restaurant wars

Cosi Might Be the First Casualty of the Fast-Food Quality Boom

Photo: Sarah Ross / flickr

Cosi, the Illinois-based restaurant chain famous for its flatbread sandwiches and free WiFi, is having a very bad day. Its stock is down nearly 15 percent after yesterday’s quarterly earnings report, in which it reported a $2.7 million loss and admitted, in the CEO’s words, that “our current financial performance may not allow us either the time or resources to build our brand.”

Cosi has never been a financial heavyweight. (Amazingly, it has posted only one quarterly profit in its entire eleven-year history as a public company.) But it really seems to be hitting a wall now. On the earnings call, the company announced it was planning to close at least five of its roughly 125 restaurants, and likely many more. Cosi still has about $12 million in cash, but analysts are downgrading the stock, and it looks like only a matter of time before the company’s salad days are over.

Cosi’s decline is almost certainly a function of poor management, but there are some other factors at work. Biggest among these is that the fast-food restaurant industry has moved up the price ladder, into the fast-casual niche that used to be occupied by restaurants like Cosi, Chipotle, and Panera Bread. Chains like McDonalds and Taco Bell now have healthier, more-gourmet items on their menus, and you can now get Cosi-style flatbread sandwiches at any Starbucks or Subway.

COSI Chart

COSI data by YCharts

As you can see by the chart above, Chipotle and Panera have both held off the fast-food industry’s upmarket encroach by creating their own new products and marketing themselves as the healthy alternative. But Cosi hasn’t. And soon it may be the first fast-casual chain to be beaten on quality and price by larger rivals, though it probably won’t be the last.

Cosi: First Casualty of Fast-Food Quality Boom?