Is CosMc's, McDonald's new coffee shop format a winner?

The coffee shop industry has experienced double digit sales growth in 2023

In 2023, Consumer Current^TM by Cybersyn data forecasted the coffee shop market had $39B in sales and grew by 15% YoY. Starbucks is still the incumbent with ~55% of market share; annual growth in 2023 was ~11%. But there are ~18 different brands with regional or national stores who make over $25m per year in sales and are all experiencing growth.

Dutch Bros Coffee is based out of Oregon. Dutch Bros saw ~43% growth nationally in 2023 and, according to their earnings announcement, opened 159 new stores, up 24%.¹ The Dutch Bros menu consists of unique variations of traditional coffee with menu items like protein coffees, Dutch Bros Rebel energy drinks, and sparkling sodas. 

McDonald’s wanted to jump into this opportunity with their own coffee-first cafes. In December 2023, McDonald’s launched their first CosMc's.

McDonald’s launches CosMc's in four locations

CosMc's restaurants are focusing on both morning and afternoon coffee drinkers with sugary menu items like “Galactic Boosts”, “Stellar Sips”, “Slushies and Frappes” along with traditional “Brews.” Food items include breakfast sandwiches, bites (hash brown and pretzels), baked goods, and Soft Serve (including McDonald’s classic McFlurries). 

McDonald’s CEO Chris Kempczinski told Fortune: “This is a $100 billion category that’s growing faster than the rest of (casual dining)... And it’s a space that we believe we have the right to win.”²

CosMc's has launched four new stores in 2024, one near their Chicago HQ and the other three in the Dallas-Fort Worth metro area. 

Performance of CosMc's since launch

Since opening, we estimate these stores have generated ~$1.6m in sales. In their first month of operations, the stores saw strong sales that have dropped off for all locations in Texas. If the Bolingbrook (Chicago, IL) location is an indication of performance, there could be a turnaround for these stores to get closer to ~$1m annual run-rate by location. 

Diving into Dallas-Fort Worth openings

There are seven other coffee chains (27 individual locations) within four miles of the three new CosMc's locations in the Dallas-Fort Worth area; these stores saw a 25% YoY growth in 2023, driving $374m in sales. 

In April when all three stores were opened, CosMc's did take share from the other chains; however, this fell off in the second month and has flattened to ~2% share. Most of the sales impact came from Dunkin and Starbucks if you look at MoM performance from March to April. 

Meanwhile, DutchBros, whose menu most closely resembles CosMc's, continued to gain share in the latter months from May to August.

Average order size has been ~$12.80—greater than the $10.60 at other Dallas Fort-Worth coffee shops, indicating a lot of visitors at CosMc's could be buying more things on the menu during each visit. Time will tell if this persists or is due to first time visitor behaviors. 

Average store sales are still much lower than the top 3 competitors in the area: Dutch Bros, Starbucks, and Dunkin Donuts. 

In the Dallas-Fort Worth Metro area, compared to the average consumers, CosMc's shoppers are 53% more likely to be under the age of 24 and 20% more likely to be ages 25-34 than the average coffee shop customers. They are ~9-12% more likely to come from middle-income groups making $41-100 thousand. And they are nearly 80% more likely to be black. 

What was the impact on nearby McDonald's?

There are six existing McDonald's restaurants within a four mile radius of the CosMcs in the Dallas-Fort Worth Metro area. Consumer Current data estimates there was a slight dip in McDonald’s sales during the peak month of CosMc's, indicating some cannibalization. This equated to approximately 12% share of total spend across both merchants.

‍Are CosMc's customers returning?‍

We estimate that only ~4% of customers have returned after April, from the months May to August. In this time, we estimate that the repeat customers since CosMc's opened (eg. those who visited Dec-April) have come back ~3.7 times on average.

Conclusion

Data from Consumer Current by Cybersyn indicates that McDonald’s has a few wrinkles to work out in their new restaurant format to experience the same growth and success as other incumbent coffee chains. But if they get it right, there could be some impact to incumbent coffee shops and to McDonald’s-branded store sales.

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Other Sources:

1. Dutch Bros Inc. 2023 Annual Report
2. Fortune: McDonald’s is launching a Starbucks and Dunkin’ killer called ‘CosMc’s’ with drinks like the churro frappe, pear-flavored slush and turmeric latte