Expansion of the McDonald's CosMc's chain

Almost six months since McDonald's opened its first CosMc location, the hours-long drive-thru lines have calmed down, but the chain is just getting started.

The burger giant created the spin-off using one of its lesser-known McDonaldland mascots, CosMc, an alien who loves McDonald's cheeseburgers. Introducing CosMc's at an investor event in December, McDonald's CEO Chris Kempczinski said the company set out to create a brand that could sell popular customizable drinks and coffee in the afternoon segment to attract younger consumers.

The launch of the new brand comes as drinks are becoming more “It's now seen as part of that snack area: more affordable, indulgent and perhaps even a healthier treat,” said Katie Belflower, editor at restaurant research firm Technomic. “It's a good profit margin for restaurants. With beverages, you can be really creative, without necessarily having the product lines that you would have to invest in with food.”

Since opening its initial location in the Chicago suburb of Bolingbrook, McDonald's has opened three more CosMc's restaurants, all in Texas. For now, the chain plans to open 10 locations by the end of this year for a test, all but one located in the Lone Star State.

In another sign of the new brand's expansion, on Tuesday it will launch its own mobile app and loyalty program, called CosMc's Club. Customers can use the app to place orders and pick them up inside the restaurant or in the drive-thru lane. And loyalty program members earn 10 points for every dollar they spend; Once you accumulate 400 points, you can redeem them for $2 rewards.

While it's still too early to know the long-term fate of CosMc's, the gamble could pay off for McDonald's even if the spinoff never gets past the 10-location testing phase. The app and loyalty program will give the chain even more information about consumers.

“The cost of doing this, for McDonald's, is a rounding error. Even if they closed them all down within six months, they would still learn some things. Sometimes the learnings can be more valuable than you might imagine,” Mark said to CNBC Kalinowski, restaurant industry analyst and CEO of Kalinowski Equity Research.

In McDonald's investor presentation in December, Kempczinski downplayed CosMc's short-term effect.

“Let me emphasize again, we're talking about 10 stores,” he said at the event. “The big story is not about CosMc's per se. The big story is what it says about McDonald's and our potential.”

But for many consumers, CosMc's was the headline. When the first location opened days later in Illinois, eager customers waited for hours in self-service lines that stretched through the mall for a chance to buy McPops and Churro Frappes.

Weeks later, the rumor had begun to die down. According to Intouch Insight, the average wait time from entering CosMc's self-service line to reaching the speaker to place the order was 11 minutes and 13 seconds, based on mystery shopper visits in January and February. But the average service time, after ordering, was just four minutes and one second, just six seconds behind the industry benchmark.

On a Monday afternoon in May, there was no line for this CNBC reporter to reach one of the car's four intercoms to place an order.

Investor interest has also cooled as other parts of McDonald's business attract more attention.

“Six months ago, there was a lot of curiosity, but now that we've seen McDonald's same-store sales slow down, that's where my clients' focus is,” Kalinowski said.

In the first quarter, McDonald's reported U.S. comparable sales growth of 2.5%, a slowdown as price increases fade and diners reduce their spending at restaurants.

From the outside, CosMc's location in Bolingbrook doesn't have much to look at. Four self-service lines wait for customers to place their orders. The building's indigo exterior features the brand's name, but there is no sign of its namesake mascot.

In fact, while CosMc plays a huge role in the brand's fictional origin story on the CosMc website, it's basically invisible from your brand or restaurant.

“He's not that well-known character,” Belflower said. “I think that's almost beneficial for them, because people can understand how CosMc's is different from McDonald's itself, but it still has a retro font and colors and things like that, so I think all of that helps tie it into nostalgia.”

CosMc's absence could also be due to the fact that the chain's target customer was probably not yet born when McDonald's ads featuring CosMc aired in the 1980s and 1990s.

“Just looking at the menu, it looks like it's designed for half my age or younger,” said Kalinowski, whose experience in the industry spans more than two decades.

CosMc customers can choose from a wide range of drinks and a smaller snack menu. Sour Cherry Energy Burst, Island Pick-Me-Up Punch and Popping Pear Slush are among the drinks McDonald's created specifically for the chain.

Drinks, like Tropical Spiceade, can be customized with “boosters,” such as a vitamin C shot or energy shot, tapioca pearls known as boba, or a choice of eight different syrups. The chain also offers coffee drinks, such as its Churro Cold Brew Frappe, the largest size of which contains nearly five times the amount of caffeine found in an average cup of brewed coffee.

CosMc's is also the latest example of a beverage-focused restaurant that doesn't just sell coffee. There's Utah's Swig soda chain, now majority owned by Larry Miller's family office. dutch brothers It makes about a quarter of its sales from its Blue Rebel energy drink. AND starbucks'Soda, first introduced a dozen years ago, is the chain's fastest-growing beverage category in the U.S., with new spicy flavors available this spring.

Beverages other than coffee tend to appeal more to consumers looking for an afternoon pick-me-up. While they may still want caffeine, a flavored drink like CosMc's Blueberry Ginger Boost may be more appealing than other coffee.

CosMc's level of customization would be difficult at a traditional McDonald's because it would slow down its drive-thru lanes too much. For example, Starbucks has attributed its sales growth in recent years to a shift toward cold drinks and expensive customizations such as cold foam, but customers and baristas alike have complained that complicated orders slow down service too much.

One way to speed up CosMc's service could be to use its digital menu boards differently. The CosMc's menu board plays advertisements until a car pulls up to the nearby intercom, leaving customers little time to ponder the menu of more than 70 drinks and foods. The launch of mobile and online ordering will also likely help speed up wait times.

Once customers finish placing their order, they can pay over the speaker or wait to pay at a cashier at the pick-up window. CosMc's also has customers wait by the intercom where they placed their order until their order is ready for pickup. The menu board conveys which pickup window you should approach to take the order.

Conceived as a small-format location, CosMc's does not offer in-restaurant seating, leaving customers to sit in the 10-space parking lot or continue driving. Bolingbrook CosMc's, a former Boston Market location, is much larger than what McDonald's intends for the rest of the brand's locations. But with vacant real estate a 45-minute drive from the company's Chicago headquarters and a brick-and-mortar McDonald's right next door, it makes sense why the company chose that location as the first spot for the spinoff.

But the site's history is also a warning for McDonald's. The company bought Boston Market out of bankruptcy in 2000, intending to use its real estate. But instead, he continued to run the brand.

Seven years later, McDonald's sold it, following a broader divestment of other non-core brands such as Chipotle Mexican Grill. At the time, McDonald's sales were struggling, and executives blamed some of their problems on a lack of focus.