noodles & company business plan
TRANSCRIPT
Created By: A. Fagerstrom, K. Habucke, J. Han, S. Park, Y. Wang & R. Yanik
Braz i l !
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Table of Contents
Executive Summary……………………………………………………………………...3
Description of Company Background…………………………………………………..5
Vision Statement…………………………………………………………………………5
Strategic and Financial Goals…………………………………………………………...6
Business Model…………………………………………………………………………...6
Industry Description……………………………………………………………………..7
Competition……………………………………………………………………………..10
Target Audience………………………………………………………………………...11
Operation and Distribution Plan………………………………………………………12
Marketing Plan………………………………………………………………………….14
Sales Strategies………………………………………………………………………….16
Management and Human Resources………………………………………………….17
Legal and Regulatory Considerations…………………………………………………19
Technology and Intellectual Property Issues…………………………………………20
Critical Risk Factors, Contingency Plans, and Exit Strategy………………………..20
Initial Funding…………………………………………………………………………..22
Start-Up Costs…………………………………………………………………………..22
Projected Five-Year Financial Statements……………………………………………23
Key Assumptions………………………………………………………………………..28
Appendices………………………………………………………………………………29
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Executive Summary
Noodles & Company plans on bringing our franchise to Brazil during the 2016
Summer Olympics. The restaurant offers a variety of on-the-go dining options such as
noodles, salads, and soups in a casual sit down environment. Our customers are middle to
upper class individuals looking for a convenient sampling of healthy ethnic food at an
easily accessible location. Noodles & Company offers a variety of cuisines from different
cultures; specifically American, Thai and Mediterranean. However, the company will be
featuring local cuisine options for our Brazilian menu.
The Brazilian restaurant market has seen an increased interest in cuisines from
other cultures as well as a niche for a break in traditional dining habits. Research has
found that younger generations are not as attached to the traditional Brazilian dining
experience. Brazilian’s interest in different cultures as well as their desire to break from
dining monotony has prompted Noodles & Company to bring the “American dining
experience” down South. Currently, there is only one other restaurant chain (Giraffas) in
Brazil offering a convenient, quick paced dining experience.
Currently our company has an extensive list of competitive advantages
guaranteeing the success of Noodles & Company. These include an affordable variety of
ethnic cuisines (specializing in noodles), a sit down dining experience set in a casual
environment, and multiple locations located in two major cities upon opening. In
addition, our marketing has a distinct advantage of being present during two major
international sporting events.
Noodles & Company’s marketing strategy is to release an initial advertising
package during the 2014 World Cup in July. Following that, advertisements and press
will be released surrounding the opening of the chain. Our company plans to have
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sponsorships in both the World Cup as well as the 2016 Summer Olympics. The official
opening of the franchise will correlate with the start of the Olympics on August 5, 2016.
All staff at the chains will be trained in both Brazilian dining practices and the
culture of the company itself, such as serving, customer interaction, etc. During the start
up, Noodles & Company will bring American employees to Brazil to help educate servers
on the company’s ideal dining experience. Upon opening, there will be five locations as
well as a corporate office, which will result in 200 positions available. Initially, our
company plans on opening three dining locations in Sao Paulo as well as headquarters,
and two locations in Rio de Janeiro.
Based on the size of our market, our sales projections for the first year are $4.6
million. The starting salary of servers is $8.18/hr and the salary for upper management
will be $39,748/yr.
Company Background
Noodles & Company was founded in 1995 by Aaron Kennedy in Broomfield,
Colorado, and began with simple concept—serve fresh food fast. Kennedy developed the
idea for Noodles after eating at Mamie’s Asian Noodle Soup in Greenwich Village, New
York. He felt that there weren’t enough noodle options in dining in the United States.
Food critics began to identify the chain as the best fast-food restaurant in their respective
cities, and Noodles won awards for both healthy food and our family friendly
atmosphere. The company grew from $300,000 in revenues in 1996 to $300 million when
it went public in 2013. As of May 2013, the company has 339 locations, some of which
are franchised.
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Noodles & Company offers the world’s favorite noodle dishes, sandwiches, salads
and soups, all in one restaurant. Each dish is carefully handmade to our guests’
specifications, using only the freshest ingredients. It’s individually sautéed or prepared,
placed on our signature stoneware and served tableside with stainless steel flatware: all
for around $8 a dish. There’s never any tipping at Noodles & Company.
In 2010, a majority interest in Noodles & Company was acquired by an
investment group led by Catterton Partners. In March 2013, the intent for a public
offering was confirmed with a filing with the Securities Exchange Commission for $75
million in stock. Within a day following the company’s IPO on June 27, the stock price
doubled. Fast Company and The Daily Beast called it "the hottest IPO of the year" and
compared it to Chipotle’s IPO.
Noodles & Company in Brazil will operate as a Limited Liability Corporation in
Brazil.
