From a high stock price of $43 in 2006 to Chapter 11 bankruptcy and delisting in September, Cosi serves as a tough lesson—namely, restaurants need to make money to grow.
In a recent report from investment research firm Morningstar, R.J. Hottovy said the threshold for success in fast casual is $1.6 million. Cosi locations pulled in an average of $1.1 million, according to the company’s latest franchise disclosure documents.
Even at its peak of 151 units in 2008, Cosi struggled to reach volumes high enough to cover the high cost of rent through the Great Recession. Occupancy costs reached a staggering 37 percent (including paper goods and packaging) at company locations in 2014 as rents rose and sales slowed. And favoring business centers meant a busy coffee and lunch rush, but a dismally slow dinner hour. Even breakfast slowed as new and innovative concepts jumped on the day part with high-quality coffee and breakfast fare. Without money to fund strong marketing behind the concept, things only got worse.
“If you’re not promoting with an organized marketing program, that is what happens,” said restaurant analyst and consultant John Gordon, with Pacific Management Consulting Group. “You can’t really do 7 percent marketing when your rent is 25 percent of sales.”
The revolving door for management also kept the concept disorganized from top down. The August addition of Patrick Bennett as CEO meant five people at the helm since just 2011. In all, the company lost $332 million as a public company and recorded just one quarterly profit.
As the Chapter 11 bankruptcy case proceeds, franchisees are hoping not to experience the additional 10 percent traffic drop seen at Quizno’s during that company’s very public implosion in 2014.