Under Krispy Kreme’s omnichannel strategy, the doughnut brand is growing and relying on strong retail partnerships to increase global points of access, from grocery stores to convenience stores-- the most famous of which is the regional test with McDonald’s in Kentucky. For the second quarter ended July 2, the continued push for more “DFD” (Delivered Fresh Daily) doors (462 added last quarter) led to 9% revenue growth and positive net income, compared to a reported loss the same quarter in 2022.
Here's some key highlights from the Krispy Kreme second quarter earnings call:
Krispy Kreme thinks the McDonald’s partnership could be expanded
Right now, Krispy Kreme doughnuts are available at 160 McDonald’s stores and drive-thrus in Kentucky after the partnership was initially announced last fall. Results of the beta test have been positive, and according to Krispy Kreme CEO Mike Tattersfield, have been incremental to DFD sales in the region.
“We love that the test has allowed us to really get deep knowledge of how the QSR channel is going to actually work,” Tattersfield said during Thursday’s earnings call. “This unlocks the opportunity from that need state that the customer is looking for…. It really unlocks the convenience with the drive-thru. We can do that. So, what we really started to look at is ‘what's the opportunity in that channel within our existing footprint and how could that work?’”
As for if the partnership with McDonald’s could expand nationally, Tattersfield said it would “be up to them” and that while Krispy Kreme is enjoying the partnership, the McDonald’s sales act as regular DFD doors with a limited selection of doughnuts, though with no cannibalization effect.
“We've taken a lot of the learnings from McDonald's and realized that by making changes to operating hours, donut processing and packing layouts, and delivery windows, we can get even more from our existing hubs than we even thought was possible before,” Krispy Kreme CFO Josh Charlesworth said.
Amazon Fresh is the latest new retail partner
During the second quarter earnings call, Krispy Kreme discussed a newly-announced partnership with Amazon to add Krispy Kreme doughnuts to Amazon Fresh stores. This small line pilot is already in test in two Amazon Fresh locations in Chicago.
Krispy Kreme keeps increasing the number of high-profile retail partners, which also includes Walmart, and will be ramping up partnerships with convenience stores and “club” stores with a partnership with Costco in Canada, to increase the number of points of access for the brand even more.
“Our continued momentum driven by the expansion of our DFD strategy gives us confidence in our plan to expand into new channels like QSR, drug, and club while building out our existing customer base,” Tattersfield said Thursday.
Increasing prices was an important growth driver
While many foodservice companies grapple with balancing the need to increase prices with the financial limits of their customers, Krispy Kreme acknowledged that increasing prices played a significant role in quarterly performance, which helped bolster sales even while Krispy Kreme-owned Insomnia Cookies had a more challenging quarter.
“We’re always looking at pricing as a strategic piece because we want to be an affordable indulgent treat in all the markets that we serve,” Tattersfield reiterated. “The premiumization of the brand is really sticking… as customers continue to migrate towards a better product and premium partnerships like with M&M’s.”
Krispy Kreme is getting a loyalty makeover
Krispy Kreme is looking to give its loyalty program a makeover this year, Josh Charlesworth said, to make it more intuitive and easier to track for customers. Krispy Kreme U.S. will also be taking notes from its loyalty program in the U.K. where customers can add Krispy Kreme purchases to their grocery store’s loyalty program.
Traditional doughnut shops will not be phased out
While Krispy Kreme is closing or converting many of its traditional theater and hot light doughnut shops in favor of this omnichannel strategy, Tattersfield confirmed that these traditional bakeries won’t be going away anytime soon.
“Some of these stores are just not in great locations to support DFD rollout but still play a role in the local communities, particularly in the Southeast,” Tattersfield said. “So the legacy of the hubs without spokes will likely be with us for a long time to come because they are profitable.”