Our management team will comprise of a South American Director of Development,
Brazilian Anthropologist, Store Managers, Marketing Managers, and Frontline
Associates.
Vision Statement Noodles & Company strives to create a genuine experience by serving fresh and
wholesome food, and building strong, personal relationships with guests and
communities. High standards and expectations of strategic thinking, aligned with
disciplined execution, are critical to successful growth in the Brazilian market.
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Strategic and Financial Goals
Since Noodles is expanding outside of the United States for the first time, our
timeline and projections are focused on the next 2-4 years. Our initial sales projection for
the first year is about $4.6 million. Following the end of the second year, we hope to
double those projections to about $9.2 million. Because we are bringing a new dining
concept to a country that places high value on traditional methods of eating, we assume
that the projections for the first few years will not be astronomically high.
After the first year, we hope to expand through franchising another 4 locations
before 2018. We plan to add another location to both Rio de Janeiro and Sao Paulo as
well as opening a restaurant in Salvador and Brasilia. The locations we have chosen are
the next two largest populated cities in Brazil. We anticipate that our customers will be
about 210 people per day, but we hope to reach about 350 people a day during the second
year.
We do not anticipate Noodles Brazil breaking even until at least our fourth year.
The expansion of 4 more restaurants will cost an additional $1.75 million. The costs of
opening new restaurants plus the residual costs of initial start up would total to $5
million. With projected sales of the first year being $4.6 million and projected sales of the
second year being doubled, we should be able to break even by end of year three,
beginning of year four.
Business Model
Noodles & Company offers the freshest ingredients in a variety of dishes that
provide both unique cultural flavors and nutrition. Our company strives to place the
customer’s needs above all else and cater to each individuals dining expectations.
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Noodles & Company offers a variety of dishes ranging from pasta to sandwiches and
salads at quick and convenient dining locations. While we are not a fast-food restaurant,
Noodles is a privately held fast-casual pasta chain.
In order to successfully generate revenue, we plan on producing a strong
marketing campaign over a series of months as well as franchising throughout Brazil. It
has come to our attention that companies who franchise their locations can gain more
leverage through additional money and resources. Simultaneously, Noodles & Company
prides ourselves on the service that our staff produces and our training is done in a way
where servers are taught to be genuine and engaged. We want our employees to have a
sense of pride in the company and feel both self-worth and accomplishment. Our
company has found that well-run restaurants can be incredibly profitable. Through all of
this, Noodles hopes to develop strong brand loyalty among Brazilian customers, which in
turn will continue to generate profits.
Industry Description
The fast food industry is not without its challenges, especially in the United
States. From rising food costs, economic recession and changing perceptions about
health, many fast food franchises have been feeling some heat from their chosen
demographics. However, rather than flee from this challenge, the fast food industry has
been adopting new practices and offering new products. Fast food franchising
opportunities exist in the “traditional” manner with food such as hamburgers and pizza,
but many franchises are beginning to offer healthy alternatives as well.
The fast food industry, also known as Quick Service Restaurants (QSR), has been
offering quick and convenient dining options since the creation of urban living. The
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modern system of fast food franchising is believed to have started in the mid 1930’s
when Howard Johnson franchised his second location as a means of expanding operations
during the Great Depression. As cars became commonplace, the drive-thru concept
brought explosive growth to the idea of food-on-the go. U.S. fast food companies are
now franchised in over 100 countries. In the U.S. alone, there are over 200,000 restaurant
locations. Revenue has grown from $6 billion in 1970 to $160 billion last year, at an
8.6% annualized rate.
Fast food franchises focus on high volume and high speed products at a low cost.
Frequently, food is preheated or precooked and served to-go, though many locations also
offer seating for on-site consumption. For stands, kiosks or sit-down locations, food is
standardized and shipped from central locations. Consumers enjoy being able to get a
familiar meal in each restaurant, and menus and marketing are the same in every location.
Challenges in the fast food industry in recent years have been pressuring profit
margins. The industry as a whole has proven robust enough to withstand these
challenges, though some players have done better than others. Over the last decade, there
has been an increased focus on the quality of food being served in these restaurants.
Typically highly processed and industrial in preparation, much of this food is high in fat
and has been shown to cause weight gain and increase body mass index (BMI). Popular
books such as Fast Food Nation and documentaries like Super Size Me have increased
public awareness of the negative health consequences surrounding fast food. Fast food
companies have responded to this by adopting healthier choices, which has produced a
measure of success. However, the shadow of bad press seems to continuously hang over
the industry because of this unwanted publicity.
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Rising commodity prices have also significantly affected many fast food
franchises. Since food and beverage inputs make up approximately 33% of costs, higher
prices for livestock, corn, wheat,etc. have drastically shrunk margins over the past
decade. In such a fiercely competitive space, it is impossible to force a price increase on
customers, making profit margins lower than 10%.
