McDonald’s (NYSE:MCD) and Starbucks (NASDAQ:SBUX) are two of the largest quick-service restaurant firms on the planet. Though they’ve specialized in different corners of the fast-food scene, with McDonald’s specializing in burgers and fries and Starbucks catering to the morning crowd looking to get their coffee and treat fix (who can resist those sous-vide egg bites and ready-to-go snack boxes?), one can’t help but notice increasing overlap between the two fast-food juggernauts.
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Undoubtedly, McDonald’s has been going after that morning (and early afternoon) crowd for years now with McCafé. McDonald’s coffee, All-Day Breakfast, and innovative, new tasty treats have helped the firm gain some traction with the morning crowd. However, it’s the recent launch of McDonald’s spin-off concept CosMc’s that may really stand to put a dent in the market of Starbucks and other caffeinated drink-focused rivals like Dutch Bros (NYSE:BROS).
Having a look at CosMc’s menu, it’s clear that McDonald’s is going above and beyond just coffee. From specialty iced beverages such as the Smores Cold Brew to customizable, more refreshing lemonades, the menu certainly seems to be more reminiscent of a Dutch Bros than a McDonald’s.
In any case, it’s hard not to be optimistic about the new store concept’s future, given that its first store launch seems to be nothing short of an outstanding success. In the days following the store’s launch, the waits were long, absurdly long, with some people reportedly waiting in line for around four hours to get their orders in.
Is it all hype when it comes to the first CosMc’s store launch? No doubt. As the novelty begins to fade and the first store does its best to get things going at a quicker speed, I think CosMc’s stands to become a serious threat to stores competing in its proximity.
Given McDonald’s reputation for delivering great taste at a great value and at break-neck speed, I do think there’s a universe of potential for McDonald’s as it gets creative and more innovative to grab share away from other corners of the quick-service restaurant scene. For now, I remain bullish on MCD stock as it continues to demonstrate strategic creativity. Also, I’m bullish on SBUX as it looks to stay competitive in the crowded global coffee scene.
CosMc’s: Slow and Steady Wins Races
Though I do not doubt that CosMc’s can hit the spot for customers, there remains one key issue. The company is moving incredibly slow with the rollout of CosMc’s, with only 10 pilot stores in Texas to open by the conclusion of 2024. That’s just a bit disheartening for the many excited prospective consumers outside of Texas.
Indeed, a slow and steady approach seems prudent. If CosMc’s stores are a hit, the firm may be ready to go beyond the pilot phase as it looks to commit to a bigger national rollout. Only time will tell when or if such a rollout will happen. For now, though, investors should stay patient with McDonald’s as it shows a willingness to experiment to expand the “McDonald’s universe.”
Personally, I’m a fan of the slow CosMc’s rollout. A slow, more localized expansion limits risk as McDonald’s looks to play the long game with a market it clearly has the competence to not only compete but dominate. For now, CosMc’s seems more like a long-term wildcard than anything that could jolt the stock in 2024.
As McDonald’s moves forward with CosMc’s while amping up its artificial intelligence (AI) capabilities with its recent partnership with Accenture (NASDAQ:ACN), all while inflation backs off, I think margins have a pathway higher from here. Perhaps much higher.
Either way, hats off to McDonald’s CEO Chris Kempczinski for having the boldness to push the iconic American brand into new waters. Early signs suggest consumers can’t get enough of CosMc’s. But only time will tell if the spin-off can give Starbucks and Dutch Bros a run for their money.
Should Starbucks be Worried About CosMc’s?
If CosMc’s really starts to increase its store count, perhaps in the latter part of the decade, Starbucks may be at risk of losing a bit of market share to its long-time rival. It’s not like Starbucks will fire back by getting into the business of burgers and fries.
For the time being, I don’t view CosMc’s as a credible threat to Starbucks as it continues pushing into new market waters of its own (think China as its economy looks to heal in the coming years). At the end of the day, Starbucks caters to the premium coffee crowd, and with many more drink customization options, I simply do not see people who order very specific beverages taking their business over to the local CosMc’s.
Is there customizability when it comes to CosMc’s drinks? Sure, but relative to Starbucks, the menu seems streamlined and designed for people looking to get on their way. And though Starbucks has drive-thru locations of its own, many stores are designed around having patrons take their time as they sip their customized skim matcha lattés or Nitro Cold Brews.
I believe CosMc’s and Starbucks serve different people within the morning crowd. CosMc’s appears to be targeting the “on the go” customer looking to get their drink (or food item) fast and at a competitive price, whereas Starbucks seems to be a better fit for the higher-end crowd who’s willing to wait for their customized beverage to be perfected, just the way they like it.
Is SBUX Stock a Buy, According to Analysts?
On TipRanks, SBUX stock comes in as a Moderate Buy. Out of 20 analyst ratings, there are seven Buys and 13 Hold recommendations. The average SBUX stock price target is $110.79, implying upside potential of 16.2%. Analyst price targets range from a low of $98.00 per share to a high of $125.00 per share.
The Bottom Line
For now, I wouldn’t get worried as a Starbucks investor over the rise of CosMc’s. If anything, it’s Dutch Bros investors that should be more jittery (pardon the pun) as McDonald’s doubles down on caffeine with CosMc’s. Dutch Bros has done a decent job of getting tasty beverages out quickly and efficiently, but it still doesn’t have a brand in the league of a company like Starbucks.
I believe Starbucks’ powerful brand and focus on the premium crowd will allow it to retain its dominance as it looks to put its foot back on the growth pedal once again.
