Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Noodles & Co. and Chipotle Mexican Grill, Inc. Do Fast Casual Differently

By

A soaring IPO for the purveyor of international-style cuisine calls for taking a deeper look.

PrintPRINT
The Colorado-based Noodles & Co. (NASDAQ:NDLS) impressed Friday as it left its $18 IPO price point, already considered rather high, in the dust, opening at $32 and closing at $36.75.

For those looking for the next big thing in quick and quality dining, there are a few details worth considering before jumping on board.

First and foremost, it's important to remember that IPOs are often about exterior appeal. Boasting its fair share of awards, a CEO, Kevin Reddy, with experience working for both Chipotle Mexican Grill, Inc. (NYSE:CMG) and McDonald's Corporation (NYSE:MCD), and the ever-buzzy fast casual tag, Noodles & Co. definitely looks the part of a winner.

Couple the demand created by its surface level appeal and a relatively small amount of shares (only 5.35 million) available during the IPO, and the meteoric day-one rise makes sense, but it's important to take the longer-term potential of Noodles into account.

Right now, there are over 320 locations nationwide. According to its website, Noodles has 11 locations in 10 states coming soon, though that time period remains undefined. This includes its first New York location and several locations in close proximity to major universities, including the University of Michigan and Boise State.

College students are certainly a go-to market for any company selling cheap food of respectable quality. With current locations near the University of Texas at Austin and the University of North Carolina Chapel Hill, Noodles execs clearly know where to play their cards.

On the other hand, while going public may aid in the cause of expansion, it's a little disconcerting that in New York City, where Chipotles and Subways are seemingly everywhere, there isn't a Noodles to be found, which speaks to its far smaller scope of operations. The first New York Noodles will be located at the Westbury Plaza on Long Island, where the foot traffic pales in comparison to the city streets.

Another consideration is that the Noodles approach to fast casual is a little different than some other competitors. Rather than traveling down a line and selecting ingredients, the way customers do at Chipotle, Noodles' patrons go directly to a cash register and order off of a set menu featuring Asian, Mediterranean, and American cuisine. From there, the customer heads to a table with a plastic numbered card notifying servers where each order belongs.

After the food is ready, which tends to be within a matter of minutes, a server hand-delivers the meal in a glass plate or bowl to the customer, providing metal utensils as well. The servers also clear the dishes at the end of the meal.

This faux-waiter interaction of server-customer could go both ways in practice. For some, it may be nice to sit carefree as their food is prepared and receive an upgrade from commonplace plastic utensils. For others, this could be nothing more than a frustrating hindrance to the "fast" in fast casual, though a take-out option is also available. As far as operations are concerned, the lunch-line approach of Chipotle seems more effective in getting customers in and out of the door.

Part of this effectiveness comes from the ability to strategize with a down-the-line "throughput" approach, reports Nation's Restaurant News. Where a Noodles server can only walk as fast as possible from kitchen to table, Chipotle has servers prepare prior to the customer rush, places them in the spots where they can be most efficient, and utilizes expediters and supervisors to ensure everything is done precisely, all while maintaining a brisk pace.

"Speed is not the first goal of throughput. The first goal is to provide the very, very best customer service, with great eye contact, great communication, and a polite and efficient way with customers. All of those things, when done well, tend to lead to very, very fast service," said Monty Moran, Chipotle co-chief executive, back in April 2012 after Chipotle posted its seventh consecutive quarter of same-store sales growth with service speed greater than ever.

For his part, Reddy says customers appreciate his restaurants' line-pricing model, in which multiple items cost the same amount, as well as a recent menu redesign that has made the decision-making process easier.

From a pricing point, Noodles is certainly competitive. Most pasta dishes come in under $10 even if meat is added. Sandwiches, which come with a side, also fall into this reasonable range. With side salad, side soup and small or regular size pasta dish options, Noodles also caters nicely to the calorically concerned, though in my experience -- which, in fairness, is that of a soon-to-be sophomore in college -- one Noodles dish doesn't always pack the satisfying punch of other restaurants' offerings.

The IPO will certainly provide some exposure for Noodles & Co. and any of the aforementioned concerns certainly aren't meant to suggest that it is destined for a fate similar to Facebook, Inc. (NASDAQ:FB).

As the stock climbs to over $39, just remember that fast casual is a sweeping generalization, and it's the intricacies of a company's strategy that can be the defining factor for its success in the long term.
< Previous
  • 1
Next >
No positions in stocks mentioned.
PrintPRINT

Busy? Subscribe to our free newsletter!

Submit
 

WHAT'S POPULAR IN THE VILLE