July same-store sale of 8% are some of the best in the industry.
While COSI did not make the kind of improvement in profitability that was hoped for, the top line trends are surpassing all expectations. The company reported last night that since the end of the quarter, July represented the 5th consecutive month of positive same store sales, up 8%. It would appear that August will make it 6 straight months.
For 2Q10, system same-store sales increased 3.1% with franchise sales up 2.6% and company-owned sales up by 3.3% (traffic increase 3.1% in the quarter). Near the end of 2Q, COSI took a menu price increase which benefitted same-store sales by 0.5% in 2Q. Going forward, pricing will add 3% to same-store sales.
The improvement COSI is seeing in the top line is coming from all day-parts: catering, breakfast, lunch, snack and dinner. In 2Q, sales growth was driven by increases in, and more efficient use of, marketing dollars. With the help of a new advertising agency, COSI has increased spending on “out-of-store” media to increase awareness of the brand and drive incremental traffic. COSI also has a newly designed website, menu boards and a new social media team in place to drive the marketing effort.
For the balance of 2010, COSI will focus on two new sales channels to help drive incremental sales - online ordering and online catering. In 2Q10, COSI invested in catering a couple of sales people and in store teaching of catering sales to all restaurant teams.
While the improvement in sales is critical, bringing it to the bottom line is an important step. In 2Q10 there was a balance of banking profits and investing for future growth. Efforts undergone to increase through put and improve customer service caused labor costs to increase 170 basis points in 2Q10. In addition, incremental labor was needed to support the increased volume during new day-part hours.
The COSI turnaround story is on track. With 3Q10 nearly done and same-store sales running up 8%, profitability looks to be just a few month away. In addition, with COSI operating around 60% of its store base in 2Q10, there are further opportunities to refranchise more stores, thereby raising cash and enhancing the business model.