Analyst: Panera Looks To Eat Into Cosi’s Market Share

Fast casual restaurant chain Panera Bread (PNRA) might get a boost from a CEO change at rival Cosi (COSI), according to a note released this morning from Miller Tabak senior restaurant analyst Stephen Anderson.

Anderson says the resignation of former Cosi Chief Executive Carin Stutz, announced Tuesday, should open the door for Panera to gain market share in urban areas where Cosi has an edge.

“Cosi has long has had an advantage over Panera in terms of urban locations, but Panera has targeted downtown markets for expansion effectively in the past year-and-a-half,” Anderson noted. “We anticipate this strategy will be accelerated in the next couple of years, resulting in what we think will be additional market share gains at the expense of Cosi.”

Stutz, who has spent 35 years in various management roles in the restaurant industry, resigned only 18 months after taking the top job at Cosi. She will be replaced Stephen Edwards, the company’s executive chairman of the board who will also serve as both CEO and president.

According to a Cosi press release, Edwards will lead efforts already underway to exit a number of underperforming locations. He will also oversee reductions in the company’s administrative workforce aimed at annual savings of about $1 million.

Cosi operates 124 restaurants and mainly competes in the fast casual bakery-cafe segment. The company hasn’t turned an annual profit in years. It has grown quarterly sales only twice in at least the last 19 quarters. Shares traded at around 2 on the stock market early today.

In contrast, Panera, which boasts about 1,700 restaurants, its one of the segment’s best performers. It churns out double-digit sales and earnings growth with regularity and recently saw shares touch a record high of 194.77.

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Although much of Panera’s strength has been in suburban areas, the company launched an “urban assault” strategy in early 2012 that included opening downtown locations in Manhattan, Boston, Chicago and Toronto.

The rates of return at those locations are similar to those at Panera’s more traditional suburban locations, analyst Anderson noted.

“This strategy has made significant strides in Boston and Chicago, where (Panera) has overtaken Cosi in unit count, but has yet to make much of a dent in other Northeast U.S. markets,” Anderson said.

“Even today, the number of Cosi locations still far outnumbers that of Panera in the New York and Washington, D.C. central business districts, while there are none in Philadelphia’s Center City business district,” he added. “We contend ongoing trouble at Cosi is an opportunity for Panera to gain market share.”

Anderson’s comments Thursday morning didn’t help Panera’s stock. It was down more than 2% in midday trading.

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