Dive Brief:

• McDonald’s new CosMc’s concept is unlikely to pose an immediate threat to coffee competitors, like Starbucks and Dutch Bros, in part because of the brand’s format and because of a limited discount relative to those brands, according to a report from analyst firm William Blair.
• William Blair said CosMc’s “inherent lack of human interaction as a drive-thru-only pay-at-the-stall format,” was a serious point of departure from the “the service-centric formats cultivated by both Starbucks and Dutch Bros.”
• At the same time, the first CosMc’s unit opened by McDonald’s only offered an average discount of 7.5% compared to Starbucks, equivalent to about $0.36 per menu item, while some categories, like frozen blended drinks, actually cost slightly more on average than similar beverages at Starbucks.

Dive Insight:

William Blair compared prices between Chicago-area Starbucks units and the first CosMc’s restaurant, and found the sharpest divergence in prices was in beverages, with brewed coffee and hot tea about 36.5% cheaper at CosMc’s than at Starbucks. CosMc’s brewed coffee and tea beverages are, on average, about 20% cheaper than Starbucks overall.

The difference in prices shrank when comparing specialty or customized beverages: CosMc’s specialty flavored cold brews were only 5% cheaper than Starbucks’ comparable drinks, and its cold brew as only about 5.8% cheaper than Starbucks’ product. 

Such pricing advantage, while significant in some categories, may grant a limited advantage because of “McDonald’s statement that it is unlikely to replicate the wide variety of handcrafted CosMc’s beverages in its core brand given the complexity involved and concerns about slowing speed of service,” according to the report.

A limited emphasis on customization could draw consumers, but may not make much of a dent in Starbucks’ dominance when it comes to beverage personalization. Cold beverages with lots of potential modifiers are such a key driver for Starbucks that the coffee giant is in the middle of a multi-year effort to change its kitchen equipment and design to speed up production of custom cold coffee.

Still, McDonald’s has framed CosMc’s as its path to capturing late-afternoon beverage consumers and snacking occasions, setting it up as a potential rival to Starbucks. The coffee company has begun emphasizing afternoon food spend as a part of its strategy to complement its dominance in highly-customized caffeinated beverages. 

William Blair, however, sees CosMc’s as a more direct competitor to Dutch Bros than to Starbucks. McDonald’s spinoff brand and Dutch Bros are both drive-thru-only concepts that focus on colorful beverages likely to appeal to young consumers. Additionally, the next round of CosMc’s test units will open in Texas, a market where Dutch Bros has a significant presence, according to the William Blair report. 

But the CosMc’s format, as conceived, may be too experimental to draw consumers for much more than novelty, according to William Blair. The analyst firm said the restaurant’s four-stall drive-thru format was “fairly clunky,” and lacked the impression of forward progression given by a traditional drive-thru, which can help customer estimate wait times. McDonald’s has said the format will be variable.