I continue to believe that the COSI turnaround story is on track, despite what the weakness in the stock, of late, might be suggesting.  In 1Q11 COSI reported a 3% in same-store sales, implying that 2-year trends declined from a -0.3% to -0.7%.  All of our visits and checks suggest that the company can post 3-4% same store sales in 2Q11. 


One of our recent checks was by Hedgeye intern, Yale football star, and restaurant channel-checker extraordinaire, Allen Davis.  The following is his account of his channel check of the Cosi restaurant on East 8th Street in NYC:  


In the third week of my internship, I discovered what will probably become the most important lesson of my summer: When working as a research analyst covering the restaurant space, always mention places you haven’t eaten. Who would have thought that a casual inquiry as to the food selection as Cosi would lead to my first due diligence trip?


The first thing I noticed when I walked in was how many people were in there. I’d make a rough estimate of 16. I walked up the counter, was asked what I wanted, then looked up for the menu. No menu at the counter!  Instead, it is posted in small framed sections along the wall as you walk in. I didn’t even notice it.  I just assumed it was art of some kind. I can certainly appreciate the effort to class up a fast casual place with innovative menu design; perhaps the behind the counter menu is too fast food-ish, but some warning would have been nice.


The menu itself was well organized.  Each framed piece was a different type of item. Options weren’t as wide as I expected. Other than pepperoni, the pizza just seemed like pizza versions of their sandwiches. I nearly got the half-sandwich plus soup deal, it seemed like a great value, but they didn’t have any hearty soups. I guess the margins on selling those aren’t as high. I ended up getting a strawberry-mango smoothie and a Bacon, Turkey &Cheddar Melt. The most important factor in my choice was that bacon was the first ingredient listed. That’ll get me every time.


When the cashier asked if it was ordering my food to stay or to go, I turned to look into the seating area and had two big realizations. Firstly, no one sitting down was actually eating anything. Not one person. There were a few half empty drinks, so I guessed they had been at one point, but for now they were just hanging out, typing away on laptops. I guess Cosi is the Starbucks of fast casual food: buy one thing and you can linger as long as you want. The second thing I noticed was that the seating was amazing. I know a lot of places have started upgrading the interior, but McD’s has nothing on this place. It felt like a living room, complete with big comfy armchairs, a few longer bench-like sofas. They weren’t messing around with leather seats and padded stools here. They meant business.  However, I needed to get back to my apartment to watch PTI before my workout, so I took my food to go.


While I waited, I watched a guy in a chef’s jacket make bread. I’ve never seen anyone other than my Mississippi grandmother make bread so, naturally, I stared at him.  I’m sure he felt like an animal on display at the zoo. There was a basket of sample slices by the station. I took a piece.  It was really good, so I took another. By the time I remembered my manners, I must have housed six or seven pieces.  I don’t know it they sell their bread, but they should.


Now, on to the food. The sandwich was good. Pretty standard-fare, but it didn’t give me anything to hold against it. I wasn’t a huge fan of the Dijon sauce on the melt; it was a bit spicy for my taste. They put a good amount of bacon on the sandwich though and it was cut thicker than I expected. A lot of places (McDonald’s I’m looking in your general direction) are really stingy with bacon. The best compliment I can give the melt is that It looked like the picture, something I don’t see too often. I didn’t like the smoothie. The mango part was good, but they put strawberry sauce in it. This sauce is a growing problem in fast casual/quick service beverages.  I don’t know who thought it was a good idea, but they were wrong. Pouring strawberry sauce into a mango smoothie doesn’t make a strawberry-mango smoothie. The strawberry sauce just sat at the bottom and since the straw wasn’t sturdy enough to support a stir, leaving me no option but to drink the sauce before I got to the mango smoothie, which was actually good.


Overall, my first Cosi meal was pretty good. When I go back, I won’t get the same drink, but I’m definitely going back.



Allen Davis



Howard Penney

Managing Director

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