Fast food has largely been thought of as recession proof, and it proved true when
the industry did not suffer nearly as much as other discretionary spending sectors. In fact,
there was some increase in consumer visits as people chose cheaper fast food options
over fast casual or traditional restaurant choices. Overall, the recession hurt spending, and
it’s been proven that consumers purchased less with each trip. Fast food franchises fared
reasonably well but still felt some pain.
Market saturation is also a relevant issue in the fast food industry today, at least in
the U.S. There is a McDonald’s franchise is in almost every town, and it usually sits in a
row of several competitors. Since there are so many competitors in such close quarters,
there have been fewer customers visiting each location. With so many competitors which
offer similar products there are fewer customers per location. Increasingly fast food
restaurants are also losing market share to “fast, casual” dining, a relative newcomer in
the restaurant space.
Currently offering healthier choices to battle the stigma of unhealthy food, some
quick service restaurants are now focusing on fresh and organic products. These
franchises are also focusing on expanding into new product lines, such as the coffee
initiative in the McCafe. Intended to compete with chains such as Starbucks, McDonalds
is luring customers back into their stores, hoping they will purchase food as well. Many
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franchises have been exploring other meal times such as breakfast and the mid-afternoon
snack for growth opportunities and to increase real estate utilization.
Competition
Currently, Noodles’ biggest competitor is Giraffas, a Brazilian fast-food franchise
founded in 1991. The company has more than 400 locations in Brazil, and has expanded
to Paraguay and Miami. Giraffas is comparable to major American fast-food chains like
McDonald’s and Burger King and states that they “bring together a multicultural cuisine
that combines a touch of American favorites with a dash of Brazilian tastiness.” Giraffas
is currently targeting the family demographic and offers a variety of options from burgers
and salads to more traditional Brazilian cuisines. The company has been featured in
Travel & Leisure Magazine, and was voted the top 13th more popular Fast-Casual
restaurant in North America. In 2002, the chain achieved the highest growth proportional
in the national segment, and in 2003 the chain gained 21% growth.
While Giraffas is more established in the Brazilian restaurant market, Noodles &
Company plans to use a vast array of ethnic cuisine to form a unique dining experience.
Our dishes are inspired by the individuality, creativity and cultural heritages from around
the globe. Noodles’ menu will include cuisines from North America, Brazil, the
Mediterranean and Thailand, while Giraffas only offers American and Brazilian. Our
research has found that the Brazilian market has seen an increased interest in cuisines
from other cultures. Thus far, no other restaurant in Brazil offers dining options from
multiple countries. Further research has found that younger generations in the Brazilian
market are looking to break away from the traditional dining experience. While many
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restaurant chains offer a leisurely dining experience, Noodles & Company will bring a
convenient, quick paced dining experience.
Presently, Giraffas is almost parallel with Noodles & Company in the way they’re
executing the dining experience. However, they’re more focused on creating the “fast-
food” dining culture similar to companies such as McDonald’s. Noodles’ is not a fast-
food chain and we plan to conduct our business as a traditional restaurant. Noodles &
Company is filling the need for a restaurant that is a standard higher than fast-food, but
does not require the commitment of a lengthy, traditional Brazilian meal.
Target Audience Our dining locations tend to be established in middle to upper class
neighborhoods and cities, and our customers are usually educated and cosmopolitan. Our
target audience is looking for a convenient sampling of healthy ethnic food at an easily
accessible location. Diners at Noodles & Company are often cultured, educated and
health conscious; they buy fresh produce and avoid mass produced goods. Our customers
also tend to shop at farmer’s markets and stores such as Whole Foods, who have recently
expanded to South America. Currently, Noodles & Company is targeting two groups of
people - younger, urban professionals and families. Our customers inhabit cities and
larger neighborhoods, which is why our initial launches will occur in Sao Paulo and Rio
de Janeiro.
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The Young Urban Professional The Mother of Three
• Gabriel (male - age 28) • lives in Sao Paulo • works in finance • has a 25 year old girlfriend • frequently travels to the United States
for work • graduated from the Universidade de
Sao Paulo • enjoys watching and playing football
(soccer) and volleyball • has tickets to the World Cup • is allotted 45 minutes for lunch each
day • often meets friends from other offices
for lunch
• Julia (female - age 36) • lives in Rio de Janeiro • member of the upper middle class • married for 11 years • loves Asian cuisine - it reminds her of
her year abroad in college • husband works for Jornal do Brasil
(major newspaper) • enjoys reading and going to the theatre • watches telenovas during her free time • takes the children out to dinner when
dad has to work late
Operation and Distribution Plan Since Noodles & Company is already an established franchise in the United States
with over 330 locations, the Brazilian expansions will operate in a very similar fashion.
