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Così aims to turn profit with healthful menu

Così aims to turn profit with healthful menu

CEO R.J. Dourney discusses turnaround at the struggling fast-casual chain

Così Inc. has never made a profit, but the fast-casual operator’s relatively new management team believes it has the secret ingredient that will help it start making money: a menu loaded with food-forward, healthful items.

“We’re blessed,” CEO R.J. Dourney said in a recent interview at one of the company’s restaurants in downtown Boston. “There’s a tailwind for fast casual. It’s a great time to be in the healthy, better-for-you segment.”

Così has hired Philip Kafka, a 25-year veteran of upscale restaurants, as executive chef. Kafka’s new menu items include a Pork Belly Bánh Mì sandwich, a salad with a charred tomato vinaigrette dressing, Smart Fit Chicken Noodle soup with kale, and a new dessert and breakfast item called a Chia Shot, a pudding-like parfait using low-fat yogurt, coconut milk and chia seeds.

Since Kafka took the job this summer, he has developed and tested 250 menu items. Of those, six have moved forward. Another 18 are “maybe” items.

The items are tested internally before going to focus groups and then to test restaurants. In other words, Così employees eat a lot.

“I’ve put on 60 pounds since taking this job,” Dourney said.

Health is a main ingredient. Dourney acknowledged that for years customers would demand healthful items but not order them. But today’s customers are looking for healthful items from certain concepts, he said, and Così is among them.

There are some signs that Dourney’s months-long effort at Così is gaining traction. The 110-unit chain just reported that same-store sales rose 6.6 percent in December and 4.2 percent in the fourth quarter. It was the first same-store sales increase for the chain in 11 quarters. Investors are enthused — the penny stock has risen more than 60 percent so far this year and is at its 52-week high.

“We’ve doubled our market cap in 10 months,” he said.

To be sure, one quarter does not a comeback make, especially when that quarter is being compared with a difficult period from a year earlier, when same-store sales fell 4.6 percent. Così management has cited increases like this before as evidence that the chain was making a turnaround, only to have those increases disappear.

There also remains the question of profits — or lack thereof. In the first nine months of 2014 — the company’s full-year report has yet to be published — Così lost $12.1 million, more than the $7.3 million the company lost in the first nine months of 2013. Così still spends more money than it receives in revenue from sales and franchise royalties.

The company has survived in recent years by raising money through the sale of stock and through stock-backed loans from large shareholders. The chain recently said CFO Scott Carlock resigned after just six months on the job.

“We have a long way to go,” Dourney said. “It’s a turnaround. This is an unequivocal turnaround.”

A sales increase is vital for Così and its future. Financial losses of the level and consistency that it has experienced are difficult to recover from because the company has fewer resources to make investments necessary to get customers to come in the door.

But, “We’ve got plenty of cash to get done what needs to get done. We don’t need to have a fire sale,” Dourney said.

Dourney was Così’s largest and most successful franchisee when he was plucked in March to be the chain’s CEO. Hearthstone Associates, Dourney’s previous company, operated 13 locations. Hearthstone and Così have since merged, as part of the original deal when Dourney took the position.

Since then, Dourney has moved the company’s headquarters from Chicago to Boston, where Hearthstone was based. The company also cut spending and closed 10 unprofitable company-owned locations.

“It’s math,” he said. “If revenues are less than expenses, you lose money. If revenues exceed expenses, you make money.”

Dourney now calls the company’s profit-and-loss statement “right-sized,” and says its job now is to increase sales.

The company made some key hires in its management team, including Kafka and Joyce Lee as vice president of marketing. She immediately put together some focus groups of the chain’s customers to get an idea of how they view the brand. To company executives, their answers were fortuitous.

“Our customers see us as a concept with food-forward menu items,” Lee said. “We have a very good idea of who are customer is.”

Dourney said other changes are coming. Although he wouldn’t specify, he indicated that the company is working on technology improvements — a must for a brand with many young, tech-savvy customers.

“All we’ve done is laid the foundation,” he said.

Contact Jonathan Maze at [email protected].
Follow him on Twitter: @jonathanmaze

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