Issue #50: CosMc’s We Barely New You

Avid readers will notice that last week went by without an issue - my apologies! I was spending time in Glacier National Park, in Kalispell, Montana with my family. But we are back better than ever with Issue #50 this week. It was an amazing opportunity to go on this trip, and I would highly recommend checking it out, whether you are a super avid hiker or not. Obviously, the retail world did slow down for Memorial Day weekend, so we have a lot to cover, starting with McDonald’s, shutting down CosMc’s, its Gen Z branded breakfast and beverage spot.

A brief timeline of the restaurant:

• July 2023 - The chain is announced to much fanfare and hype

• December 2023 - The first location opened in Bolingbrook, Illinois, and early on saw 2x traffic compared to a regular McDonald’s

• March 2024 - A second location opens in Dallas, Texas, with plans to open 8 more in Texas in 2024

• May 2024 - A special rewards program just for CosMc’s launches, and along with it mobile ordering is now available

• January 2025 - 3 larger locations in Texas are to be closed, and are to be replaced by 2 smaller locations

• February 2025 - Chatter from corporate emerges that part of this test was whether it should be a standalone restaurant or part of the broader menu, the first time this narrative emerges

• May 2025 - McDonald’s announces that all 5 locations will close in a gradual fashion over the next couple of months

When I saw the announcement, I was initially surprised. The data on the test initially seemed positive from the reporting, however, looking back at initial statements from McDonald’s executives, it is clear they had extremely high expectations, which this did not meet. It still seems like this was a success as it brought McDonald’s a lot of press on the breakfast beverage front, they tested an innovative new concept, and they have a selection of new items to bring to the menu. That is the positive side. On the negative side, why did it fail? McDonald’s did not indicate any negatives, like many public companies to to cover themselves when a big new initiative flops. Here are a couple of my thoughts:

1. Juice not worth the squeeze - In 2024, McDonald’s did $26B in revenue. In 2024, an emerging Gen Z focused sweet treat brand did $1.5B in revenue, after being in business for 7 years and having 1,000 stores. There are comparisons you can make between Crumbl and CosMcs despite their different categories. Let’s assume McDonald’s can add $1.5B to its annual revenue over 7 years with CosMc’s. That would only be a CAGR of .8% and would require a ton of work to open the new concepts. In the last five years, McDonald’s CAGR is 4%, 5x of what the CosMc’s addition would represent. In the end, it was probably a much higher ROI to bring it into the McDonald’s fold for less cost and maybe less revenue.

2. Store square footage & drive-thru - Most of the competitors in the space are a drive-thru, which is seemingly why McDonald’s also did a drive-thru. However, that focus seems to be one of the major mistakes. Beverage stores make a ton of money on walk-in traffic, and it adds efficiencies. Couple that with the square footage being too big from the start, illustrated by the downsizing of stores in Jan ‘25, you had a recipe for costs being too high from the start.

3. Menu and branding misalignment - The branding around CosMc’s focused on nostalgic and out of worldly, which was awesome. However, many places face this problem, where expectation does not equal reality. If that is the case, that is an easy recipe for a customer to come and never return. The menu needed to be more original, more out of this world, more nostalgic. All things that could have been done for a company with McDonald’s resources.

4. Hype dying down - CosMc’s launched with a ton of hype. The branding was super nostalgic, it was fun/fresh, and got people excited about the concept. However, it seemed that the initial hype died down. Why? There could be a lot of reasons. First, hype cycles die down so rapidly, and it is so hard to rely on hype to keep a business going. Instead, I prefer to offer a quality product or service. I never got the opportunity to try the CosMc’s menu, but it seems like enough people didn’t come back for more repeat purchases.

5. McDonald’s broader struggles - When a company is struggling, the first thing to go typically is the new initiatives and innovation. Got to focus on righting the core business. I don’t fully agree with that strategy, but it is what happens. In this situation, McDonald’s U.S. same-store sales fell 3.6% in Q1 2025, after falling 1.4% in Q4 2024, primarily driven by decreased foot traffic. Given these numbers, I am not surprised the leadership wants to focus on the core business, and find a way (CosMc’s menu items) to bring foot traffic into the stores.

Overall, despite the challenges of this pilot, I would call it a resounding success. Kudos to McDonald’s for getting out there and trying something, even if it ended up failing somewhat. I expect to see CosMc’s items on the menu at regular McDonald’s shortly, and the branding to be pulsed regularly, maybe even a special menu / easter egg in the app.

