Support mechanisms and new hires will help Cosi step up franchising
RJ Dourney, who franchises 13 Cosi restaurants in the Boston area, has raised menu prices by 4 percent over the last year. Raising prices is always a suspenseful proposition, but it’s worked out well for Dourney.
“I have seen no guest-count erosion,” says Dourney, a former Au Bon Pain executive who plans to open 12 more Cosi locations. “That’s really saying something.”
The 4 percent figure wasn’t guesswork. Dourney based it on reports that franchisor Cosi Inc. commissions from Revenue Management Services, a Tampa, Fla.-based consulting firm. The reports, done for each of the fast-casual sandwich concept’s geographical markets, “tell you how much room you have in pricing before you start losing guests,” Dourney says. And that is how he was able to negotiate a price hike, necessary in this age of booming commodities costs, without sacrificing traffic counts.
Commissioning and sharing the price-elasticity reports is just one of the ways Deerfield, Ill.-based Cosi supports franchisees as they become a bigger part of the chain’s growth strategy.
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.
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