Yahoo Finance Krispy Kreme CEO on McDonald's test expansion: It's a 'pretty rigorous process'
Krispy Kreme (DNUT) is six weeks into the expansion of its test to deliver fresh doughnuts daily to McDonald's (MCD) locations in Kentucky and Mike Tattersfield, Krispy Kreme CEO, said both sides are "pretty pleased" with the current results.
"Both of us are learning, so we’ll see where it goes, both of us are pretty pleased with where we are right now," Tattersfield told Yahoo Finance.
The test initially kicked off last October as part of its delivery fresh daily (DFD) model, with 9 locations in Louisville, KY, and surrounding areas. Last month, the partnership expanded to approximately 160 locations across the Louisville-Lexington Kentucky region.
To achieve success, Tattersfield said the team needs to ensure freshness, delivery times, and packaging. "Someone that is coming through in a drive-thru that’s looking for a coffee is probably going to do an individual serve...we really focus on dozens," Tattersfield said, making the point of sale a bit different. All in all, Tattersfield said it has been a "pretty rigorous process."
"You can actually make the doughnuts fresh and then have a route system so you can drop them off, and so when we tested with McDonald’s in the latter part of last year in the 9-store test, we could see that the rigor and the quality matched," he said.
In a note to clients, JPMorgan analyst John Ivankoe said, "We view the optionality embedded within the company’s U.S. delivery fresh daily (DFD) segment’s 'profitable growth potential' favorably."
McDonald's is engaging in its own “demand planning" Ivankoe said, meaning once the doughnuts leave the Krispy Kreme facility, McDonald's owns the product. Based on this, JPM predicts "potential up to approximately 40% margin to Krispy Kreme from each store although the probability of a national rollout is still ambitious."
If the partnership were to go national though, Ivankoe detailed the upside:
"McDonald's is a 13,446 store business in the U.S. and if Krispy Kreme was even 2% of the brand's U.S. sales, this would translate to approximately $500 million of wholesale sales at Krispy Kreme assuming a 50% margin and relative to the entire $1 billion-plus segment revenue reported by Krispy Kreme in the US for Fiscal year 2022."
Year-to-date shares of Krispy Kreme are up nearly 50%, outpacing the S&P 500, up 5%. Meanwhile, shares of McDonald's are up 12% year-to-date.
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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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