Lifetime Downtown Austin Nears Opening

Life Time Fitness, a boutique gym and wellness club, entered the Austin market in 2005 and has been a staple ever since. However, most of these locations have not been downtown, but that is all changing soon. Slated to open this summer/fall, Life Time downtown Austin is a really interesting case study about what people are looking for in retail, as well as where complementary retail can thrive next to it. The Life Time will operate on the first two floors, featuring gyms, daycares, fitness, sauna, co-working spaces, and more. This combination of experiences is seeing a great demand in customers, and it makes total sense - everything a customer could want in one space. For other retailers in adjacent sectors, locating near these types of places could be a big win. Additionally, for real estate firms looking to acquire tenants or build properties, it could be smart to either have one of these facilities built on the property or locate near them.

Memorial Day Retail Foot Traffic Is A Mixed Bag

Memorial Day Weekend in the United States, among other things, is typically a big weekend for retail, as retailers have traditionally run large promotions. This year, compared to last year, was a mixed bag. Placer.ai, a foot traffic analysis platform, released this analysis of their findings. Apparel, but not off-price apparel, only higher price apparel, and grocery stores (BBQs!) saw growth, which is great. However, outside of that, retailers struggled because consumers pulled forward a lot of spending with all the uncertainty year-to-date, and now are cutting back. On the bright side, one interesting anecdote is that movie theaters saw an increase in foot traffic, which you would not have expected given the recent declines in theaters as consumers prefer streaming. Did anyone see any good movies? Customers are still showing that they are seeking value, and the challenge for retailers will be to keep driving value while protecting their bottom line.

David Protein Raises $75M, Acquires Key Supplier

David Protein, founded Peter Rahal, one of the founders of RXBAR launched to much fanfare late last year. Its value proposition to consumers is that it has the highest protein-to-calorie ratio on the market, so it has spread like wildfire in the macro-conscious community. In its first eight months, it has expanded to over 3,000 retail locations and is on pace to surpass $100M in revenue in its first year of operations. Makes sense why Greenoaks and Valor Equity Partners led a $75M Series A, huge for any company at this stage, especially in the CPG space. This raise follows a $10M seed in August. David is planning to utilize the additional funds to scale manufacturing, accelerate product development, and expand inventory for both retail and eCommerce. The most interesting part, however, is what they are doing to shore up their intellectual property (IP). One thing that makes David special is EPG, a plant-based fat alternative, that reduces calories and fat without compromising taste or texture too much. It is produced by Epogee, which David now owns. In the CPG space, IP is the best way to stand out, but super difficult to obtain. Pretty rare to see this happen, but a really smart move. Excited to keep following along as David grows.

Why Do Retailers Play Music?

If you enter most retail shops, restaurants, or clothing stores, there is typically music playing in the background. Something you have probably noticed but never thought twice on. Well, recently, this question came up in my mind, so I decided to deep dive. Like most things, it all comes back to boosting revenue. According to a study by Soundtrack, customers spend around 42% more time in a store when music is playing. Additionally, that study saw sales increase by an average of 37% when music matching the brand was played. Another reason stores play music is that music played at a slower tempo than the human heartbeat gets you to relax and slow down. A relaxed customer spends more time in the store, and then they will spend more money. A simple answer to a complicated question.

• Summary: Area2Farms is a franchise farm company that allows people to become a farmer, especially in urban areas. They have developed Silo, a multi-level, vertical, conveyor belt farm that replicates a plant's day cycle, which reduces energy usage and increases production.

• My Take: While not exactly a traditional retailer, I am very bullish on this company as it can support retail and is a franchise model. I have been passionate about vertical farms for a while, but ultimately most have failed due to their large size of farm.

• Founder(s): Tyler Baras, Oren Falkowitz

• Funding: Unknown

• Number of Locations: 1

Additional Links:

1. Popular Australian fast casual poke bowl restaurant, FISHBOWL, launches its second NYC THISBOWL location (read more here)

2. Meta wants to open more retail stores (read more here)

3. How do consumers rate food items in terms of happiness and healthiness? (read more here)

4. FreshDirect opens its first-ever retail location, a temporary pop-up in The Hamptons (read more here)

5. Danny Meyer is opening a members-only club/restaurant (read more here)

6. AG1 launches its first retailer: Costco (read more here)

7. Nike’s Chief Innovation Officer is retiring, he was with Nike for more than 30 years (read more here)

8. Ulta deep dives Q1 performance with analysts on earnings call, seeing signs of improvement (read more here)

9. Red Robin is seeing comps growth, but is not complacent (read more here)

10. Full service dining is seeing inconsistent consumer response, some are pulling back, some are not (read more here)

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