In the U.S. and Canada specifically, points of access increased 75 percent compared to 2020. The markets saw $3.8 million in sales per hub on a trailing 12-month basis, a 14.5 percent lift from last year and 20.3 percent rise from 2019.
CFO Josh Charlesworth used Tampa, Florida, to demonstrate the power of the hub-and-spoke model. Krispy Kreme bought the franchise in August 2019 for $4 million, and at the time, annualized revenues were slightly under $8 million and local market EBITDA was under 10 percent. The market had one hot light theater shop and three fresh shops.
Since then, Krispy Kreme has remodeled legacy stores and added another hot light theater shop and 120 delivered fresh daily doors. Trailing 12-month revenue is now more than $12 million, and EBITDA margin is more than 25 percent.
“We’ve invested just under $4 million of additional capital since the temporary acquisition, but expect to invest minimum levels moving forward, making a rapid payback on our investments overall,” Charlesworth said.
Krispy Kreme views New York City, which it compared to opening a new country, as having some of the best growth potential. Currently, the city has one production hub and 150 points of access, but the doughnut chain believes it could rise to the level of London, which has five hubs and 600 points of access.
Tattersfield said Krispy Kreme is seeing a “massive opportunity start to materialize” with fresh shops and delivered fresh daily doors gaining momentum each month as COVID restrictions lift and vaccination rates increase.
“It took us 10 years to fully build out the London market, which is a highest-margin market,” Tattersfield said. “But we think we can do the same kind of expansion in New York in half the time. The majority of our upfront investing is complete and our profitability will continue to improve as the rest is built out and capital light.”
In domestic markets where the hub-and-spoke model is more mature, margins saw a 300 to 400 basis points benefit in Q3 due to higher price points of fresh doughnuts and efficiency benefits from the local delivery model. Krispy Kreme has a goal to reach a 15 percent adjusted EBITDA margin in the U.S. and Canada in the next three years.
In Q3, adjusted EBITDA margin was 9 percent, down 110 basis points from 2020. The drop is due to multiple reasons; the third quarter is historically Krispy Kreme’s lowest-margin quarter, and the chain is still facing double-digit commodity inflation from wheat, sugar, edible oils, and gasoline, and labor inflation in the high-single digits.
To mitigate costs, the chain implemented a price hike in late September, which mostly occurred in the U.S.
“We’re seeing good acceptance of that with customers in October and that is intended to cover all commodity and wage inflation that we see out there in the market,” Charlesworth said. “We will keep a close eye on the inflation trends. We will and are prepared to take further pricing action, if needed, to make sure we carry that momentum into next year, as well.”
For the full-year, Krispy Kreme projects net revenue of $1.34 billion to $1.38 billion, organic revenue growth of 10-12 percent, adjusted EBITDA of $178 million to $185 million, and adjusted net income of $62 million to $68 million. Its long-term outlook is organic revenue growth of 9-11 percent, and adjusted EBITDA increase of 12-14 percent, and adjusted net income expansion of 18-22 percent.