The Fast-Food Industry Wants to Be the Fast-Drinks Industry, Too

McDonald’s this month launched CosMc’s, a new takeout-oriented restaurant concept heavy on customizable drinks like Churro Frappés and Pomegranate Hibiscus Slush.
McDonald’s this month launched CosMc’s, a new takeout-oriented restaurant concept heavy on customizable drinks like Churro Frappés and Pomegranate Hibiscus Slush.

Summary

McDonald’s new CosMc’s brand serves up colorful drinks, bumping up against Starbucks.

Iced drinks topped with cold foam and added energy shots and fruit flavors have hooked high-school students, social-media influencers and now, some of the world’s biggest fast-food chains.

McDonald’s this month launched CosMc’s, a new takeout-oriented restaurant concept heavy on customizable drinks like Churro Frappés and Pomegranate Hibiscus Slush.

Taco Bell in December started testing blended iced coffee with flavors like Mexican Chocolate, along with shakes topped with cold foam and churro crumbles. Jack in the Box boasted that it is one of the first fast-food chains to serve drinks with tapioca pearls, or boba, with a national launch in November.

Chains known for burgers and burritos have set their sights on consumers’ willingness to spend on what goes into their cups, which can be more lucrative than fast food. Pink Drink, Iced Shaken Espresso and other novelty beverages have helped to deliver record sales for Starbucks in recent years, with syrups, foams and other drink additions generating $1 billion in annual U.S. sales alone.

Dutch Bros, 7 Brew and other new chains are also riding the beverage wave with cold brew and vibrantly colored energy drinks, along with higher profit margins than many fast-food chains.

“It’s a huge market for sure," McDonald’s Chief Executive Chris Kempczinski said. McDonald’s currently does business in beverage and snacks, but it could do more given the size of the opportunity, he said.

Gen Z, typically defined as those born between 1997 and 2012, are more interested in new drinks than other generations, according to companies and surveys.

An estimated 62% of Gen Z consumers reported trying a new beverage in the past month, outpacing their tendency to sample new packaged-goods products, recipes or restaurants, polling firm Morning Consult found earlier this year in a survey of 1,000 people between the ages of 13 and 25.

Gen Z consumers, now numbering in the tens of millions, have powered the drinks trend by posting brightly hued beverages on TikTok, and many consider the drinks a daily must-have.

“It’s easy to form an obsession," said Sophia Khorsandi, a 15-year-old student from Atlanta who visits Starbucks, Dunkin’ and other chains roughly five times a week for drinks and snacks. Her habit costs around $240 a month: “These chain restaurants have got me in quite the chokehold."

“Younger people are really into beverages. They are moving away from soda and finding alternatives in other sectors," Smoothie King CEO Wan Kim said. The 1,300-unit beverage chain is partnering with social-media influencers and rolling out new flavors to try to attract younger consumers, Kim said.

Sales at specialty coffee, beverage and snack chains are growing faster than many food-focused restaurant concepts, according to market research firm Technomic. Beverage and snack-chain sales grew 14.3% in 2022 compared with the year prior, and those at coffee shops increased 13.2%, Technomic said. Burgers delivered higher sales overall last year, but they grew 4.7% during the time period.

Beverage-focused chains often deliver higher margins than food-oriented restaurants, as they typically have a smaller footprint and require less labor, chain executives said. Starbucks and Dutch Bros cafes averaged a higher return on investment last year than Wendy’s, Domino’s Pizza or McDonald’s locations owned by the company, according to figures from BofA Securities.

McDonald’s has wanted to get into specialty beverages for some time, but it didn’t want to “gunk up the works" in its namesake restaurants, Kempczinski said. The CEO, who said he is partial to one of CosMc’s lemonades, said McDonald’s has gotten in trouble in the past when dabbling with other food categories in its existing restaurants.

The company’s new business ventures team drew up plans for CosMc’s and opened its first test site in a Chicago suburb within about a year, he said. That location opened earlier this month to long lines of curiosity seekers buying $5.39 medium Berry Hibiscus Sour-ade drinks and bags of three filled doughnuts for $3.79.

McDonald’s executives have characterized CosMc’s as a test, but some Wall Street analysts still view it as a possible threat to other beverage-oriented chains.

Joseph Valle, a 21-year-old Bolingbrook, Ill., resident, spent about $50 at CosMc’s on a Blueberry Ginger Boost, Churro Frappé, a Strawberry & Cookie McFlurry and a Cold Brew, along with breakfast sandwiches and Pretzel Bites. After a nearly two-hour wait, the first thing he sampled after exiting CosMc’s drive-through was the Churro Frappé.

“It’s really good. It tastes just like a churro," Valle said, after taking a sip through a tall dome of whipped cream.

Write to Heather Haddon at heather.haddon@wsj.com

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