McDonald’s Tests New CosMc’s Concept with Strong Initial Performance

McDonald’s (NYSE:MCD) has launched the new CosMc’s concept in the Chicago region. This venture marks the fast-food chain’s first foray into a new restaurant concept in the U.S. since Chipotle (CMG). Named after a McDonaldland space alien character from the 1980s, the CosMc’s menu features specialty beverages and snacks, as well as items such as a spicy queso sandwich, a creamy avocado tomatillo sandwich, and the classic sausage McMuffin with egg. Previewing the test launch in December, McDonald’s CEO Chris Kempczinski expressed optimism about the concept’s potential, citing its position in a rapidly growing $100 billion category with superior margins in the informal eating-out segment.

The initial CosMc’s location in Bolingbrook, Illinois has garnered predominantly positive reviews and consistent traffic. Data from Placer.ai revealed that during December, CosMc’s attracted over double the number of visits compared to a typical McDonald’s (MCD) location chainwide, despite not being open for the full month. Moreover, the location saw triple the visits per square foot. However, it is worth noting that the visitation numbers would likely have been much higher if the location had additional capacity to meet the overwhelming demand, as highlighted by Placer.ai.

McDonald’s (MCD) plans to open 10 more pilot locations by the end of the year, expanding into the Dallas-Fort Worth and San Antonio metro areas. The company emphasized its cautious approach in moving forward with the CosMc’s concept during a recent investor update.

According to the company, several key success criteria were set for the concept. Notably, it had to offer a differentiated idea, provide a unique and compelling product or experience for customers. It also needed to have global appeal, as McDonald’s aims for concepts with widespread and enduring market potential. Additionally, the unit economics had to be viable, offering strong returns and high incremental value for the expansion of the concept.

Analysts at Seeking Alpha have expressed positivity about the CosMc’s opportunity for McDonald’s (MCD). Valuentum’s analyst highlighted McDonald’s innovation and the concept’s potential for long-term competitiveness. Similarly, Luca Socci views CosMc’s as an experimental venture that could alter the landscape of coffee shops and pose a threat to Starbucks (SBUX).

Sector Watch: The restaurant industry is anticipated to witness the development of significant coffee and specialty beverage platforms, sub-brands, and spinoffs by global quick-service brands. These moves have the potential to challenge established players such as Starbucks (SBUX), Dunkin’ Donuts, Krispy Kreme (DNUT), and Dutch Bros. (BROS) in the future. KFC’s (YUM) KCOFFEE concept in China has already generated considerable interest. Technomic’s Aaron Jourden emphasized the robust growth and outperformance of specialist coffee and tea chains, especially in China, South Korea, and Southeast Asia. Notable chains in Asia include Heytea, Cotti Coffee, Luckin Coffee (OTCPK:LKNCY), Mixue-backed Lucky Coffee, Kopi Kenangan, and Compose Coffee.