Financing

McDonald's, eager to open more restaurants, plans a new concept called CosMc

The burger giant plans to open the new, smaller-format concept in select markets as it looked for alternative strategies to bolster its growth.
McDonald's development
McDonald's is testing more small format locations, such as this one in Texas, to bolster development. | Photo courtesy of McDonald's.

McDonald’s plans to open more restaurants doesn’t just feature robot-fueled, takeout-only locations such as the one in Texas. It could feature a new concept named after an 80s-era alien character from the chain’s commercials.

The burger giant plans to test a new, smaller-format concept early next year called “CosMc,” CEO Chris Kempczinski revealed on the company’s second-quarter earnings call on Thursday.

Details of what CosMc will involve remain limited. McDonald’s plans to test out the concept in “a small handful of sites in a limited geography beginning early next year,” he told investors.

CosMc will have “all the DNA of McDonald’s but its own unique personality.”

CosMc, according to McDonald’s Wiki, is an alien character who appeared on the chain’s commercials between 1986 and 1992.

But the idea for new development is not alien to McDonald’s. The chain has been telegraphing its intent on opening new locations, in the U.S. and globally, for several months. The company lured Tabassum Zalotrawala from Chipotle Mexican Grill to lead U.S. development in March, for instance. It is working to recruit new franchisees into the system as well.

Kempczinski’s argument: The company’s performance warrants more locations than the chain has been opening. “Our strong performance and strength of our brand has earned us the right to begin accelerating the pace of restaurant openings in our major markets over the next several years,” he told investors.

McDonald’s in the U.S. in particular has quietly closed locations in recent years. The company has closed nearly 1,000 restaurants since 2014, when the chain peaked at 14,350 locations. It finished 2022 with 13,444 restaurants—having added six restaurants last year, the first time it had added restaurants over that period. McDonald’s has opened a net of one restaurant so far this year, according to federal securities filings.

Much of that slowdown has been deliberate. McDonald’s has shuttered some non-traditional restaurants, such as those inside Walmarts. By closing such locations, the chain has been able to generate more sales at its existing restaurants, a strategy that has worked marvelously. The company has added $1 million to its average unit volumes over the past five years, thanks to a combination of same-store sales growth (up 31.2% since 2019) and the closure of weak locations.

In addition, franchisees over that period focused a lot of their spending on remodels. Virtually all the chain’s restaurants were remodeled between 2017 and 2020. That can prevent operators from spending on opening new restaurants.

Adding new locations these days, however, is not so simple, either. Drive-thru demand has soared in the restaurant industry, making sites difficult to come by and expensive. Some McDonald’s operators have told us privately that expanding is a major challenge at the moment, given the real estate environment.

Thus, the company is considering alternative options—much like other chains are doing—that could go into smaller sites. McDonald’s last year opened a takeout-only restaurant in Fort Worth, Tex. Much of the publicity focused on its automation-heavy approach. But the location was also much smaller than its typical stores and largely abandons the dining room. Only roughly 10% of McDonald’s customers eat their meals inside the restaurant.

“You’re now able to look at real estate sites that previously would have been sort-of off-limits to us,” Kempczinski said. “Those become opportunities.”

He stressed, however, that the chain is still focused primarily on “traditional units.” Still, as a small-format restaurant, CosMc could theoretically open more options as McDonald’s looks to open new locations.

But where McDonald’s may locate restaurants could also change. “Our U.S. restaurant estate today reflects the demographic or the population profile from 20 or 30 years ago,” Kempczinski said. “Imagine the amount of shifts that have happened. People moving to the South, Southeast. That isn’t reflected in our footprint.”

Take it all together, and McDonald’s is planning to develop more smaller format locations, some potentially under a new concept name, with a focus on the South.

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