STRONGBRANDS    Professor Tim Calkins, Kellogg School of Management

Last week McDonalds opened the first CosMc’s, a new restaurant concept built around drinks and snacks, in Bolingbrook, Illinois. CosMc’s serves items including coffees, lemonades, cookies, pretzel bites and ice cream.

This is a huge move from McDonalds, and it makes a lot of strategic sense.

You can learn a lot about brand portfolio strategy from McDonalds: the challenge of managing a house of brands, the limitations of a branded house and the wide range of branding options available to managers.

McDonalds Portfolio

In the early 2000s, McDonalds was a classic house of brands. The firm managed thousands of restaurants under the McDonalds brand, of course, but also owned brands like Chipotle, Donatos Pizza and Boston Market. This gave the company a range of growth opportunities but also created complexity.

When the McDonalds brand started struggling, the company got rid of all the other brands to focus just on fixing McDonalds. That was the priority. The move worked and the company flourished.

Since then, McDonalds has been a branded house, focused just on the McDonalds brand. The company has other brands like Big Mac and Egg McMuffin, but these are sub-brands under the primary brand of McDonalds.

CosMc’s Branding

The launch of CosMc’s is a strategic change. The company is back to managing multiple brands.

Now one could debate the branding strategy of CosMc’s. What exactly is it? It seems like a distinct brand and isn’t strongly endorsed. It isn’t CosMc’s from McDonalds. Still, there are lot of McDonalds references, so the company is playing up the fact that it is related to McDonalds. Indeed, the branding work highlights this connection. To me, this looks like a new brand, endorsed by McDonalds. It is different and yet connected.

The Logic

Why is McDonalds launching CosMc’s? Growth.

The challenge for McDonalds, and every company, is delivering growth over time. This is what managers have to deliver. Growth is what investors want to see, and what provides opportunities for employees.

There is only so far you can push McDonalds. At some point, the company will run out of locations for new restaurants. You can’t put a McDonalds right next to another McDonalds.

There is a limit, too, on what you can sell. Every incremental item creates complexity – the menu gets more crowded, the need for staff training goes up, the chance of mistakes increases. All of this leads to slower service times and less accuracy, and this impacts customer satisfaction.

Pricing is a challenge, too. McDonalds is a value player, so increasing prices isn’t easy, and premium offerings might struggle.

With CosMc’s, McDonalds is positioned for growth. The “beverage break” need state is huge. People love to take a pause from their day to enjoy a coffee or special drink. Snacking is enormous. Starbucks and Dunkin have flourished in this space. The beverages are affordable luxuries. Yes, paying $6 for a coffee or lemonade is a little strange, but why not! For $6 you can have the very best.

CosMc’s is clearly not McDonalds. There are no burgers. It isn’t a place for a meal. It only has drive through. It is a place to stop in the middle of your busy day for a quick break.

The new chain seems easy to run. There is no indoor dining, for example, so the company doesn’t have to worry about security or cleaning washrooms or kicking out people who stay too long.

The Outlook

So, will it work? Perhaps. The concept seems well developed in many dimensions. If it does, CosMc’s opens up a new world of opportunities for McDonalds.

It also creates a problem for Starbucks and Dunkin – watch for a fascinating competitive battle.

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