Can McDonald’s latest venture satisfy consumers’ thirst for specialty beverages?
Can McDonald’s latest venture satisfy consumers’ thirst for specialty beverages?
McDonald’s, like most fast-food restaurants, is famous for its food. The Big Mac, Chicken McNuggets, French fries.
Now, the chain wants to draw consumers with drinks, and it’s hoping to take a big sip of Starbucks’ or Dunkin’ Donuts’ market share. It recently opened its first beverage-focused cafe, CosMc’s, just outside Chicago, and plans to open more outposts in the coming months.
There are some small luxuries that consumers are willing to spend on even when they’re watching their wallets. Lipstick is a classic example. And a rising category is drinks.
“They’ll trade down on the big-ticket items. So eating out is one. But they’ll still want to indulge in those everyday moments,” said Jen Wu, a partner at L.E.K. Consulting.
Wu said beverage spending is growing faster than spending on food. “Consumers are looking more and more for how is this different for me? How does this suit my needs? You’re more easily able to customize beverage versus food.”
Oat milk. Cold foam. A pump of pomegranate syrup. The combinations are endless, and they’re lucrative. In the last year, Starbucks has done $1 billion in sales from drink modifications alone.
“Everybody knows that people mark up alcohol to an insane degree. The same concept does apply with beverages in fast-food chains,” explained Max Johnson, a sales manager at BevSource.
The classic case of this is soda, which costs businesses pennies. The problem is, soda is not as popular these days. People are looking for function and fun. CosMc’s offers vitamin C boosters, pre-workout shots and tapioca pearls.
“Many of these better-for-you beverages don’t come in a concentrated syrup form,” said Johnson.
Putting them on the menu at existing McDonald’s would take up too much real estate. Sean Dunlop, an analyst at Morningstar, thinks of these specialty CosMc’s locations as an experiment for the company.
“And if they completely bomb, it doesn’t tarnish the McDonald’s brand at all,” he said.
And if they take off, the burger chain can sell the top-performing drinks at its regular locations.
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.