Despite the fact Noodles is a quick and casual restaurant, all of our meals are served on
real china with real silverware. The company is high touch to guests and customers are
not allowed to clear their own table or tip any of the Noodles’ servers. Since we are
franchised, hours of operation vary from location to location, but most operate from 10
AM to 10 PM, seven days a week. Our guests choose from a unique and diverse menu,
and we give them an environment in which to sit back, relax and enjoy.
Noodles & Company only serves the most fresh and authentic. The wheat in our
pasta is grown by Dakota Growers Pasta Company in Carrington, North Dakota where
they mill 100% of their raw materials with Italian pasta-making machinery. We purchase
our rice noodles from a company in Thailand that locals buy for their meals and have
them shipped to every Noodles location. Most recently, we’ve begun a program in
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Oregon of partnering with local farmers for lettuce, herbs and cabbage. Noodles would
like to expand this initiative to support other local farming programs, and we plan to
bring this program to Brazil with us. For customers with dietary restrictions, our
company offers dozens of combinations of 500 calories or less meals as well as Gluten
and peanut free options.
In regards to the hiring process, Noodles & Company looks for employees with a
strong competitive nature who have a passion for restaurants and a mind for business.
Noodles maintains high standards surrounding employment, and look for people with
high standards, integrity, respect and a desire to produce the best dining experience
possible for our customers. Just a few of our available positions are general manager,
shift manager, team member, culinary team member and guest service team member.
Noodles will guide new hires through a on-the-job training process and self-paced
program that help submerge employees into the company culture.
All of our dining locations have similar layouts, designs, and furnishing. Our
restaurants use soft lighting, furniture made from recycled bamboo and have bench and
community tables.
While we don’t allow our customers to clean up after themselves, they are required to
order from a counter located in front of the kitchen. Servers will bring diners their meals
at their chosen seating location within five to seven minutes. However, orders can be
made online, for-here or to-go. The stores contain no microwaves, freezers or can
openers.
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Marketing Plan For marketing, we will be taking the brand global. Brazil will be hosting the
World Cup in 2014, and the Summer Olympics in 2016. With both of these global events
happening so close to one another, it made sense to launch a campaign revolving around
the original slogan of Noodles & Company: “Welcome to Your World Kitchen.”
To start off, we will be launching campaigns in San Paulo and Rio de
Janeiro. The campaigns will comprise of commercial ads running during the finals of the
World cup and throughout the 2016 Summer Olympics in Rio de Janeiro. Additionally,
there will be a sustainability campaign launched at the start of January, 2015 focusing on
the farm that will be used to grow all of the produce and cultivate the meat needed for all
of our dishes.
The marketing will be simple, but complex. There will be a commercial shot for
The World Cup. The commercial will run for 30 seconds. The commercial will be of two
soccer teams battling it out on the field of the stadium hosting The World Cup, only
instead of a soccer ball, the players are trying to kick around a bowl of noodles. The
bowls will break and the noodles will go flying everywhere. Each bowl that breaks will
shoot the noodles out across the screen and the name of the respective dish that is on the
menu with the price of the item listed below the explosion of noodles. At the end of the
commercial, it will fade to a black screen that has white lettering that says “Play with
your food.” Then the Noodles & Company: Brazil logo will show at the very end. This
commercial will run in 2 different advertising spots during the World Cup Finals. The
Finals are estimated to reach over 1 billion people during the live airing this year. The 30
second commercial spots will cost $250,000 dollars each, adding up to a total of
$500,000 dollars for the world cup advertising costs.
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The sustainability campaign will direct all the attention to the construction and
usage of our own farm. It costs a lot of money to ship fresh produce all over the
world. Additionally, a lot of that produce has preservatives and pesticides to help keep
the food fresh. By building a farm, this solves a lot of problems and provides an outlet
for sustainability. The campaign will highlight the construction. The farm itself will
create jobs and a source of new business for Brazil. The farm will also be built in the
state of Tocantins, Brazil on land that does not negatively affect the rainforests or
environment surrounding it. Brazilians like fresh food. If we can show them exactly
where all of their food comes from to supply the restaurants, then Brazilians will be more
likely to try food that comes from their own country. The food is different from
traditional Brazilian cuisine, but if the food comes from Brazil, traditionalists will also be
inclined to try a new food option.
The campaign will be made up of many videos that will be released on Youtube,
Facebook, and other social media outlets. The videos will be made using personal
recording devices from different Brazilian employees that work on the farm. There will
be videos that show that the resources used to build the farm came from sustainable
sources and that the farm was built by Brazilians. The acts of actually planting the
produce and taking care of the livestock will highlight the notion that the food is coming
directly from Brazil. The goal of this campaign is to ultimately show that Noodles &
Company: Brazil belongs to the people of Brazil because it came from the people of
Brazil. Estimated costs for the campaign surrounding the construction and usage of the
farm amount to about $1,000 for the editing costs.
