As consumer buying patterns shift and its delivered fresh daily (DFD) hub and spoke model evolves internationally, Krispy Kreme is seeing strong returns, particularly in eCommerce and expansions to more retail partners across the mass merchant and quick-service restaurant (QSR) sectors.
Reviewing its first-quarter 2023 performance on an earnings call Thursday (May 11), Krispy Kreme CEO Mike Tattersfield said Q1 organic revenue growth hit 14.4% on the strength of global holiday campaigns around Valentine’s Day and St. Patrick’s Day, which he called “the playbook moving forward for significant events and holidays, as we’ll be able to leverage marketing costs, media coverage and brand partners across many or all of the countries” at these times.
The company reported its strongest quarter ever in eCommerce, as the expanded radius for DFD doughnuts and subsidiary Insomnia Cookies drove a 23% increase in eCommerce revenue in Q1 compared to a year ago, bringing eCommerce up to nearly one-fifth (19.6%) of total retail sales for in the quarter.
“This was our strongest quarter ever in eCommerce, both in revenue and percent of retail sales even when you compare that to the height of the pandemic, and we continue to see significant opportunity to grow in this channel,” Tattersfield said.
Global President and Chief Operating Officer Josh Charlesworth noted that upgrades to the company’s web and app, along with the ongoing expansion of delivery zones, contributed to eCommerce results in the first quarter.
In mainstream retail, he added that “in delivered fresh daily, we added over 350 doors, both at well-established customers like Walmart and Publix, but also with emerging newer customers like Target and Albertsons. We now have over 6,000 DFD doors across the U.S. with average weekly sales up 35% from two years ago to nearly $650.”
With Tattersfield referring to Krispy Kreme as a “doughnut logistics company,” the wide range of retail tests and stores conversions comes into clearer focus as Charlesworth ran down a list of upgrades in DFD distribution, which is widening access points for its fresh baked goods, as well as prepacked products.
“This off-premises sales growth is benefiting our 137 production hubs in several key U.S. cities, including New York, Dallas, Houston, DC metro and LA, which also [had] year-over-year margin growth in the first quarter,” Charlesworth said.
“Our previously announced U.S. shop network optimization program, which focuses on poorer performing hubs without spokes which do not benefit from the DFD expansion, is also well underway, as 29 shops have now already closed or been converted into different shop formats and as a result,” he added.
The company is further enhancing the retail “doughnut experience” by adding new equipment to its drive-thrus, which he said represents roughly 60% of retail sales in the U.S., “as well the introduction of digital kiosks in lobbies of select locations across the U.S.”
Charlesworth noted that “our long-term global points of access goal is 75,000 and includes the opportunity to take DFD to new partners in new sales channels. We now have DFD listings in drug through Walgreens in the U.S., in clubs through Costco in the U.K., Canada and Australia, and in QSR through an expanded test at over 160 McDonald’s restaurants in Kentucky, which kicked off at the end of March.”
The company said that global points of access where fresh doughnuts and cookies can be purchased rose by almost 600 in the quarter to over 12,400 locations globally.
On the international front, Chief Financial Officer Jeremiah Ashukian said: “Market development, which is made up of our franchise businesses around the world and equity-owned Japanese and Canadian markets, saw organic growth accelerate to 36%. Total revenues in the first quarter increased 27% to $47.3 million, even with a 9% impact from foreign exchange headwinds and franchise acquisitions.”
Tattersfield noted that Krispy Kreme added a new franchise partner for the first time in Chile in Q1 and expects to open in three more countries in Q2, including Switzerland, Costa Rica and Jamaica.
“We continue to be on track to open in up to seven new countries this year and expect to sign three to five new development agreements for additional countries to open in 2024, including further locations in Western Europe and South America,” he said.
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