In second filing in four years, chain says its business model no longer works
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Cosi Inc. on Monday filed for Chapter 11 bankruptcy protection for the second time in four years, according to court filings, citing plans to transition from a restaurant operator to a catering company.
In its filing with the U.S. Bankruptcy Court in the District of Delaware, the fast-casual sandwich chain based in Charlestown, Mass., said it planned to keep operating its remaining 13 locations and three catering commissaries. It also plans to expand its catering business.
Cosi said it closed 30 unprofitable restaurants in late December 2019. Of the remaining units, “all but two … are heavily involved in the company’s growing catering business,” it said.
There are also 16 franchised Cosi locations, according to the bankruptcy documents.
As of the end of 2019, Cosi had net sales of approximately $40 million with a net loss of $7 million and cash of $500,000.
“These aggregate figures, however, do not tell a complete story,” according to the documents. “Notably, the company’s catering business has performed well, showing strong sales growth year over year for 2020 year to date, and its remaining ‘customer-facing’ restaurant operations, while now less than the majority of company revenue, is currently seeing stable sales growth trends for 2020.”
In a declaration in support of the bankruptcy filing, Vicki Baue, Cosi’s vice president, general counsel and chief compliance officer, detailed the evolution of the company, noting that in 2010 it had 142 corporate locations with $106.6 million in sales, of which around $6.9 million was from catering. Now, with 13 locations and three commissaries, the company has $20 million in sales, of which more than $10 million is from catering.
The chain has 237 employees of which 74% are part-time.
Baue said they are “blessed to find themselves with an already successful and growing catering business, but one that is burdened by the costs associated with their historically predominant business model of operating restaurants.”
She added that the chain emerged from its last Chapter 11 bankruptcy filing in May of 2017 with an understanding that Lloyd J. Miller III, principal of investment firm Milfam LLC, which was Cosi’s largest shareholder, would continue to support the company. His death in January of 2018 changed that: Milfam ceased its funding and was bought out by other shareholder funds in December of 2018.
In 2019, rising labor and commodity costs and “unfavorable lease terms” continued to hamper the business as did “the proliferation of other fast-casual and quick-service restaurants as well as online delivery platforms have created new competition,” Baue said.
Cosi still has outstanding debt of $24 million from its last bankruptcy and an additional $6.7 in other debt from that period, plus $6 million in debt to other creditors, including various distributors and insurance companies. It could also be liable for around $2.5 million in claims from the broken leases of the 30 recently closed locations.
“This is not, however, a typical ‘Chapter 22’ case, in which a debtor attempts to accomplish the same objectives as in the initial Chapter 11 case or to liquidate its assets,” Baue said. “The company’s old business model does not work any longer. The company is already seeing, however, that its new business model, revolving around its catering business, does work. These Chapter 11 cases are intended to allow the new Cosi to maximize the value in this healthy and growing business for the benefit of the company’s stakeholders.”
Apart from Cosi Inc., subsidiary debtors named in the filing are Xando Cosi of Maryland Inc.; Cosi Sandwich Bar Inc.; Hearthstone Associates LLC; Hearthstone Partners LLC; Cosi Franchise Holdings LLC; and Cosi Restaurant Holdings LLC.
Contact Bret Thorn at [email protected]
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