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Now, the final leg of the campaign will begin in February of 2016. This
campaign will focus on the 2016 Summer Olympic Games, taking place in Rio de
Janeiro. For this campaign, inspiration came from the New Castle Brown Ale Anti-
Superbowl campaign that was wildly successful online. The idea is that there are three or
four commercials made to promote Noodles & Company: Brazil. These commercials will
star celebrities & olympians that are well known in Brazil. The idea is that the
commercials relate to the olympics, but in a satirical manner. These videos would be
“leaked” on several social media platforms. The “leaked” videos will include a link to a
website that aligns with the “anti-olympics” campaign. The website would highlight not
only the satire on the olympics that initially attracted the consumer, but also links to the
sustainability campaigns as well as the menus and locations of the restaurants throughout
San Paulo & Rio de Janeiro. Estimated costs for production of the commercials, the
website, and the leaks amount to about $2 million.
Sales Strategy Noodles & Company prides ourselves in being able to produce the best service
possible through the best staff available. We often look for people who have a passion for
both food and business. Our company has a very strict training and operating program
which is both rigorous as well as fulfilling. We hope to create a team that is both proud of
the company and eager to bring new ideas to the Noodles culture. However, Noodles also
encourages our employees to bring their personality to the job in order to create a
personalized working environment. We’ve found that when employees bring aspects of
themselves to the job, it increases their pride, sense of self-worth and accomplishments.
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At Noodles, we’ve often had employees sign on with for their first jobs and grow
within the organization. We hope to help them expand on their skill sets and work their
way up within the company. Creating opportunities for professional growth is an
important part of our corporation and we encourage every employee to work their way
up. While we do not guarantee promotion, we strive to help our staff bring energy and
commitment to their roles in the company while striving to earn higher positions through
experience and learning.
Management and Human Resources Plan
1.The highest tier of the employee chain is the general manager, who is directly
responsible for overseeing the entire restaurant operation. We are opening 5 restaurants in
two major cities, and plan to hire 5 general managers who will be responsible for
ensuring that operations reflect the corporate culture and company policy. General
managers will also be responsible for employment decisions as well as location
promotions.
2.The second level of the management structure is shift supervisors. Supervisors work
under the general managers and are directly responsible for providing guidance,
motivation and support to employees. Shift supervisors are trained in handling emergency
issues, customer complaints and
3. The accounting, marketing, and human resources managers are all on a level tier
within the country. Accounting managers are responsible for producing a yearly budget
and checking the inventory at the end of each accounting period. Marketing managers
explore the market to the company and develop promotional and advertising strategies.
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Store managers are responsible for purchasing and recording all the elements of
individual stores. Human resources is responsible for hiring and training new employees,
as well as annually evaluating each employees performance.
4. The frontline associates assist and interact with customers when they visit the
locations. It is their job to greet customers, answer questions, place orders and
communicate with the food prep team.
Frontline associates also handle ringing up orders on the register. This means that they
must know basic functions of the POS system used in the restaurant as well as how to
handle credit cards and produce change. Employees on the front line report directly to
their corresponding shift supervisor.
5.The cooks and food preparation associates are trained to produce the freshest dishes for
customers. They’re taught how to accurately produce each dish since a variety of our
options come from different ethnic backgrounds. Food prep associates are responsible for
filling ingredient orders, replacing frying oil, and changing out drink options. Food prep
associates and cooks report directly to their corresponding shift supervisor.
6. Our cleanup crew is responsible for maintaining the restaurant and keeping it clean and
sanitary. This includes sweeping the dining area and back of the house, wiping down
seating, cleaning the bathrooms, emptying the trash, and refilling customer condiment
stations throughout the day. The cleanup crew also washes kitchen utensils that cannot be
run through the dishwasher. At the end of the day, they assist the rest of the staff in
closing operations and report directly to their corresponding shift supervisor.
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In order to help the location owners communicate with the senior management
teams, the managers are to report to owners at least weekly. Since Noodles is a franchise,
each location owner is allowed some freedom in how they operate their locations, as long
as it remains in line with the corporation’s policies. Owners must continuously report to
the head of the company and headquarters.
Legal and Regulatory Considerations
Noodles & Company Brazil will be operating as a corporation, listed as an entity
of Noodles & Company. We will be abiding by the zoning laws of each respective city.
Construction will begin August 1, 2014 and end February 1, 2016. This project will be
overseen by Andrade Guitierrez S.A., which handles public projects, concessions,
utilities and engineering. We will be purchasing our farmland through Brazil Property
Group at $500 an acre. Our insurance will be provided by Nationwide’s AgriChoice
bundle for our livestock and crop.
The following health and safety codes will be abided by:
• Brazilian food safety authorities -- Brazilian Agriculture Ministry and the
National Sanitary Vigilance Agency – ANVISA .
