Major changes in store for Cosi
April 17, 2014
by Monica Watrous
DEERFIELD, ILL. — After nearly tripling its loss last year, fast-casual chain Cosi, Inc. has unveiled major measures to restore profitability. Among them, moving headquarters from Deerfield, Ill., to Boston, shuttering underperforming units and selling company-owned stores are planned for the coming year.
R.J. Dourney, who in March was named president and chief executive officer, discussed the changes on April 16 during a conference call with financial analysts.
“Over the past 12 years, we have lost over $200 million, and if I were sitting in your shoes, I would want to know what’s going to happen in the coming year to change that course,” Mr. Dourney told analysts.
One strategic move involves the restaurant’s menu. The company said it will leverage its health halo and “culinary creative edge” to strategically evolve its product offerings.
Cosi also said it plans to replicate the successful economic models of its franchisees, which include Hearthstone Associates, operator of 13 restaurants in the Boston market.
Moving company offices to Boston places Cosi in its most successful market and enables more recruiting opportunities, Mr. Dourney said.
“The location of the office here in Deerfield is not strategic in nature,” he said. “It is an over 20,000-square-foot office; it does not help us move the company forward in its location.”
On the matter of restaurant closures, Cosi said it is using a third party to identify which locations are “not worth our time and energy.” Additionally, the company said franchising represents a long-term path to positive earnings.
“Once the brand is heading in the right direction, once the restaurants are heading in the right direction, we are going to deploy a franchise model where we are going to duplicate what we have all seen successfully happen, both in casual-dining as well as in fast-casual,” Mr. Dourney said. “We will launch this strategy over this upcoming year. Selling company stores strategically will be part of this strategy. I have to tell you that I’m very excited that we have a number of our current franchisees that are interested in participating in this event.”
Cosi also is investing in technology, with plans to replace an out-of-date point-of-sale system and cater to what it called its “tech-savvy” consumer.
“I think what I’ll focus on is we know that we are in the right category in the right time,” Mr. Dourney said. “We’re not in family dining; we’re not in casual dining; we are in fast casual. And we’re a brand that has a tremendous cachet. When we do it right — when we choose the right real estate; when we execute at a high level — these are very, very profitable little boxes. I know, because I’ve owned a number of them for the past eight years. So, a disciplined approach, a strong team working in the right direction, leveraging our strengths. That needs to be our focus.”
For the fiscal year ended Dec. 30, 2013, the company widened its loss to $11,444,000, which compared with a loss of $4,411,000 the year before.
Revenues for the year fell to $86,327,000 from $97,952,000 the year before.
System-wide comparable restaurant sales fell 3.9% for the year, due to a 6.5% decrease in traffic that was partially offset by a 1.4% increase in average check from year-over-year growth in catering sales. Same-store sales declined 4.6% for the quarter.
For the fourth quarter, Cosi posted a net loss of $4,113,000, which compared with a loss of $2,036,000 during the same prior-year period.
Revenues for the fourth quarter totaled $19,946,000, down 12% from $22,612,000.