MC Donalds plans to sell Krispy Kreme The chains announced Tuesday that they will have donuts in their restaurants nationwide by the end of 2026.
The rollout will begin in the second half of this year, but it will take approximately two and a half years as Krispy Kreme more than doubles its distribution to accommodate the partnership. For the duration of the agreement, McDonald’s will be Krispy Kreme’s exclusive fast food partner in the United States
The donut chain uses a hub-and-spoke model that allows it to efficiently produce and distribute its treats. Production centers, which are either stores or donut factories, ship freshly made donuts daily to retail locations such as grocery stores and gas stations.
Partnering with McDonald’s is a huge opportunity for Krispy Kreme to expand its reach. As of December 31, the company ships its donuts to 6,800 third-party stores. McDonald’s has approximately 13,500 restaurants in the United States and plans to open 900 new locations nationwide until 2027.
“We believe we can serve approximately 6,000 restaurants with our existing infrastructure, primarily donut shops that have excess capacity,” Krispy Kreme CEO Josh Charlesworth told CNBC.
Krispy Kreme has also expanded its capacity to supply fresh donuts to the approximately 7,500 McDonald’s restaurants it is currently unable to reach.
While McDonald’s is the main reason the company is expanding its distribution so quickly, Krispy Kreme will also take advantage of the opportunity to get into grocery and convenience stores that prefer national suppliers, according to Charlesworth.
“This means the overall efficiency and productivity of our distribution network will improve significantly over time, not just because of all these local deliveries,” he said.
Additionally, Krispy Kreme donut shops typically make more of the sweet treat than the chain can sell. The additional demand from McDonald’s and other new customers means the company’s production lines can produce higher volumes at little additional cost.
“So overall, our system makes it more profitable to expand the daily fresh product delivery channel, and McDonald’s is an accelerator in that,” Charlesworth said.
The two chains’ relationship began about a year and a half ago when McDonald’s began selling Krispy Kreme donuts in nine restaurants as a test. Months later, the pilot expanded to about 160 restaurants in Louisville and Lexington, Kentucky. These initial restaurants will continue to sell the donuts throughout the nationwide rollout.
According to Charlesworth, demand from McDonald’s customers during testing exceeded both chains’ expectations.
For McDonald’s, the addition of Krispy Kreme donuts helps expand its baking and breakfast offerings. The burger chain has focused on coffee, a common drink pairing with donuts, but has eliminated other baked goods like cinnamon rolls from its menu.
McDonald’s customers can order the original glazed donuts with chocolate glaze and sprinkles, as well as chocolate ice cream filled donuts individually or in packs of six. Restaurants will sell the donuts throughout the day.
Longer term, Krispy Kreme now expects to reach more than 100,000 access points for its donuts worldwide, up from its previous forecast of 75,000 locations. The chain’s donuts are currently available in more than 14,100 stores in 39 countries.
Krispy Kreme shares have fallen 20% over the past year, sending its market value down to $2.11 billion. As hype around weight-loss drugs like Novo Nordisk’s Ozempic has grown, investors are worried about whether the treatments will hurt Krispy Kreme’s future sales.
Similar worries have weighed on McDonald’s, even though the company’s shares have risen 2% over the past year as consumers switch to cheap food and drinks. The company has a market value of $201 billion.
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2024-03-26 10:00:01
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