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How Krispy Kreme will use automation and an improved hub and spoke model to expand its reach

During the 2022 Krispy Kreme Investor Day, execs addressed the major thorn in their side: lack of access

Krispy Kreme has been in the middle of transforming its business for a while now. The company has pivoted from the costly and limited bakery-first operations model, where every store made doughnuts in-house and sold them fresh, to a hub and spoke model where Krispy Kreme fans can find their favs inside a growing group of grocery stores, convenience stores, and even McDonald’s locations.

But the transformation has not been without bumps in the road, and Krispy Kreme provided some details and a look-ahead for its doughnut business in 2023 during this week’s investor conference, including plans for automating the doughnut process and rolling out LTOs to store partners.

“We’ve been addressing this issue of not being as available to people over the last few years by taking control of the network to buy out the franchisees in all the major urban centers across America,” Krispy Kreme COO and interim CFO Josh Charlesworth said during Thursday’s investor conference. “That way, we can launch ‘deliver fresh daily’ in the local markets there from our local hotline theatre shops. […] As we come back came to be a public company again, we're able to suddenly show the world that more than 30% of our sales are off premise, and not just the donut shop built around the local communities.”

Charlesworth also emphasized how important boosting ecommerce has been to the bottom line over the past couple of years, especially in markets that had a limited Krispy Kreme presence, like New York City, where the brand opened its flagship store in 2020.

“Since 2022, we're selling more donuts around the country than ever before,” Charlesworth said. “Right now, already, it's over $165 million in annual sales, largely coming through grocery and convenience, with over 5,700 doors.”

But there are still improvements to be made. One of the biggest challenges is making sure that every new point of access has fresh doughnuts (that Krispy Kreme delivers every day and takes away every night), while still expanding availability. That is why Charlesworth said the company is looking into automating the doughnut-making process more.  

“When you visit one of our hotline theater shops, it is an incredible process that takes over 30 minutes, starting with the mixing of the dough all the way through to the packing of the doughnuts,” he said. “A big part of the process still requires manual intervention. We fill the doughnuts and top them by hand: no wonder we spend over $100 million a year on labor production.”

Charlesworth said he sees a “real opportunity” to add more automation to Krispy Kreme’s five doughnut factories and 240 hot light stores. The company has been testing out automated technology with the ability to add filling to doughnuts and to take them off the line and box them up. Over the next 18 months, Krispy Kreme plans to have at least 18% of their doughnuts produced on an automated line.

The other changes coming to the Krispy Kreme operations model, will be closing or converting low-production stores into hubs without spokes, or doughnut-creation factories, by closing the lobby space to focus on getting more doughnuts in and out to access points. As a result, Krispy Kreme is going to be closing more stores next year.

“The future will be a much healthier hub and spoke network,” Charlesworth said. “Whether it's hubs with spokes, or hubs without spokes, we expect to add and convert our shops to deliver to be able to deliver more than 8,000 points of access across the country by 2026, supported by 160 or more hubs with spokes.”

The final piece of the puzzle is adding quality and variety to the “DFD” (delivered fresh daily) locations in grocery and convenience stores by improving package displays and bringing Krispy Kreme’s famous holiday and seasonal LTOs to these points of access. In fact, the company wants to bump up its LTO calendar from the current 40% of the year to 75%, and for customers to experience Halloween, Christmas, and Valentine’s Day goodies in more than just the traditional bakeries.

Contact Joanna at [email protected]

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