Cosi Chronically Losing Money, Needs Cash from Franchise Investors

What does a company do when it increasingly loses money from its business? They pull out of the business and let franchise owner-operators figure out how to make money. The franchisor gets a fresh infusion of cash and learns to train franchisees in running a profitable restaurant. At least, that's what a company does if it is Cosi.

Take a gander.

Traditionally, the Cosi system has comprised more company stores than franchised ones, but that balance began to shift in 2006, when the company began inking area-development agreements with businesspeople like Dourney. Cosi has signed multiple-store agreements with 27 franchisees; of those, 20 have at least one or more restaurants open.

Franchisees now operate approximately 30 percent of the restaurants in the 144-unit system; that figure will eventually rise to 75 percent. Analysts say it's a smart strategy for Cosi, which hasn't had a profitable year since it went public in 2002. “When you don't have any cash, what are you going to do?” says Nicole Miller Regan, an analyst with Piper Jaffray & Co. in Minneapolis.

The process, she adds, will be a lengthy one. “Franchise development takes a while to get up and running,” Regan says. Plus, she adds, competition for good-quality franchisees is tough, as more companies boost franchising to grow with a minimal amount of capital investment. [Chain Leader]

COSI	2005	2006	2007
Operating Income	$(13,736.00)	$(13,807.00)	$(17,717.00)

Some things in franchising never change.