UPDATE: May 20, 2021: Noodles & Company has opened its first ghost kitchen location in Chicago's Humboldt Park. The unit will allow customers to order meals through the company's loyalty app, as well as third-party partners for pickup and delivery. It joins 20 traditional Noodles units in the Chicago area. 

"This is integral to our overall digital strategy as we work to develop faster service through our digital channels with lower overhead and labor costs, all without investing in a physical brick-and-mortar location," Stacey Pool, chief marketing officer at Noodles & Company, said in a company release. 

Dive Brief:

• Noodles & Company plans to open a ghost kitchen operation during Q1 2021 in addition to new units that would be company-owned and just offering off-premise, Dave Boennighausen, CEO at Noodles & Company, said during an ICR presentation on Monday. 
• Fat Brands President and CEO Andy Wiederhorn said during an ICR presentation Tuesday that the company plans to open a couple dozen ghost kitchens in 2021. The restaurant company currently operates two dozen ghost kitchens, where Fat Brands rents delivery-only warehouse space from a ghost kitchen landlord, in the U.S. and Central and South America, Wiederhorn said. 
• National Restaurant Association President Hudson Riehle said during an ICR panel Monday that "Ghost [and] virtual kitchens for the industry are definitely a long-term trend. It’s not a fad." Credit Suisse analyst Lauren Silberman said in a recent interview that restaurants with strong delivery sales and digital presences will be able to take advantage of this growing business model.

Dive Insight:

Prior to the pandemic, Noodles & Company had an off-premise mix of 60%, which has positioned it well during the outbreak, Boennighausen said. The company had been exploring smaller footprints and drive-thru pickup windows before the crisis, but these trends were accelerated, he said. 

The company opened a new restaurant with a drive-thru pickup window in October where 78% of digital orders were processed through the drive-thru, Boennighausen said during an October earnings call with investors. At the time, he said Noodles & Company was planning to have 70% of its new restaurants include a drive-thru going forward.

The addition of ghost kitchens will only help grow this channel and its digital sales, which rose 151% and made up 61% of sales during Q3 2020, according to an earnings release.

Fat Brands plans to grow freshly acquired Johnny Rockets via ghost kitchen models, Wiederhorn said in an interview this summer. 

"We are always looking for opportunities to grow and innovate. Ghost kitchens are a great way to do this as it allows us to offer our concepts in new territories at a faster rate," he said. 

Fat Brands opened its first ghost kitchen location in Chicago in the spring of 2020 as part of a development deal with Epic Kitchens. The agreement includes 20 ghost kitchen locations in Chicago, Boston, Philadelphia and New York to be set up by 2022.

The brand has also been dabbling in "virtual restaurants," where an existing Fat Brands restaurant operates additional brands out of its brick-and-mortar kitchen for delivery-only, since 2019. The company currently operates 32 virtual restaurants across its network, Wiederhorn said during Fat's ICR presentation, adding that "it's really a competitive advantage because they can offer additional brands to franchisees and really get those incremental sales [growing]."