McDonald’s new CosMc’s chain could put ‘valuation cap’ on Dutch Bros despite small start


CosMc's, a new brand concept from McDonald's, in Bolingbrook, Illinois. The chain features colorful beverages evocative of those served by Oregon-based Dutch Bros.Photo courtesy Iman Jalali

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McDonald’s new drive-thru beverage chain appears positioned to directly challenge Oregon-based Dutch Bros. But the fast-food giant is starting slowly with its first new restaurant concept in the U.S. and hasn’t decided whether it will expand more broadly.

McDonald’s unveiled its highly anticipated CosMc’s chain Wednesday, announcing plans to open 10 locations by next summer. It plans one in a Chicago suburb, near its headquarters, and nine in Texas, which is the focus of Dutch Bros’ current expansion. McDonald’s said it will spend a year studying the results before determining whether to put CosMc’s in more locations.

“While the number of locations is not particularly concerning to the industry, it will likely put somewhat of a valuation cap on Starbucks and Dutch Bros,” Guggenheim Securities analyst Gregory Francfort wrote in a note to clients. He said the caffeinated beverage market has some of the strongest demand in the restaurant industry but cautioned that supply is growing even faster.

CosMc’s features four drive-thru lanes and no dine-in restaurant. It will serve colorful, sugary, caffeinated beverages with names like Sour Cherry Energy Burst, Island Pick-Me-Up Punch. The company said the chain is designed to combat what McDonald’s calls its “3 p.m. slump” between lunch and dinner.

That all sounds a lot like Dutch Bros’ signature drive-thru kiosks, which specializes in frothy, colorful energy drinks with whimsical names like Blue Rebel Shark Attack (blue raspberry, coconut, line and pomegranate) and Dinosaur Egg (blue raspberry, strawberry, white chocolate and almond). Dutch Bros says its sales are split roughly evenly across mornings, lunchtime and the afternoon.

The Oregon chain’s irreverent branding and engaging “broistas” have won a devoted, young clientele. Dutch Bros grown from a single coffee pushcart in Grants Pass to be one of Oregon’s largest companies, with nearly 800 drive-thrus in 16 states. It hopes to operate 4,000 locations eventually.

Dutch Bros’ ability to reach its lofty goal may depend on how successful McDonald’s is with the CosMc’s concept. It’s named for a space alien mascot McDonald’s used in its advertising in the 1980s and ‘90s. And unlike Dutch Bros, CosMc’s will serve food – breakfast sandwiches, cookies and other snacks.

McDonald’s is using CosMc’s to test the power of the chain’s brand and explore opportunities in adjacent markets.

“We homed in on specialty beverages and coffee,” McDonald’s CEO Chris Kempczinski told Wall Street analysts at the company’s investor day Wednesday. He boasted: “It’s a space we believe we have the right to win.”

Dutch Bros’ declined to comment on McDonald’s plans.

Its biggest footprint is in its home state of Oregon, with 155 locations at the start of the year. But the chain has been expanding aggressively in the South and Southeast, especially Texas. It entered that market in 2021 and already has about 150 drive-thrus there.

McDonald’s announcements didn’t appear to affect Dutch Bros’ stock Wednesday. Shares rose slightly. But Oregon company’s stock dropped almost 10% last week after the first details about CoMc’s emerged on social media and drew immediate comparisons to Dutch Bros.

McDonald’s franchisees may resist CosMc’s if that chain begins eating into restaurant sales, according to Guggenheim’s Francfort. But he warned that more competition could be bad news for other caffeinated beverage chains.

“Increased competitive supply growth is never a good thing and does not help the investment case for the coffee-centric brands,” Francfort said.

-- Mike Rogoway | | 503-294-7699

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