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McDonald’s testing new CosMc’s chain following an unprecedented global expansion

FILE - A McDonald's golden arches is shown at restaurant in Havertown, Pa., Tuesday, April 26, 2022. McDonald’s expects to open nearly 10,000 restaurants over the next four years, Wednesday, Dec. 6, 2023, a pace of growth that would be unprecedented even for the world's largest burger chain. (APPhoto/Matt Rourke)

FILE - A McDonald’s golden arches is shown at restaurant in Havertown, Pa., Tuesday, April 26, 2022. McDonald’s expects to open nearly 10,000 restaurants over the next four years, Wednesday, Dec. 6, 2023, a pace of growth that would be unprecedented even for the world’s largest burger chain. (APPhoto/Matt Rourke)

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McDonald’s is testing a new restaurant format with customizable drinks and treats designed to appeal to afternoon snackers — and grab sales from competitors like Starbucks and Dunkin’.

The company said Wednesday it will open 10 CosMc’s restaurants through the first half of next year. One will be near the company’s headquarters in Chicago and the rest will be in Texas. The company will study the results for at least a year before determining whether to expand.

The announcement was one of the most anticipated at McDonald’s day-long investor conference Wednesday. The company also said it expects to open nearly 10,000 McDonald’s restaurants worldwide over the next four years — to reach a total of 50,000 restaurants — a pace of growth that would be unprecedented even for the world’s largest burger chain.

It plans to open 900 new stores in the U.S. and 1,900 in international markets with company operated and franchised restaurants like Canada, Germany, the United Kingdom and Australia. McDonald’s plans another 7,000 stores in international markets that are operated by licensees. More than half of those stores would be in China.

But beyond that physical expansion, McDonald’s is also looking to CosMc’s to expand its menu and service times and keep up with other fast-growing chains like Starbucks. Starbucks said last month it plans to open 55,000 stores globally by 2030, up from 38,000 today.

McDonald’s President and CEO Chris Kempczinski said CosMc’s is designed to fill in a slump in sales that the company sees in the mid-afternoon. But the complexity of the drinks it will offer — like a churro frappe, a pear-flavored slush or a turmeric latte — make it impossible to fit into its existing restaurants. CosMc’s — named after a space alien character that McDonald’s introduced in the 1980s — will also serve snacks like pretzel bites and Egg McMuffins.

“This is a $100 billion category that’s growing faster than the rest of (casual dining) and with superior margins. And it’s a space that we believe we have the right to win,” Kempczinski said.

McDonald’s is also testing new systems at the small-format CosMc’s restaurants, including drive-thru lanes that manage traffic based on the complexity of orders.

McDonald’s said the explosive growth of delivery demand makes it critical to get restaurant locations even closer to customers so food can arrive faster and hotter. McDonald’s delivery made up $1 billion in global sales in 2017; that has grown to more than $16 billion.

Kempczinski said new restaurants will likely have dedicated pickup areas for delivery drivers to ease restaurant congestion. But he said it’s important to open actual restaurants and not just delivery-only kitchens.

“Not everybody wants delivery every single meal. Sometimes they want to go to the restaurant with their family,” Kempczinski told APin an interview.

Kempczinski said he’s not concerned about cannibalizing sales from existing McDonald’s locations. In the U.S., he said, population shifts have left many parts of the country underserved. McDonald’s also wants to prevent competitors from snatching up good real estate, he said.

Manu Steijaert, McDonald’s chief customer officer, said it took 33 years for the company to open its first 10,000 restaurants; by comparison, it took 18 years to grow from 30,000 to 40,000.

McDonald’s also announced Wednesday a multi-year partnership with Google Cloud. Financial terms of the deal weren’t disclosed.

Kempczinski said moving restaurant computations into the cloud — versus relying on slower servers — will speed up things like menu recommendations on ordering kiosks or in the drive-thru lane. The new system will also help managers optimize staffing by, say, recommending an additional staffer at a drink machine if demand warrants it.

McDonald’s Chief Financial Officer Ian Borden said the company has the confidence to invest in new stores and new technology because of its strong performance. McDonald’s same-store sales rose nearly 9% worldwide in the third quarter, even as U.S. traffic fell slightly.

McDonald’s shares closed little changed on Monday.

The company is focused on core menu items like Quarter Pounders and fries which, according to McDonald’s, make up 65% of sales systemwide.

Burgers with softer, freshly toasted buns, meltier cheese and more Big Mac sauce are coming to U.S. restaurants by the end of 2024 and most other markets by the end of 2025.

McDonald’s said its chicken sales have now reached $25 billion annually, on par with beef, and are growing fast. It plans to bring its McCrispy sandwich to nearly all global markets by 2025.

Jo Sempels, president of McDonald’s international licensed markets, said the company also sees significant opportunity to grow coffee sales. The company already sells 8 million cups of coffee each day, he said, but growth has been hampered by a fragmented approach. McDonald’s plans to promote one brand — McCafe — and whittle down the list of equipment suppliers so its coffee is more consistent globally, Sempels said.

I cover the food and beverage industry.