Menu Innovation Propels Zoës Kitchen Forward
Like many fast casual brands across the country, Zoës Kitchen is discovering that success can’t be measured by unit counts. The brand announced during a conference call that it plans to slow growth in 2018, an approach CEO Kevin Miles said “is the best strategy to drive shareholder value in this tough environment.”
Zoës is on track to open 38–40 restaurants this year, but will target 25 new locations in 2018—down from the 25–30 it predicted earlier in the fiscal calendar. “This more moderate growth rate should allow us to better manage our cash flows and focus on the opportunities we have to grow sales,” Miles said. “With less demand on opening new restaurants, our operators will have more time to focus on executing with excellence and servicing our guests.”
Investors agreed. Zoës stock popped after its third-quarter results, climbing more than 13 percent Friday. It was up to $12.88 Monday, a significant increase from the $11.01 price it closed on Thursday. Zoës reported same-store sales declines of 0.5 percent in the quarter, along with a total revenue increase of 15.7 percent to $77.9 million, year-over-year. Both were dented by hurricanes Harvey and Irma. Zoës estimated that the storms negatively impacted same-store sales 0.9 percent and revenue by $1.1 million. There were 238 (three franchised) restaurants as of October 2.
The news that Zoës was retracting its expansion wasn’t the sole reason investors expressed optimism. Analyst Andy Barris, from Jefferies, told Benzinga the company’s top-line catalysts are in line to drive revenue growth. The key: menu innovation, and solid brand positioning amid a flooding marketplace.
Zoës unveiled its largest menu rollout in eight years back in June. It introduced two new proteins, three pita sandwiches, three bowls, four sauces, and a new appetizer. In addition to just broadening the options, Zoës deepened its Mediterranean positioning—a term the company recognized was right on trend with the mindful diners driving foodservice.
“In aggregate, new menu items are penetrating the menu better than expected and rank in the top 10 of the menu mix,” Miles said.
Zoës also launched snack boxes in the first quarter, taking the convenience-driven movement head-on.
“Looking ahead, we're actively working on our culinary pipeline and have several items in test to support our 2018 launches. We will continue to closely listen to our guests and leverage the entire Mediterranean region as our source of inspiration for future food and beverage innovation,” Miles said.
Early in the third quarter, Zoës introduced a re-platformed website and mobile app. The revamped website, which arrived August 9, offers guests an improved online experience and updated location finder. This was Zoës first major upgrade of its digital platforms since 2010, when they were first launched. “Currently, online sales account for a small percentage of the company’s total sales. With an average check size about double the in-store average check size, online sales represent a significant opportunity for future revenue growth,”’ the company said.
Miles said downloads of Zoës’ new app, which launched September 6 along with ZK Rewards—an omnichannel loyalty program—have already surpassed the 12-month active user account of the old version. The chain has also grown its email database by about 20 percent. “We have taken direct ownership of our customer data, a critical first step to gaining deeper insights into our guests. As I've mentioned before, these new tools also incorporate features like online ordering for catering, where we're already seeing success. Since the relaunch, our online sales comps have shown strong positive sequential gains versus the first half of the year,” Miles said.
On the delivery front, Miles said Zoës is approaching the expanding business in two ways. Firstly, through traditional lunch and dinner. Secondly, through catering. Delivery via third-party providers is currently live in more than 100 units.
“As you can imagine, our primary focus continues to be on protecting the brand and the guest experience, so before expanding to more restaurants, we're focused on three things: Operational execution, marketing capabilities, and a deeper technology integration,” Miles said.
This technological integration has already boosted catering. The new website and app allows guests to place catering orders online.
“With that, we are ramping up our efforts to leverage our internal teams to execute catering deliveries, which we believe will result in a better guest experience for large orders at similar, or in many cases, better margins. Accordingly, we have identified an initial set of 60 restaurants where we are ramping up hiring and testing new software that will better enable our teams to plan and execute catering orders,” he said.