• The Brazilian Agriculture Ministry is responsible for the registry and control of
beverages, except water, seeds (including GMO), agricultural products (fruits,
seafoods, dairy products, meat, etc.), pesticides, and animal feed.
• ANVISA is responsible for the registry and control of drugs (including tobacco
products), cosmetics, food (industrially processed), food additives and ingredients
(including technology collaterals), and water
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• Brazil is a Civil Code Country. Food safety is considered a public matter, which
means that only what is expressly authorized by the Law is allowed to be done.
So, in all matters that fall within gaps in the Brazilian Laws and Regulations ,
must be submitted and expressly approved by the Brazilian Authorities. Example:
Am I able to market a food additive that is not mentioned in the Portaria
540/1997, RDC n°60/2007 and Brazilian Farmacy List? Unfortunately not. It will
be considered a novel additive and shall be approved by ANVISA with support of
studies and international literature about its safety.
• Main references of the Brazilian Food Law are (i) Codex Alimentarius and
JECFA (for food additives); (ii) European Law; (iii) USFDA. References are only
used in the case of gaps in the local laws and regulations.
Technology & Intellectual Property Issues
Most of our companies are owned and operated by Noodles & Company
Incorporated, but some are operated in a franchise model. Franchise locations are
operated by an independent franchisee that is trained by Noodles & Company and uses
the same menu, pricing and branding as corporate-owned stores. As of 2010, the average
Noodles & Company store generated more than $1 million in annual revenue, with a
profit of 21%. Takeout orders account for approximately 25% of revenues. Noodles is
more selective than other franchise-based restaurants in choosing their franchisees and
has a higher ratio of corporate-owned stores than most restaurants.
Critical Risk Factors and Contingency Plans, Including an Exit Strategy
Noodles & Company has many risks in opening restaurants in Brazil. We plan to
confront and overcome every obstacle we may face in an unfamiliar territory. The first
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and largest risk we face in our expansion is that the style of the food and service won’t be
well accepted by native Brazilians. We have hired multiple employees to study the taste
palate of the average Brazilian citizen to ensure we will be able to appeal to their cuisine
desires. Other large risks we face with this expansion may be uncontrollable. For
instance, if the economy has any turmoil or collapse this could have a negative impact on
our business. With a poor economy fewer Brazilian citizens will want to eat out. This risk
is addressed by keeping a close monitor on all economic activity in Brazil to ensure our
supply will always coincide with demand. Noodles & Company also has an advantage
when facing this concern because our prices tend to be more affordable than many other
cuisines throughout Brazil. Another uncontrollable risk we may face is unexpected
environmental activity. For instance, if there is a drought or poor harvesting, we may
have to increase prices in order to balance our budget. This risk may be addressed by
keeping closely monitoring all environmental activity at each of our farms. We will also
address this risk by making the proper adjustments to our prices to ensure profit continues
to increase.
If our business fails in Brazil and a sufficient profit cannot be met to sustain
business we plan to collect & sell all the assets, pay off creditors, first to secured
creditors, and distribute remaining finances to shareholders. That being said, if business
succeeds we plan to keep Noodles & Company in Brazil in hopes of developing a long-
term successful business and eventually expanding. This attempt for long-term success
helps mold our business plan and increases the importance of observing and analyzing
future endeavors and risks.
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Initial Funding
Due to the extremity of our expansion we will need to ensure that all funds are
sufficient in initial operations. To franchise five Noodles & Company restaurants it is
required to have minimum liquid cash and available assets of $1,500,000 and a net worth
of $3,000,000. We plan to use a loan of $500,000, which we will pay off after five years
of operation, and to cover all remaining initial expenses with revenue from other Noodles
& Company operations. Based off of industry analysis we have conducted, our initial
sales projection for our first year is roughly $4,600,000, with an estimated 1000
customers served daily. Revenue from these sales will contribute to paying off our initial
loan as well as contributing to daily operation and ensuring stability while we are still in
the developing stages of our business. While expenses may seem astronomical in our
initial year of business we should see a sharp decline in annual total expenses after two
years of stable business. After extensive analysis it is concluded that total operational
expenses will have an annual average of $1,750,000. We will be able to reach our
opening year break even point after roughly five months of operation.
Start-Up Costs
At Noodles & Company we will have many start-up costs prior to our grand
opening in Brazil. Expenses prior to operation include: advertising package during July,
2014 World Cup, initial advertising & press, staff training, construction of five locations,
construction of Brazilian corporate headquarters, and construction & initial harvesting of
our farm and crops. The two advertising promotions during the World Cup will total in
$500,000. Initial advertising and press prior to operation is estimated to cost $1,000,000.
Staff training is expected to cost $500,000. Construction of restaurants, headquarters, and
23
farm, as well as harvesting, is estimated to cost roughly $7,000,000. These costs result in
an estimate of all expenses prior to operation to be approximately $8,000,000.
