A Tale of Two Bakeries: Why Panera Rose While Cosi Fell

Two bakery-cafe chains have been in the news recently -- Richmond, Mo.-based Panera Bread (PNRA) announced growing sales despite the downturn, while Cosi (COSI) of Deerfield, Ill., said its sinking sales have led to a delisting warning notice from the Nasdaq. Both chains began around the same time, and Cosi certainly got as much positive initial press and consumer raves. Some of the key differences that made Panera the winner:

• Management strength and consistency. Panera was the second chain idea from seasoned Au Bon Pain visionary Ron Shaich, who's been actively involved until just the past few months. By contrast, Cosi founders Jay and Shep Wainwright were fresh out of college when they brought back Cosi's concept from a bistro they saw in Paris. Cosi's ownership has been a revolving door -- it merged in 1999 with Xando, another small chain that later busted. Efforts to sell it again last spring failed. Shep left after the 2002 IPO, and Jay was forced out in a 2005 management shuffle, so founders have been out of the loop for years.
• A concept that franchise owners wanted. Panera was able to attract investors willing to open more than 500 franchised units. Though Cosi made many announcements over the years of big expansion plans and hundreds of planned units, growth was slow. A restaurant can have the best food in the world, but if its business model doesn't make sense for franchisees, they won't buy restaurants.
• An emphasis on more experienced, wealthier franchise owners. Panera sets a higher bar for its franchise owners, requiring previous multi-unit restaurant experience. Though it only sold multi-unit franchises, Cosi just asked for previous restaurant experience. Panera also recruited franchisees with at least $7.5 million in net worth and $3 million in liquid assets, while Cosi requires only $900,000 in net worth and $400,000 liquid. Translation: If stores need investment to improve results, Panera's franchisees have more resources to make it happen.
• Sticking with the concept. For years, Cosi toyed with being a bar by night and a bakery by day, or just selling liquor along with its food, possibly creating customer confusion and disappointment as they evolved. Panera just kept being a great bakery-cafe.
• Critical mass. Panera's quick early growth allowed it to emerge as the brand customers knew and loved across the country. It built out markets with multiple units to create brand awareness. Cosi has only made it to 18 states, and it scattered them almost randomly around the country. For instance, there's only two Cosi restaurants in California, and one in Florida.
• Uneven execution. The photo above right was labeled "watered-down lemonade" by the photographer. Apparently the dining experience at Cosi isn't always what it could be. Panera has kept its execution tight, continuing to earn consistent customer raves.