Global Economy

McDonald's CosMc's is gunning for afternoon coffee sales. Starbucks shouldn’t worry, analyst says

BOLINGBROOK, ILLINOIS – DECEMBER 11: Customers place their orders at CosMc’s, a concept restaurant recently launched by McDonald’s on December 11, 2023 in Bolingbrook, Illinois. Lines to order food and beverages at the drive-thru-only restaurant, which opened to the public late last week, have been as long as 6 hours. (Photo by Scott Olson/Getty Images)

Scott Olson | Getty Images

McDonald’s new beverage-focused spinoff brand, CosMc’s, will not pose much of a threat to Starbucks, according to equity research firm William Blair.

The burger giant opened the first CosMc’s location last week in Bolingbrook, Illinois. It’s the first phase of McDonald’s experiment to capture consumers who want a customized pick-me-up drink in the afternoon. Nine more locations under the CosMc’s brand are slated to open by the end of 2024 in the Dallas-Fort Worth and San Antonio, Texas, metro areas as part of the pilot.

“This is a $100 billion category growing faster than the rest of the [informal eating-out segment] and with superior margins,” McDonald’s CEO Chris Kempczinski told investors Wednesday.

CosMc’s focus on afternoon snacking and flavored coffee has spurred comparisons to Starbucks. The coffee giant’s sales strategy in recent years has focused on customizable cold coffee drinks, which appeal to younger consumers, have better profit margins and lead to more afternoon foot traffic.

But CosMc’s likely poses only a “relatively muted” threat to Starbucks and rival chain Dutch Bros., William Blair analyst Sharon Zackfia wrote in a research note Monday.

The name for the new brand comes from CosMc, a McDonaldland mascot who appeared in advertisements in the late 1980s and early 1990s. CosMc is an alien from outer space who craves McDonald’s food. The company has leaned more into marketing its mascots after the runaway success of the Grimace Birthday Meal earlier this year.

The Chai Frappé Burst drink at CosMc’s in Bolingbrook is shown on Dec. 8, 2023.

Stacey Wescott | Tribune News Service | Getty Images

CosMc’s menu items include cappuccinos and blueberry ginger boosts and aren’t much cheaper than what Starbucks customers already pay for comparable drinks, according to Zackfia, adding Starbucks charges its customers about 7% to 8% more.

CosMc’s customer base will likely overlap more so with that of Dutch Bros., given both chains’ drive-thru only format and focus on colorful drinks, Zackfia wrote.

Additionally, CosMc’s drive-thru lanes allow customers to order and pay with no face-to-face interaction. That marks a big departure from the drive-thru lanes at Starbucks and Dutch Bros, which emphasize customer service, Zackfia said.

And while CosMc’s menu is largely pulled from items that McDonald’s serves around the world, McDonald’s executives said that they’re unlikely to bring CosMc’s approach to the burger chain’s existing restaurants. Customizing drinks takes time, which would slow down McDonald’s service too much.

That reluctance to use McDonald’s massive footprint means that Starbucks and even Dutch Bros. won’t face much of a threat — at least in the near term. After opening its 10 pilot locations, McDonald’s plans to take at least a year to decide if the spinoff brand is worth expanding further.

William Blair has outperform ratings on both Starbucks and Dutch Bros.

Correction: This story has been corrected to remove an inaccurate price target for Starbucks stock.

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