Projected 5-Year Financials
Noodles & Company Quarterly Basis Income Statement
2013 Q4
2013 Q3
2013 Q2
2013 Q1
Period End Date 12/31
09/30
07/02
04/02
Total Revenue 91.5
88.9
89.2
81.3
Cost of Revenue 71.4
69.7
69.6
65.6
Gross Profit 20.1
19.3
19.7
15.7
Selling, General and Administrative 9.0
8.1
13.4
8.2
Depreciation, Amortization and Depletion 5.5
5.2
5.0
4.8
Special Income/Charges 0.0
0.0
0.0
0.2
Operating Expenses 14.9
13.7
18.7
13.2
Operating Income 5.2
5.6
0.9
2.6
Net Interest Income 0.0
(0.1)
(1.0)
(1.1)
Other Income/Expense Net (0.6)
0.0
0.0
0.0
Pretax Income 4.5
5.4
(0.1)
1.5
Provision for Income Tax 2.1
2.2
(0.1)
0.6
Net Income 2.4
3.3
0.1
0.9
24
Noodles & Company Annual Basis Income Statement
2013
2013
2012
2010
Period End Date 12/31
01/01
01/03
12/28
Total Revenue 350.9
300.4
256.1
220.8
Cost of Revenue 275.2
234.1
199.1
173.2
Gross Profit 75.7
66.3
56.9
47.6
Selling, General and Administrative 39.7
32.2
28.8
27.0
Depreciation, Amortization and Depletion 20.6
16.7
14.5
13.9
Special Income/Charges 0.0
0.0
0.0
2.8
Operating Expenses 61.5
50.2
44.9
43.8
Operating Income 14.3
16.1
12.0
3.8
Net Interest Income (2.2)
(5.0)
(6.1)
(1.8)
Other Income/Expense Net (0.6)
(2.6)
(0.3)
0.0
Pretax Income 11.4
8.4
5.6
2.0
Provision for Income Tax 4.8
3.2
1.8
(0.4)
Net Income 6.7
5.2
3.8
2.4 ※Financial data in USD (Values in Million)
25
Noodles & Company Income Statement
2013
2013
2012
2010
2009
Net Income 6,665
5,163
3,829
2,378
1,067
Depreciation and Amortization 20,623
16,719
14,501
13,932
13,315
Interest expense 2,196
5,028
6,132
1,819
1,840
Provision for Income Taxes 4,767
3,215
1,780
(366)
1,343
EBITDA 34,251
30,125
26,242
17,763
17,565
Debt Extinguishment Expense 624
2,646
275
-
-
Asset Disporsals, Closure Costs and Restaurant Impairment
1,164
1,278
1,629
2,815
1,070
Management Fees 500
1,000
1,014
-
-
Stock-Based Compensation Expense 4,318
1,234
1,328
5,894
1,740
IPO Related Expenses 5,667
-
-
-
-
Follow-On Offering Expenses 696
-
-
-
-
Adjusted EBITDA 47,220
36,283
30,488
26,472
20,375 ※Financial data in
USD (Values in thousands) ※EBITDA -> Earnings before interest, taxes, depreciation and amortization
Noodles & Company Quarterly Basis Cash Flow
2013 Q4
2013 Q3
2012 Q2
2010 Q1
Period End Date 12/31
09/30
06/30
3/31
Net Income 2.4
4.3
3.3
1.0
Operating Gains/Losses 0.3
0.8
0.3
0.5
Depreciation, Amortization and Depletion 5.5
15.1
5.2
9.8
Other Non-Cash Items 4.4
4.3
0.0
4.3
Change in Receivables 1.8
(1.3)
(1.3)
0.0
Change in Inventories (0.1)
(1.0)
(0.5)
(0.5)
26
Change in Prepaid Assets (0.5)
(1.1)
(0.3)
(0.7)
Change in Pay/Accrued Exp (4.0)
6.8
3.9
2.9
Change in Other Working Capital 1.3
4.6
2.1
2.4
Cash Flow from Operating Activities 11.2
32.5
12.7
19.7
Purchases/Sale of Prop, Plant, Equip: Net (14.6)
(39.8)
(14.1)
(25.7)
Cash Flow from Investing Activities (14.6)
(39.8)
(14.1)
(25.7)
Issuance/Payments of Debt, Net 4.6
(92.8)
1.5
(94.3)
Issuance/Payments of Common Stock, Net (2.8)
100.1
(0.1)
100.2
Cash Flow from Financing Activities 3.8
7.3
1.4
6.0
Cash, Equivalents Start of Period 0.6
0.6
0.6
0.6
Cash, Equivalents End of Period 1.0
0.6
0.6
0.6
Change in Cash 0.4
0.0
0.0
0.0
Free Cash Flow (3.5)
(7.3)
(1.4)
(5.9)
Noodles & Company Annual Basis Cash Flow
2013
2013
2012
2010
Period End Date 12/31
01/01
01/03
12/28
Net Income 6.7
5.2
3.8
2.4
Operating Gains/Losses 1.2
1.3
1.6
2.8
Depreciation, Amortization and Depletion 20.6
16.7
14.5
13.9
Other Non-Cash Items 8.7
6.7
4.6
5.1
Change in Receivables 0.5
(1.1)
0.2
(2.4)
Change in Inventories (1.2)
(1.4)
(0.7)
(0.6)
Change in Prepaid Assets (1.5)
(0.6)
(0.1)
(0.7)
Change in Pay/Accrued Exp 2.8
1.1
1.6
