McDonald’s Might Never Expand CosMc’s, But the Spinoff Could Still Pay Dividends

McDonald’s might never expand CosMc’s beyond its current locations, but the spinoff could still pay dividends by providing valuable consumer insights and profitability.

McDonald's Launches CosMc's Spinoff to Attract Younger Consumers with Customizable Beverages and Loyalty Program

In a recent report by CNBC, CosMc, an alien who adores McDonald's cheeseburgers and one of the company's lesser-known McDonaldland icons, was utilized to create the spinoff. In December, during the unveiling of CosMc's at an investor event, McDonald's CEO Chris Kempczinski stated that the company aimed to attract younger consumers by developing a brand that could sell customizable afternoon beverages and coffee.

The new brand rollout comes as beverages are increasingly "looked at now as part of that snack area — more affordable, indulgent, and perhaps even a healthier treat," said Katie Belflower, an editor at restaurant research firm Technomic. "It's a good profit margin for restaurants. With beverages, you can get really creative, without necessarily having the product lines you would have to invest in with food."

Since its inception in the Bolingbrook, Chicago suburb, McDonald's has inaugurated three additional CosMc's restaurants, all in Texas. As a demonstration run, the chain intends to open ten locations by the end of this year, all but one in the Lone Star State.

On May 28, the new brand will introduce CosMc's Club, its mobile application and loyalty program, which indicates its growth. Customers can utilize the application to submit orders for pickup at the restaurant's entrance or in the drive-thru lane. Members of the loyalty program also accrue 10 points for each dollar spent; they can redeem $400 points for $2 in rewards.

Although the precise long-term viability of CosMc remains to be determined, McDonald's may have profited from the venture even if it fails to surpass the 10-location test phase. The app and loyalty program will provide additional consumer intelligence to the chain. "The cost of doing this, to McDonald's, is a rounding error. Even if they shut them all down six months from now, they still learn some things. Sometimes the learnings can be more valuable than you might imagine they would be," Mark Kalinowski, restaurant industry analyst and chief executive of Kalinowski Equity Research, told CNBC.

Despite Initial Consumer Buzz, McDonald's CEO Emphasizes CosMc's Limited Immediate Impact and Long-term Potential

During McDonald's investor presentation in December, Kempczinski minimized the immediate impact of CosMc's. "Let me emphasize again, we're talking about 10 stores," he said at the event. The big story isn't about CosMc's, per se. The big story is what it says about McDonald's and our potential."

However, many consumers were preoccupied with CosMc's. Customers anxious to purchase McPops and Churro Frappes waited hours in drive-thru lines that circumnavigated the shopping center when the first location in Illinois opened days later. After several weeks had passed, the chatter had begun to die down.

The mean duration from entering the drive-thru queue to interacting with the speaker to place an order at CosMc's was 11 minutes and 13 seconds, as reported by mystery consumers during January and February, as measured by Intouch Insight. However, after placing an order, the mean service time was a mere four minutes and one second, a mere six seconds slower than the industry standard. This CNBC correspondent could not place an order via any of the four drive-thru intercoms on May 27 due to the absence of a queue.

Additionally, investor interest has diminished as other facets of McDonald's operations garner more focus. "Six months ago, there was a lot of curiosity, but now that you've seen McDonald's same-store sales decelerate, that's where my clients' focus is," Kalinowski said. McDonald's reported same-store sales growth of 2.5% in the United States for the first quarter, a deceleration due to the waning impact of price increases and patrons' reduced restaurant expenditures.

The CosMc's location in Bolingbrook could be more impressive from the exterior. For order placement, four clients are greeted by drive-thru lanes. On the indigo exterior of the structure is the name of the brand, but there is no indication of its namesake mascot.

Indeed, although CosMc assumes a prominent position in the brand's fictitious history as depicted on its official website, his influence on the restaurant or branding is nonexistent. "He is not as well-known of a character," Belflower said. "I think that's almost to their benefit because people can understand how CosMc's is different from McDonald's itself — but it still has a retro font and coloring and things like that, so I think all of that helps tie it into the nostalgia."

The absence of CosMc may also be attributed to the fact that the demographic McDonald's advertised the chain's products in the 1980s and 1990s had yet to be born when those advertisements aired. "Just in looking at the menu, it looks like it's designed for half my age and under," said Kalinowski, whose industry experience spans over two decades.

In addition to an extensive beverage selection, CosMc offers a limited selection of snacks. McDonald's has developed a variety of chain-specific refreshments, including Sour Cherry Energy Burst, Island Pick-Me-Up Punch, and Popping Pear Slush.

Beverages like Tropical Spiceade may be personalized with "boosts," consisting of eight syrups, tapioca pearls (boba), vitamin C shots, or energy shots. Additionally, the chain provides coffee beverages, such as its largest-sized Churro Cold Brew Frappe, which is approximately five times more caffeinated than a standard cup of brewed coffee.

CosMc's Joins Beverage-Focused Restaurant Trend, Offering Customizable Drinks to Attract Diverse Consumer Base

Additionally, CosMc's is the most recent instance of a restaurant with a beverage focus that sells more than just coffee. Swig, a Utah-based soda chain, is presently under the dominant ownership of Larry Miller's family office. Its Blue Rebel energy drink generates approximately 25% of Dutch Bros.'s revenue.

Refreshers, which debuted a decade ago, are the fastest-growing beverage category of the Starbucks chain in the United States; this spring, the chain will introduce new piquant flavors. Consumers seeking a midday pick-me-up are more inclined towards non-coffee beverages. Although they may still desire caffeine, they may find flavored drinks such as CosMc's Blueberry Ginger Boost more delicious than ordinary coffee.

Implementing CosMc's degree of customization at a conventional McDonald's would be impractical due to the excessive deceleration it would cause in the drive-thru lanes. As an illustration, Starbucks' recent sales growth has been attributed to the transition to cold beverages and pricey customizations, such as cold foam. However, baristas and customers have expressed dissatisfaction with the excessive delay in service caused by complicated orders.

An approach to optimizing the operation of CosMc's digital menu boards might be to do so more frequently. A vehicle approaches the nearby intercom while advertisements are displayed on the CosMc's menu board, depriving patrons of ample time to contemplate the extensive selection of over 70 drinks and food items. The introduction of mobile and online ordering will also assist in reducing wait times.

Upon receiving their orders, patrons can pay at the speaker or defer to an attendant at the pickup window. Additionally, customers must wait by the intercom from when they place their order until it is available for pickup. The menu board indicates which order pickup window should be approached.

CosMc's, designed with a compact footprint, does not provide indoor accommodations. Instead, patrons are relegated to the 10-spot parking lot or continue their journey. Former Boston Market, the Bolingbrook CosMc's is considerably larger than what McDonald's has in mind for its remaining locations.

However, the location's empty real estate, proximity to a traditional McDonald's right next door, and 45-minute travel from the company's Chicago headquarters all explain why the organization selected that spot for the spinoff's debut. The area's history also serves as a cautionary tale for McDonald's. In 2000, the corporation acquired Boston Market from bankruptcy to repurpose its real estate. However, it continued to operate the brand.

McDonald's divested it seven years later, following a more extensive divestment of other subsidiary trademarks, such as Chipotle Mexican Grill. When McDonald's sales declined, administrators attributed some of the company's problems to a lack of concentration.

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