Così Inc. hopes a Chick-fil-A model will help it stop losing money.
The Boston-based fast-casual chain is implementing incentive plans “modeled after Chick-fil-A” with managers and others in the system in the hopes of generating profits at the unit level — an important goal for a company that has lost money every year since it became a public company in 2003.
Così tested the effort at its New York City restaurants last year. The restaurants improved with the profit-sharing deal, and Così expanded it to all company-owned locations this year, executives said during the company’s fourth-quarter earnings call Thursday.
“We changed the culture in New York, and the results have been impressive,” Così CEO R.J. Dourney said. “Now, six months later, Così in New York is rivaling Boston for top box performance.”
Così executives spoke confidently about the company’s ability to generate positive cash flow this year, but it still plans to close some underperforming locations.
Franchisees operate 31 locations, and the company operates 79 units. Così closed two of its company locations last year and plans to close another six to seven units by the end of the year, two of them in the next six weeks.
“We’re actively negotiating with landlords and third parties,” Miguel Rossy-Donovan, the company’s chief financial officer, said during the call. “It’s taking a bit longer than originally anticipated.”
Same-store sales increased 0.7 percent in the fourth quarter. Revenue in the period, which ended Dec. 28, rose 23.1 percent, to $24 million, from $19.5 million the previous year, due largely to the acquisition of 17 franchised locations from Hearthstone, the operator that Dourney owned before he was named Così CEO.
The company reported a narrower net loss of $3.6 million, or 8 cents per share, from a loss of $4.5 million, or 18 cents per share a year ago. For the year, the company reported a net loss of $15.7 million, or 36 cents per share.
But executives said they moved toward profitability at the company and unit level. Così reduced general and administrative spending in the period. The company has “fewer people doing more,” in its support center, but employees also have incentives to generate more profits.
Support team members now have restricted stock awards, which could incentivize them to focus on growing the company’s stock price — currently trading below $1 per share and in danger of being delisted from the Nasdaq stock exchange over its low price.
The company is also giving a $500 bonus for profit-generating ideas.
“The team is coming up with tremendous ideas for making Così profitable and keeping our aspiration of becoming the best restaurant company in America,” Dourney said.
The chain is also testing a new, simplified menu. Dourney said that Così started 2015 with some momentum, but then saw traffic decline in the middle of the year.
“We deployed a series of initiatives that caused us to lose sight of one of our strengths, speed and ease of use,” he said. “Simply put, the process should be nothing short of pleasant for the guest every time they come to Così, from how and where they order to the font size on the menu boards.”
The simplified menu in test has 20 percent fewer items. It leaves the most “craveable” items on the menu, and is easier for employees to execute.
“Early results of the test are showing traffic is up and costs are down, and the guests and our people are happy with the changes,” Dourney said, saying the company plans to roll out the new menu systemwide.
Executives also said they are making headway in generating profits at the unit level at company locations.
They noted that company-operated restaurants generated $1.3 million more in cash in the fourth quarter than in the same period a year before. Food costs were 26.2 percent of sales in the quarter, falling from 29.3 percent in the same period a year before.
Labor costs, perhaps the biggest challenge for the chain, also fell in the quarter, from 39.8 percent of sales to 36.7 percent of sales. The decrease came despite wage increases in some markets.
“This has been a turnaround story,” Dourney said. “But, like all turnaround stories, we’ve had to make adjustments to the plan. We have a strong team that is intensely driven for results.”
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