When McDonald’s debuted its beverage spin-off CosMc’s in December 2023 to lines four hours deep, it always felt like a larger play could be at work. There wasn’t a ton of mystery for why McDonald’s made a drinks-focused move—the specialty beverage category was tagged a $100 billion opportunity, and one cracked open in recent years by cold innovation. And just from a demographic tilt, per Circana, Gen Z made nearly 5 billion restaurant visits in the 12 months ending July 2022. About 4.3 billion of those went to quick service. The group hasn’t exactly lost spending power since.
But the tie to McDonald’s core brand and it’s nearly 13,569 U.S. restaurants, up 100 year-over-year in Q1, was an angle many franchisees followed closely. Would that innovation come into locations?
McDonald’s CEO Chris Kempczinski, speaking Thursday on the chain’s Q1 earnings, touched on the creation of the brand’s “Restaurant Experience Team.” This new, integrated structure enables McDonald’s to execute faster and bring ideas to market sooner. It can achieve and scale cross-functional product innovations like Best Burger, Big Arch, and McCrispy thanks to menu, supply chain, operations, and “Speedee Labs” teams housed in one place. It also increases McDonald’s ability to develop and scale tech innovation, such as Ready On Arrival, IoT-enabled equipment, and Google Cloud connectivity. Secondly, a newly created category structure with dedicated leaders for beef, chicken, and beverages offered McDonald’s “better accountability and sharper line-of-sight into what it takes to win in each of these verticals,” Kempczinski said. Or allow McDonald’s to more directly compete against “specialists.” Say, KFC and chicken, and so forth.
In that latter bucket is where CosMc’s next chapter has come into focus. Kempczinski on Thursday said McDonald’s discovered some “interesting learnings” through CosMc’s rollout thus far (there are currently five, including four in Texas to go along with the original Bolingbrook, Illinois, store).
Those findings better informed McDonald’s understanding of consumers’ customization preferences and interests in emerging beverage categories. So, later this year, in partnership with franchisees, the company will launch a beverage test in the U.S. in some of its existing McDonald’s restaurants to incorporate menu items inspired by CosMc’s.
More details are forthcoming, Kempczinski said, as the company continues to test, learn, and position itself for growth in the space.
Presently, the CosMc’s menu offers iced latte options like Vanilla Matcha, French Toast Galaxy, Oat & Honey Moon, Turmeric Spice; shaken espressos such as Pistachio Swirl, Churro, and Sea Salted Caramelactic. There are also flavored cold brews (hazelnut, Coconaut, Churro), and frappes (churro, chai), along with a host of other coffee options. It expands into “Signature Galactic Boosts,” like sour cherry energy, berry hibiscus sour-ade, coconut vanilla, Island Pick-Me-Up Punch, and Blueberry Ginger Boost. Some other options are a Sprite Moonsplash, Tropical Spiceade, Popping Pear Slush, Coconut Vanilla Protein Frappe, and more. There are shakes, too.
The overall Restaurant Experience team is being led by Jill McDonald, who previously directed the International Operated Markets division as president. Charlie Newburger, VP of marketing strategy and new business ventures, moved over to manage the beverage/desserts team.
More broadly, Kempczinski said, as McDonald’s looks at the opportunity from a macro perspective, it sees ample runway in beverages. The profitability of the category is attractive. “So when you think about profit-pool growth in the industry, we expect beverages is going to be a place where there’s significant growth in the profit pool,” he said. “And we’re, frankly, we think there’s more that we can be doing to capture our fair share of that.”
He estimated McDonald’s holds about 10 percent of coffee share sector-wide. Again, Kempczinski feels the brand could do better. And there’s untapped growth in other emerging corners, like energy, where the larger McDonald’s system doesn’t participate at all.
“Part of what we’ve tried to be thinking through is, how do we get after that opportunity,” he added. “And part of the impetus for us to go do CosMc’s was a belief that if we try to do it within an existing restaurant the complexity may be too great and would impact speed of service and some other things.”
That’s why McDonald’s quarantined the complexity, as Kempczinski put it, in a standalone concept. Two big observations followed, he said, which are informing the coming phase: One is while there is some customization, the customer wants 80 percent of the drink to be “recipe-ed” already. Then, there’s some customization that goes on the end.
“So this is not give me a blank slate and I’m going to design endless customization,” Kempczinski said.
Importantly, this signaled to management the complexity, or risk of complexity, wasn’t as great as originally feared.
The other note, Kempczinski said, is anytime a product has a McDonald’s brand attached to it, the consumer is going to want to buy food alongside. So versus some other chains that are large, beverage-dominated concepts, food remains integral to whatever offering McDonald’s puts out there because that’s the guest expectation.
CosMc’s does menu some food, from a Spicy Queso Sandwich to Pretzel Bites and Apple Cinnamon McPops, but they’re not the staples.
With all of this now observed, Kempczinski said McDonald’s felt ready to take learnings into a restaurant and see what an expanded lineup of beverages could look like. “And let’s understand what that means in terms of driving incremental traffic,” he said, “but also food attachment that goes with that.”
He isn’t sure yet where the ultimate investment will land. There are still tests to be done. “What I do know is that we’re committed to going after beverages,” Kempczinski said. “It’s part of why we set up beverages as one of our key three category structures—just because of the opportunity that we saw there.”
CosMc’s remains a work in progress as well, although there was no mention on the call of where the standalone concept was charting. Since CosMc’s outset, McDonald’s tested renovating larger restaurant spaces and building smaller, digitally focused prototypes. In January, the company announced it felt the latter was the best way to grow. As a result, it planned to close three larger remodeled restaurants and open two smaller format units in Texas this year.
Overall, McDonald’s faced a challenging Q1 that saw its same-store sales drop 3.6 percent after a 1.4 percent decline in Q4 2024.