1.1
Change in Other Working Capital 5.8
4.4
2.3
3.0
Cash Flow from Operating Activities 43.6
32.1
27.9
24.6
Purchases/Sale of Prop, Plant, Equip: Net (54.4)
(47.4)
(30.0)
(26.9)
Cash Flow from Investing Activities (54.4)
(47.4)
(30.0)
(26.9)
27
Issuance/Payments of Debt, Net (88.2)
16.1
46.3
43.2
Issuance/Payments of Common Stock, Net 97.3
0.0
(0.1)
174.0
Proceeds from Stock Option Exercised 2.0
0.0
0.0
0.1
Other Financing Changes, Net 0.1
(0.7)
(56.8)
(202.1)
Cash Flow from Financing Activities 11.2
15.4
(10.7)
15.2
Cash, Equivalents Start of Period 0.6
0.5
13.3
0.4
Cash, Equivalents End of Period 1.0
0.6
0.5
13.3
Change in Cash 0.4
0.1
(12.8)
12.9
Free Cash Flow 10.8
15.3
2.1
2.3
Noodles & Company Annual Basis Balance Sheet
2013
2012
Period End Date
12/31
12/31
Assets
Cash, Equiv and Short Term Investments
1.0
0.6
Receivables
4.8
5.6
Inventories
7.2
6.0
Prepaid Assets and Others
5.2
3.9
Other Current Assets
0.1
0.1
Total Current Assets
18.3
16.2
Net Property, Plant, and Equipment
167.6
136.3
Deferred Non-Current Assets
0.0
2.8
Other Non-Current Assets
1.9
1.8
Total Non-Current Assets
169.5
140.8
Total Assets
187.8
157.0
Liabilities and Shareholders’ Equity
28
Payables
8.2
9.4
Accrued Expenses, Current
12.6
10.4
Current Debt
0.0
0.8
Deferred Liabilities, Current
1.1
1.0
Other Current Liabilities
2.3
2.2
Total Current Liabilities
24.2
23.8
LT Debt and Capital Lease Obligation
6.3
93.7
Deferred Liabilities, Non Current
30.0
23.0
Restricted Common Stock
0.0
3.6
Other Non-Current Liabilities
2.9
2.5
Total Non-Current Liabilities and MI
39.2
122.8
Total Liabilities
63.3
146.6
Capital Stock
0.3
0.2
Retained Earnings
10.3
2.6
Additional Paid in Capital
116.6
7.6
Treasury Stock
(2.8)
0.0
Total Equity
124.5
10.4
Total Liabilities and Equity
187.8
157.0
Ordinary Shares Outstanding
29.54
0.00
Key Assumptions
Noodles & Company has been doing extremely well in North America over the
last few years. In 2013, the total revenue increased from $81.3 million in the first quarter
to $91.5 million in the fourth quarter. Total revenue increased $11.8 million in the third
quarter of 2013 to $88.9 million compared with $77.1 million in the third quarter of 2012.
This increase was the result of new restaurants opening system-wide at the beginning of
29
the third quarter in 2012, in addition to an increase in sales at our comparable base
restaurants. Generally Accepted Accounting Principles Net Income increased $3.3
million from 0.1 million and Adjusted Net Income increased 21.4% to $8.6 million from
7.1 million.
Restaurant sales also increased 3.1% for company-owned restaurants, 0.3% for
franchise restaurants and 2.7% system-wide. Restaurant contribution margin decreased,
which was primarily due to increased operating and occupancy costs. This resulted from
investment in supplies and smallwares related to our limited-time offering, repairs and
maintenance, and expenses related to the increased number of new restaurants. Forty-two
new restaurants opened system-wide in 2012, this was comprised of 35 company-owned
and 7 franchised restaurants.
On July 2, 2013, Noodles & Company successfully completed its initial public
offering of Class A common stock at $18.00 per share. The Company issued 6,160,714
shares, including 803,571 shares sold to the underwriters pursuant to their over-allotment
option. After underwriter discounts and commissions and offering expenses, Noodles
received net proceeds from the offering of $100.2 million. These proceeds were used to
repay all but $0.2 million of our outstanding debt as of July 2, 2013.
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