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Industry Musings: Why McD’s Really Calved-Off CosMc’s

I initially mused that McDonald’s calved-off CosMc’s as an end run on the competition, designed to siphon off the opposition’s clientele by offering some of their most successful menu items. But, after reading an analysis on CNN Business, I’m not to sure…

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I was on the right track, according to CNN Business reporter

Her key question

“Why?” she asks. “Why is a chain that’s basically synonymous with burgers suddenly interested in selling sugary coffee drinks? And why not just add those options to the menu at existing McDonald’s locations, rather than launch an entirely new brand?”

I have my own answers for some of those conjoined queries…

Why not just add to the McMenu?

If you’re a faithful reader of this blog, you’ll know that all Fast Food chains have been trying to control costs, optimize profits and provide a more satisfying customer experience for the better part of a decade. They’ve been doing this by streamlining their menus, adding automation and AI systems to speed ordering and fulfillment, and emphasizing speedier customer turnover by encouraging diners to opt for takeout, delivery or drive-through service.

Adding to the existing McD’s permanent menu would undermine the effort to thrust the chain into the imminent, hyper-competitive future. But spinning off a separate ‘premium coffee shop’ entity would put the chain smack in the middle of the parallel market space now dominated by Starbuck’s.

The move also minimizes the risk to McD’s itself, by placing the premium coffee initiative at arms length. CosMc’s is clearly expected to sink or swim on it’s own merits. But the parent chain has given it a big push-off by lending its popular McMuffin, McFlurry and dessert lines to the CosMc’s menu.

Definitely a separate identity

The coming of CosMc’s is a clear indication that the McCafé experiment failed to achieve its intended result. Simply planting premium coffee, pastries and other beverages in selected McD’s locations wasn’t high-profile enough to get Starbuck’s customers’ attention.

Even before that, the companion effort to ‘elevate’ regular McDonald’s coffee, failed to enthuse large numbers of coffee lovers.

Premium coffee sector beckons

points out that the premium coffee market is huge, and one that Fast Food chains would love to crack. She uses the term ‘cash cow’ without fear or hesitation.

“The profit margin on a beverage is just humongous,” John Gordon, founding partner of Pacific Management Consulting Group, which advises restaurants, told CNN.

A restaurant can see a gross profit margin of up to around 80 percent when selling beverages, Gordon explained. The profit margin on food has traditionally hovered in  the low single digits, and burger chains have relied on massive sales volume to make them rich. Gordon also noted that, when people visit a café for a beverage, they often end up buying something to eat, as well.

A business development platform?

David Henkes, senior principal at the research firm Technomic, says the real value to McD’s of lauching CosMc’s is not in directly challenging the current premium coffee giants. “It’s in the learning. And being free to learn, experiment, fail, try it again.”

“It’s kind of an incubator, in a way, to test things out and see what sticks,” Henkes said. “That’s the beauty of doing something like this.”

My take

I can see how CosMc’s could be seen as a test bed for service models and technologies already earmarked for next-gen Fast Food joints. But, as Henkes told CNN, it could also prove that there’s ‘real money’ to be made in ‘premium coffee’. In which case McD’s could easily scale up the brand, and make a serious assault on Starbuck’s, et al…

~ Maggie J.