What is the interplay between the restrictions on suppliers for a Noodles & Company restaurant (Item 8) and the franchisee's ability to control costs as detailed in the estimated initial investment (Item 7)?
Noodles_Company Franchise · 2025 FDDAnswer from 2025 FDD Document
testing costs paid by us to third parties.
Other Products and Services.
The reputation and goodwill of Noodles & Company restaurants are based on, and must be maintained by, the sale of distinctive high-quality products, merchandise and services. Therefore, your Noodles & Company restaurant must use and offer for sale only food products, beverages, ingredients, uniforms, packaging materials, menus, forms, labels and other supplies and other products and services that conform to our specifications and quality standards and/or are purchased from suppliers we have approved. Where we have Proprietary Products, you must use the ingredients and products without exception. The list of brands and suppliers are contained in our Noodles & Company Operations Manual, and we may modify that list when we deem necessary in our sole discretion. After notice of a modification, you may not reorder any brand or reorder from any supplier that is no longer approved.
If you propose to use any brand and supplier that is not then approved by us, you must first notify us and submit sufficient information, specifications and samples concerning the brand and supplier so that we can decide whether the brand complies with our specifications and standards and the supplier meets our approved supplier criteria. We have the right to charge reasonable fees to cover our costs. We will notify you of our decision in accordance with the Franchise Agreement. We may prescribe procedures for the submission of requests for approval and impose obligations on suppliers, which we may require to be incorporated in a written agreement. We may impose limits on the number of suppliers and brands for any of the items. We may formulate and modify, at our sole discretion, specifications and standards we impose on franchisees and suppliers. Specifications and standards are issued to franchisees through the Noodles & Company Operations Manual and to suppliers by written agreement.
We attempt to negotiate purchase arrangements with third-party suppliers (including price terms) for the benefit of all Noodles & Company restaurants, including those owned by franchisees. We do not provide material benefits (e.g. renewal or additional franchises) to a franchisee based on use of designated or approved suppliers.
You will be required to purchase IT support services from us. These services, and the related fees, are described in Item 11.
We estimate that the required purchases of Proprietary and Non-Proprietary goods, services, leases, supplies, fixtures, equipment and inventory from Designated
Suppliers and Approved Suppliers will represent between 29% and 45% approximately of all purchases of goods, services, leases, supplies, fixtures, equipment and inventory necessary to open a franchise restaurant and approximately 71% of all such purchases to operate a franchise restaurant. The above goods and services do not include: (1) salaries, wages, payroll taxes and benefits, (2) advertising costs, or (3) depreciation and amortization. This percent assumes average initial construction and opening costs and one year of operation costs.
Currently there are no franchisee purchasing or distribution cooperatives.
Items We Supply or Derive Revenue From.
The prices established by suppliers at which Proprietary and Non-Proprietary Products will be sold to you are based upon the price we have negotiated with them based on the purchasing power that we have established thus far.
We customarily receive rebates, allowances, and similar payments or concessions from suppliers based on purchases of products by our Company-owned and franchised Restaurants. We (and our affiliates) have the right to receive payments from suppliers on account of their actual and/or prospective dealings with you and other franchisees (and us) and to use these amounts for any purpose we deem appropriate (unless we agree otherwise with the supplier). According to our internal records, during our 2024 fiscal year, we received $34,846 from approved suppliers on account of their sales of products or services to our franchisees, which is less than 0.01% of our total consolidated revenue of $493,271,000. These amounts are usually based on an amount per case, gallon or unit of product ordered.
In March 2020, our wholly-owned subsidiary, Noodles Virginia, acquired in a merger the assets of the third party gift card service provider previously used by us. Noodles Virginia issues the gift cards, bears the liabilities for the cards and manages and operates the gift card program for Noodles & Company and its franchisees. Pursuant to our gift card program, each franchisee will provide proceeds from sales of gift cards to Noodles Virginia and will be credited by Noodles Virginia with the face amount of gift cards redeemed at restaurants operated by the franchisee.
Except with respect to the rebates described above and certain IT Support services described in Item 11 of this disclosure document, we do not currently derive revenue or other material consideration from required leases or purchases by franchisees.
Specifications, Standards and Procedures.
Each aspect of the interior and exterior appearance, layout, decor, trade dress, services and operation of your Noodles & Company restaurants is subject to our specifications and standards. You must comply with all mandatory specifications, standards and operating procedures (whether contained in the Noodles & Company Operations Manual, the Weekly Roundup or any other written communication) regarding the appearance, function, cleanliness and operation of all Noodles & Company restaurants.
Franchisor's annual revenue in 2024 based on the most recent audited financial statements is $493,271,000. In 2024, franchisor received $1,089,840 for IT Support Services. Such revenue represents 0.22% of the total revenue.
What This Means (2025 FDD)
According to Noodles & Company's 2025 Franchise Disclosure Document, Item 8 outlines restrictions on where franchisees can source products and services, which directly impacts the costs detailed in Item 7's estimated initial investment. Noodles & Company emphasizes that the reputation of its restaurants relies on maintaining high-quality, distinctive products. To ensure this, franchisees must purchase food products, beverages, ingredients, uniforms, packaging, and other supplies from suppliers approved by Noodles & Company. For Proprietary Products, there are no exceptions, and franchisees must use the specified ingredients and products. This mandatory purchasing from approved suppliers affects a franchisee's ability to negotiate better prices or find potentially more cost-effective alternatives, thus influencing the overall initial investment and ongoing operational costs.
Item 7 details the estimated initial investment for opening a Noodles & Company restaurant, and it notes that Proprietary Products must be purchased from Designated Suppliers, while other items must be purchased from Approved or Alternative Approved Suppliers. This means a significant portion of a franchisee's expenses will be dictated by Noodles & Company's approved supplier network. While Noodles & Company states it attempts to negotiate favorable purchase arrangements with suppliers for the benefit of all restaurants, franchisees are still subject to the prices and terms set by these suppliers. The FDD also mentions that Designated and Approved Suppliers have the right to profit from the sale of products and ingredients.
While franchisees can propose Alternative Approved Suppliers, Noodles & Company retains the right to approve or reject these proposals, and may charge fees to cover their costs for evaluation. This approval process adds another layer of control, potentially limiting a franchisee's ability to reduce costs by sourcing from different suppliers. The initial investment can also be affected by the requirement to purchase IT support services from Noodles & Company, as detailed in Item 11, further limiting the franchisee's control over costs. Therefore, the restrictions on suppliers directly influence the franchisee's ability to manage and potentially lower the costs associated with opening and operating a Noodles & Company restaurant.