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McDonald’s (NYSE:MCD) is more than a month into the test of its new CosMc’s concept in the Chicago region. CosMc’s, which would be McDonald’s (MCD) first investment in a new restaurant concept in the U.S. since Chipotle (CMG), is named after a McDonaldland space alien character who appeared in ads in the 1980s. The CosMc’s menu is centered around specialty beverages and snacks, although items also include a spicy queso sandwich, creamy avocado tomatillo sandwich, and the classic sausage McMuffin with egg. “This is a $100 billion category growing faster than the rest of the (informal eating-out segment) and with superior margins,” previewed McDonald’s CEO Chris Kempczinski on the test launch in December.
The CosMc’s location in Bolingbrook, Illinois has attracted mostly positive reviews and consistent traffic. Data from Placer.ai indicated that CosMc’s saw more than double the number of visits that a typical McDonald’s (MCD) location saw chainwide during December, despite not being open for the full month. The location saw triple the number of visits per square foot. “However, it’s also worth noting that CosMc’s visitation numbers would likely have been much higher if the location had additional capacity to satisfy the overwhelming demand,” noted Placer.ai.
McDonald’s (MCD) plans to open 10 more pilot locations by the end of the year in the Dallas-Fort Worth and San Antonio metro areas. The restaurant giant made it clear during a recent investor update that it was careful before deciding to move forward with the CosMc’s concept.
“We had a few key success criteria for the concept. First, we had to have a differentiated idea. We needed to be confident that the concept could bring a product or experience that’s unique and compelling to customers. Second, it had to have global appeal. McDonald’s doesn’t do hobbies well. It’s not worth our time to develop an idea that will only work in one market. We need big ideas that have global appeal and could work across multiple markets. Third is economics. The unit economics needs to work. The potential to offer strong returns and be highly incremental are critical to the adoption and execution of any future expansion of the concept.”
Seeking Alpha analysts are positive on the CosMc’s opportunity for McDonald’s (MCD). “We’re liking McDonald’s innovation in this area and think the concept has promise to be competitive in the long run.’ noted analyst Valuentum. Meanwhile, Luca Socci thinks that although CosMc’s is still an experiment, it may change the landscape of coffee shops and is a potential threat to Starbucks (SBUX).
Sector watch: The restaurant industry is expected to see more global quick-service brands develop significant coffee and specialty beverage platforms, sub-brands and spinoffs to potentially threaten Starbucks (SBUX), Dunkin’ Donuts, Krispy Kreme (DNUT), and Dutch Bros. (BROS) down the road. KFC’s (YUM) KCOFFEE concept in China is already creating strong buzz. “Beverages are undoubtedly one of the hottest menu categories on the global restaurant stage. Growth among specialist chains is robust and outperforming other key menu categories,” noted Technomic’s Aaron Jourden. “But competition is heating up among global players and local brands alike, with hotspots for coffee and tea chains, especially in China, South Korea and Southeast Asia,” he noted. Chains to watch in Asia include Heytea, Cotti Coffee, Luckin Coffee (OTCPK:LKNCY), Mixue-backed Lucky Coffee, Kopi Kenangan and Compose Coffee.
