Cosi struggles with service shortfall

by Eric Schroeder
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DEERFIELD, ILL. — A noticeable shortfall in customer service has fast casual restaurant chain Cosi, Inc. considering all alternatives in an attempt to reboot revenues.

The company in the second quarter ended July 1 sustained a loss of $2,135,000, which compared with income of $77,000 in the same period a year ago. Net revenues fell 11% to $23,408,000 from $26,308,000.

In an Aug. 15 conference call to discuss quarterly results, Stephen Edwards, president and chief executive officer, cut to the chase in placing the blame squarely on service at the restaurant chain’s 72 company-owned and 49 franchise restaurants.

“People love our sandwiches, they love our salads,” he said. “We hear it time and time again, it’s never a complaint — a complaint is because someone was rude to me, my sandwich or my salad was incomplete in the ingredients that it was supposed to have … or I got the wrong order or it took me 20 minutes to get my order when there was nobody else in the store. And those are the kinds of service items that we need to address. Class A hospitality and service experience is what we are really focused on.”

Mr. Edwards said Cosi has a culture that has “lost engagement with the process of serving food to people in a hospitable way.”

“We get a number of remarks from customers about how much they love our food and our products, but they have just been disappointed time and time again by the service or the experience that they received in the store.”

To address the service problem, Cosi is focused on elevating the quality of service, customer engagement, being more friendly and hospitable, and delivering food faster, Mr. Edwards said. The goal, he said, is to increase customer counts.

Failure to improve its service could place Cosi clearly on a trajectory toward another year of unprofitability and capital loss, Mr. Edwards said. It may even lead to more change.

“This cannot stand,” he said. “We must change either the way we do business or the structure of our company or both. We are reviewing all alternatives.

“First, we must reverse the decline in revenues. Without sales growth we will not be a profitable company. To that end we are working to create the products, service and experience our customers demand. Service is where we are experiencing the greatest shortfall and where we will be focusing the majority of our efforts.

“Second, many of our stores are unprofitable. We cannot continue to carry them. We are exploring several options for these locations, including early termination, subleasing, refranchising and, where justified, additional investment of personnel and resources.”

Aside from service issues, Mr. Edwards also addressed the restaurant chain’s menu offerings. Specifically, he was asked whether Cosi was missing an opportunity in coffee and tea. He said the beverage industry in general has struggled as consumers shift away from soft drinks.

“We are trying to work on a number of beverage items that will improve our opportunity to garner beverage revenue and attachment from the guest, but they are still in development,” he said. “I will say that we believe that we can do specialty beverages in a more extensive way and in the future. And we are working on that project. We just rolled out Numi Tea across the chain as a way to elevate our tea program. It’s an organic Fair Trade tea that is I think a meaningful step up from our prior offering. And so hopefully we will get some credit for that and we will build a bigger tea business.

“And we are currently in the middle of doing a full evaluation of our coffee program to try and get the product and the delivery system in the store because Cosi should stand for coffee. It’s just a mistake that we are not viewed as a coffee provider. And our real driver looking into the back half of this year, one of the things we’re focused on, is that we’re going to build a business that says Cosi loves coffee, and you should see something happening there shortly.”

In the meantime, Cosi will continue to focus on its signature flatbread.

“It is the one thing that we deliver that no one else can deliver,” Mr. Edwards said. “It’s baked in-store, from scratch, all day long flatbread. And it is truly a cravable product that keeps many people coming back. How do we build a menu around that that’s simpler and highlights that as the core of our offering? And that is something that we are working on. That will take some time but it is something that is definitely a top focus for us.”
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