CosMc’s: McDonald’s Galactic Opportunity
The 3pm Happy Hour?
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Today’s edition of The Physicality is a guest post by Daniel Rissman. Daniel helps companies in tech and real estate create product and marketing strategies. Most recently, he worked at Meta’s Reality Labs, launching new products and driving product definition for the company’s AR/VR group. Reach out if you need help understanding an opportunity, validating demand, and / or building launch strategies.
McDonald’s is vying for their next, otherworldly, hit combo meal – a turmeric-spiced latte, cream-filled McPops with a side of Spicy Queso Sandwich. They recently launched CosMc’s, a novel small-format concept focused on beverages.
McDonald's is no stranger to experimentation. There was McDonald’s Diner, a full sit-down restaurant experience, or McLobster, a test in the 90s to include the crustacean on the menu, or the McDonald’s Golden Arch luxury hotel that shuttered two years later. The burger giant always seems to be looking for the next golden opportunity. Now, they are honed in on a piece of the high-margin, $65B coffee market.
Is CosMc destined for great things? Or do the cosmic fates say this will be another shelved fad? Let’s find out by biting into McDonald’s potential strategy behind this galactic move.
Together, we’ll explore three key elements:
The New 3pm Pick-Me-Up
McDonald’s: Next Generation
Dining Experience “Innovation”
Let’s start by driving into the buzzy new concept.
What is CosMc’s?
“CosMc” was an 80s alien character that visited “McDonaldland” on “trade missions” to steal food and take it home to “CosMcland”. Scary stuff.
Now, it’s evolved into a drive-thru-only restaurant focused on exploring and customizing exclusive beverages, with coffee taking a backseat. There’s more to it than being a “Starbucks Knockoff.” While Churro Frappes and S’mores Cold Brew are almost familiar, most of the menu seems like it's from a different planet than its competitors, and McDonald’s themselves.
The menu is focused on outrageous beverages you can only get at CosMc’s like an “Island Pick-Me-Up Punch”.
But it also has food as well, a mix of entirely new items with a few familiar favorites.
For a full in-depth drive-thru experience, see for yourself:
Early customers seem to be McLovin it. 2+ hour waits. “Bribes”. Security was even called in to manage the crowds.
Google reviews suggest the cream-filled McPops are a hit. The chief complaint was wait times.
By the end of 2024, the brand plans to open 10 CosMc’s pilot locations, across the Dallas-Fort Worth and San Antonio metro areas. The challenge ahead will be fine-tuning their offering for national scale and getting consumers to build a new habit.
The New 3pm Pick-Me-Up
But wait, McDonald’s already sells coffee and fun drinks. At first glance, it may seem like McDonald’s is building a concept that cannibalizes their existing restaurant. However, an important clue buried in the press release reveals why this may not be the case.
“At CosMc’s, we’re exploring how we might solve the 3pm slump by lifting humans up with every sip. Ready to blast off?”
McDonald’s is trying to create an entirely new purchase occasion: 3pm. The focus on this precise timing is two-fold: differentiate itself from the competition, and from… itself. Here are visitation patterns at various outposts near the new CosMc’s in Bolingbrook, IL.:
Notice a pattern? While visitation may vary by location, brand, and day, there is a consistent traffic dip… 3pm. That dip means unmet demand. There’s a gap that CosMc’s wants to capture.
It’s also interesting to consider another scenario. What if they are taking a page from Apple, intentionally self-cannibalizing to keep customers “in the family” and away from competitors? But hey, we may be giving them too much credit.
McDonald’s: The Next Gen$eration
The typical McDonald’s customer is a married white woman between the ages of 41 and 56, living in a suburban area in the southeastern US, making more than $80,000 a year. So who is McDonald’s targeting with this new concept? Gen Z, of course.
Gen Z’s love affair with McDonald’s came to light this summer with the “Grimace Shake” event, culminating in a top spot on the “Gen Z’s Most Magnetic Brands” list. The seemingly ordinary limited launch of the purple drink took the internet by storm, garnering 1.4B views on TikTok and was the 6th highest Google search of the year. They also sip the classics as well, cementing their own term, “crispy”, to describe when Diet Coke hits just right.
McDonald’s is building an entire product line for a generation that loves cold beverages. Starbucks is noticing the trend too, adding the previously secret Pink Drink that went viral on social media to their public menu. Starbucks CMO Brady Brewer confirms this trend to investors in 2022:
“The younger the customer, the colder the beverage.”
It’s an unlikely coincidence that ~50% of Gen Z is still school-age, making CosMc’s the “perfect”, 3pm, after-school snack. McDonald’s is capitalizing on the love they are getting from Gen Z.
Dining Experience “Innovation”
McDonald’s is using CosMc’s to experiment with its dining operations in three key areas:
Customization
CosMc’s is built for customizations. Their press release reveals,
“Make it yours with customizations at every turn: popping boba, flavor syrups, energy or Vitamin C shots, and so much more.”
Customizations sound like an operational nightmare, so why are they prioritizing it so heavily? Perhaps because Starbucks brings in nearly $1 billion in additional revenue from customizations alone. Not to mention, that 77% Gen Z wish they had more opportunities to customize products. Again, they are not investing in CosMc’s for everyone - they are tailoring the concept for the next generation.
Drive Thru Only
As of right now, CosMc’s is car-only. There is no in-store dining. To accommodate the higher volume of orders over McDonald’s, they have four ordering kiosks that then route you to a pickup window.
Oregon-based coffee chain Dutch Bros, another potential inspiration for the new concept, discovered that nearly half (47%) of consumers wouldn’t even consider frequenting a fast-food restaurant, bank, drug store, or other retail establishments unless it has a drive-thru.
In addition, as of 2022, 90% of new Starbucks locations will include drive-thrus and they are even considering drive-thru-only locations. On day one, CosMc’s is doubling down on this trend.
Digital
While CosMc’s doesn’t offer an app just yet, online ordering is “coming soon”. This omnichannel strategy is vital as both McDonald’s and Starbucks point out in past investor updates.
Starbucks 2018: ”With digitally-engaged customers purchasing 2 to 3 times as many products as those that are not digitally-engaged, Starbucks continues to see significant promise in its digital initiatives as an enabler for customer convenience, awareness and value.”
McDonald’s 2023: “We’re also building a presence in our customers’ digital lives with 150 million 90-day active loyalty users around the world who spent over $20 billion with us over the past year. We plan to increase this active loyalty userbase to 250 million, delivering $45 billion in annual loyalty sales by 2027. “
Getting customers to use the app is an important strategic decision leading to:
Better Attribution: If you start using their app for payments or promos, McDonald’s can begin “attributing” or tracking what you buy. Having this information is incredibly powerful as it allows them to close the “feedback loop” - enabling tailored promotions, understanding the impact of ads, etc..
More Efficient: Reduced Labor: The more you use the app to order and pay, the less they need to pay someone to take your order. Starbucks’ founder, Howard Schultz, confirms that technology will help deliver increased speed of service, improve labor management, and reduce unit costs.
Increased Brand Loyalty: As we learned from Starbucks, by offering digital rewards, they can also encourage customers to come back and shop more frequently.
The Path Ahead
With CosMc’s, McDonald’s is taking their biggest swing in a while. Strategically, it seems to make a whole lot of sense. Way more than serving lobsters. Their beverage-heavy, drive-thru first concept is trying to take advantage of a gap in the day that neither their mothership nor its competitors seem to have captured. At the same time, they are digging into the strong pull from Gen Z to build a growth engine for years to come. Perhaps the fates will look kindly on the McDonald’s corporation this time around.
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