Lines at CosMc's in Bolingbrook, Illinois. (Credit: Eric Cox/Reuters)

(CNN) -- McDonald's announced Wednesday that it's piloting a new coffee shop concept called CosMc's, which will mostly sell highly customizable caffeinated beverages with some food. The first CosMc's is already open in Illinois, with nine more planned to open in Texas in the coming months.

For many, the news has probably raised a big question: Why? Why is a chain that's basically synonymous with burgers suddenly interested in selling sugary coffee drinks? And why not add those options to the menu of existing McDonald's locations, instead of launching an entirely new brand?

And, perhaps most pressingly, why call it CosMc's?

There are a few good reasons for McDonald's to take this approach.

Beverages are a lucrative market, and especially customizable coffee drinks, such as those for which Starbucks is famous.


(Credit: Eric Cox/Reuters)

"There is no category that has performed better this year than specialty coffees," says David Portalatin, senior vice president and food industry advisor at Circana, who notes that sales of specialty coffees at quick-service restaurants are up this year compared to last.

But you can't fit a bunch of customizable coffee drinks into the McDonald's menu. That would slow down kitchens and service times, and could confuse customers.

So, to try to break into the market without ruining its regular business, McDonald's is trying something entirely new.

Why McDonald's Wants to Get Into the Specialty Coffee Business

You might think that burgers are the king of McDonald's, and drinks are little more than water, sugar, and flavorings. But for restaurants, beverages — especially those of this kind — are cash cows.

"The profit margin on a drink is huge," says John Gordon, founding partner of Pacific Management Consulting Group, which advises restaurants. A restaurant can earn a gross profit margin of up to 80% when selling beverages, much higher than that of food. In addition, he added, when people go to a coffee shop for a drink, they usually end up buying something to eat as well.

And in the U.S., coffeeshops are a growing category, he said. "McDonald's doesn't want to be left behind."

Beyond not being left behind, McDonald's is always looking to grow the business in new ways, even as Americans are already intimately familiar with the Big Mac.

During an investor event on Wednesday, McDonald's CEO Chris Kempczinski said that "one area of focus has been identifying ways for McDonald's to participate in attractive and fast-growing categories." McDonald's, he said, could use specialty coffee to compete in the evenings, using caffeine and sugar to entice people to grab drinks between meals.

McDonald's already serves coffee in its establishments. But it doesn't have the kinds of espressos, teas, and other customizable beverages that have helped boost sales from establishments like Starbucks.

CosMc's menu is full of them. For example, the chai frappe burst, made with boba, cream, and cinnamon sprinkled on it. According to the CosMc website, customers can keep or remove these ingredients and add toffee or "black pepper." They can also add up to four doses of espresso, a splash of caramel or chocolate, up to two types of flavored syrups, and even a "stimulant" dose of vitamin C.

But McDonald's can't start selling triple chai frappes in its regular outlets. Kempczinski himself said Wednesday that they're too complicated for McDonald's kitchens.

"The craft drinks, the customizations... things like that aren't going to work at scale at a McDonald's," said Joshua Long, managing director and restaurant research analyst at Stephens. "And that's why they have to do it in a separate setting."

Drinks from the menu of the new Mc'Donalds cafeteria. (Image courtesy of McDonald's)

Protecting the Brand

In recent years, McDonald's has focused on reducing complexity for its workers. One way to do this is to focus on the main dishes on your menu. Many of its most successful recent marketing campaigns — such as the adult Happy Meal platform and celebrity meals — have offered McDonald's items in different configurations, with perhaps some new sauces or toys. Focusing on the basics has helped McDonald's increase sales.

Trying a new line of complicated beverages would jeopardize those efforts. So by testing them in a new concept affiliated with, but independent of, McDonald's, the company can experiment without risking disappointing its customers or frustrating its workers.

"They're protecting the core brand by doing it in their own concept," Long says.

But none of this explains why CosMc's takes its name from an obscure McDonald's character.

Who is CosMc?

CosMc's is named after CosMc, a little-known McDonald's character from the 80s that Kempczinski described Wednesday as "part alien, part surfer, part robot."

CosMc doesn't have the cache of, say, the Hamburglar or Grimace. But that may be the point, said Stephen Zagor, an adjunct professor at Columbia Business School who specializes in restaurants and food businesses.

"Because it's so unknown, it has a neutral response to customers," Zagar says. "We're starting from a blank slate."

Still, there are plenty of signs that tell customers they're visiting a McDonald's-linked location.

"They use the golden arch and terminology. They use a lot of the colors of the logo that have made them successful," says Zagor. Some of the food will also be familiar to McDonald's customers. An online menu section called "from the McDonald's universe" includes, for example, Egg McMuffins and McFlurries.

Still, "starting any business is risky, even for someone as experienced as McDonald's," Zagor says. "It's about establishing a whole new relationship" with customers. "And there's always the possibility that it won't work."

But for McDonald's, there's not much real risk.

Low Risk, High Reward

During Wednesday's event, Kempczinski stressed that the test is extremely limited. "Please let me stress again, we're talking about 10 stores," he said.

For McDonald's, which has about 41,000 stores worldwide and wants to reach 50,000 by 2027, operating 10 stores is a drop in the ocean, from a financial point of view. "This is a rounding error," says David Henkes, director of research firm Technomic.

But it gives McDonald's a chance to take risks it wouldn't take at its locations.

"The value of CosMc's doesn't necessarily lie in creating a new concept," says Henkes. "It's in learning. And in the freedom to learn, experiment, fail, and try again."

McDonald's could see that there's room to make a lot of money, expand the business, and take on competitors like Starbucks and others. You could learn how to make custom drinks effectively enough to bring them into your own kitchens. Or you could learn something from CosMc's distribution (the Illinois location has four drive-thrus) or marketing. Or something else entirely.

"In a way, it's kind of an incubator to try things out and see what sticks," Henkes says, noting that some of the findings might be unexpected. "That's what's great about doing something like that."