Mediterranean fast-casual dining chain Zoe's Kitchen (ZOES) had a terrible 2017. The company fell victim to difficulties in the greater restaurant industry, causing results to come in lower than investors had hoped. The stock dropped dramatically as a result.
Things could start to look sunnier, though, from a combination of changing food trends and recent adjustments by management.
External influence: bad news, and maybe some good
The food industry has been struggling with the "restaurant recession" for the last two years, caused primarily by industry overexpansion. While Zoe's initially weathered the storm just fine, comparable sales succumbed to the overall trend in 2017.
Chart by author. Data source: TDn2K.
Chart by author. Data source: Zoe's Kitchen quarterly results.
But things have started to look up for the industry, and Zoe's specifically. The negative traffic trends are starting to subside. Zoe's, which has earned a reputation as a healthier eating-out alternative, could get an extra boost in the year ahead.
According to Amazon's Whole Foods grocery chain, healthy eating and Middle Eastern cuisine will both be big trends in the year ahead. Zoe's Kitchen fits both bills. Others in the food industry also predict this cuisine trending in 2018. With a restaurant industry that looks ready to rebound and Zoe's style of cooking in vogue, the fast-casual chain could make up some lost ground.
Internal refinements
That's not to say that Zoe's has left its fate up to the restaurant industry's health. Management has gone on the offensive, continuing to open new locations in new markets and taking steps to increase traffic at existing locations.
Its latest endeavor? A new prototype location in Raleigh, North Carolina. The exterior is modern and painted in neutral tones, and there's a reworked take on the logo with a bank of vertical lights. Inside, company CEO Kevin Miles says, the design opens up the kitchen to customers' view and has better dining room integration with patio seating, a new pickup area for carry-out orders, and warm colors and lighting to make for a more inviting space.
The new Zoe's Kitchen prototype. Image source: Zoe's Kitchen.
The design will be used in new location openings, as well as remodels of existing stores. The updated format will also be paired with substantial changes made to the menu over the last few quarters, including light and healthy options from the Middle East and North Africa (like those predicted to trend higher this year).
As for the area designed around carry-out orders, convenience is something consumers have been increasingly demanding from restaurants. A new website was launched in August, and hot on its heels was an app and a loyalty rewards program. Besides helping restaurant guests track rewards, view the menu, and find locations, the app allows for online ordering and gives Zoe's more insight into customer preferences. The new website also allows ordering and gives links to third-party services that will deliver.
All these initiatives help Zoe's cater to convenience and help the stores stand out from the competition. In its last reported quarter, comparable sales had improved to only a 0.5% drop, which included a 0.9% negative hit due to Hurricanes Irma and Harvey. That would indicate a corner has potentially been turned.
In short, Zoe's could get a double boost from industry trends and steps taken internally to rejuvenate the business. The way things look, 2018 should be a much better year than last.
