Cosi, Inc. (COSI)

During summers when I was in school, I used to work at a Cosi's. I'm grateful for the summer employment, but their business plan is too clunky. Their idea is to cater towards breakfast, lunch, and dinner - it looks good on paper, but in reality it falls flat. It creates the following problems:

1. Location. How are Cosi's in malls supposed to serve breakfast? And where's the weekday lunch crowd in residential suburban locations? The ideal location is a busy urban area, but one that's not too trendy, meaning it'll have less competitors. There are some perfectly located Cosi's out there, but overall, a location that's hot at one time of day won't be hot at another, either due to customer trafficing or near by competition.

2. Battling competition. The diversification of Cosi services over the day makes them more vulnerable specialized competitors. A near by Starbucks may chip away at coffee sales; while a near by food court or Panera will take away the lunch crowd. I expect the future of casual dining will be specialized and more focused on great tasting food than Cosi is. Consider Potbelly's, Chipotle, Baja Fresh, California Tortilla.

3. Lowering profits. For example, my location, which was metropolitan and next to offices, favored the lunch crowd. However, money lost in the evening ate away at the day's earnings. Hours may vary at different locations, but there's still a basic cost attached to switching from breakfast to lunch to dinner.

4. Franchising. Franchising naturally creates some variability of service. But this compounds when there are so many different services throughout the day. Between breakfast, coffee, lunch to go, dinner with waiting services, and sometimes a bar, there's a lot of variation, which should be controlled more centrally. In contrast, McDonald's or Apple Bee's are open throughout the day, but generally the services are similar for breakfast, lunch, and dinner. At Cosi's, this takes a heavier toll than normal on customer service and on owners/managers, who have to master more skills corresponding to different times of the day.

Lastly, the food isn't all that great - except for the bread, it was rare to see customers really passionate about their food. New ideas for menu items often comprise of new combinations of old ingredients (see their website, limited time offer new sandwich is a caesar salad sandwich, like anyone's going to be excited about that).

Cosi's future rests on improved management who really think about location. Since it's been around a few years, Cosi also has good brand-recognition in a few areas. For these reasons, I expect Cosi to linger around for a while, every now and then generating a bit of over-hyped buzz. Overall, they have an interesting but losing business plan.