor performance, including “disruption from delivery and discounting” and fierce competition among fast casuals in some markets, Miles said.

Zoes has been innovating its menu around premium items while its peers have been discounting, he added; however, the number of single-customer checks (those generally under $10) at the chain has declined. Going forward, the chain plans to focus menu innovation around lower price points and communicate louder about its value, he said.

Miles and CFO Sunil Doshi also laid out several other strategic initiatives aimed at reversing its negative comps and traffic and better deploying capital. Those include:

  • Cutting down on real estate development. Zoes reworked its plan to open new restaurants, reducing the number to 25 through 2018 with plans for up to 10 more in 2019.
  • Re-evaluating existing locations. The chain is considering closing older, underperforming restaurants that are approaching the end of their lease term.
  • Building out delivery. Delivery has been a bright spot for Zoes, with orders increasing 155% year over year. Currently, team members deliver catering orders in 30% of stores, and Zoes is accelerating its expansion of catering delivery to the full chain by the end of June, hiring 500 to 600 drivers to execute the plan. The fast casual also intends to work with third-party partners to expand the number of locations that offer noncatering lunch and dinner delivery, and will integrate delivery services into its digital platform later this year.
  • Increase marketing spend. To create brand awareness and trial, Zoes plans to increase its marketing investment. These dollars will come from the reduction of new stores in the development pipeline and a reorganization of the corporate infrastructure to lower expenses, said Miles.
  • Develop a franchising strategy. Zoes restaurants are currently all company-owned, save for one franchised unit.

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