Krispy Kreme Charges Toward 50,000 Points of Access

    The company's transformation is fueling rapid growth.

    Fast Food | February 23, 2022 | Ben Coley
    Krispy Kreme Valentine's Day collection.
    Krispy Kreme
    Krispy Kreme earned $134 million in e-commerce revenue in 2021, growth of 15 percent compared to 2020.

    In 2021, Krispy Kreme generated results at or above the top-end of expectations, only further validating the chain’s operational reformation.

    For the year, net revenue grew 23.4 percent to $1.38 billion, while organic revenue lifted 12.5 percent to $1.24 billion. In the fourth quarter, adjusted EBITDA increased 14.4 percent to $47.7 million, fueled by a 290-basis-point improvement in U.S. and Canada margins.

    Those results were driven by the chain’s hub-and-spoke model, in which production facilities (hubs) deliver fresh doughnuts daily to numerous points of access (spokes), including retail shops, convenience stores, food carts, and more.

    Previously, Krispy Kreme leveraged a wholesale business that distributed older, discounted products. Since doughnuts are now fresher, the chain has more room to price, meaning higher profit. U.S. cities that have fully implemented the change from the legacy wholesale business are seeing 300–400 basis points of benefit to margins.

    “Our customers have told us that the most important attribute for a sweet treat purchase is freshness; in fact, it's twice as important to our customers versus just the price,” CEO Mike Tattersfield said during the chain’s Q4 and 2021 earnings call. “Krispy Kreme today utilizing its proven hub-and-spoke model is able to deliver freshness with significant scale daily across the globe.”

    Krispy Kreme finished 2021 with 10,427 points of access around the world, a 25 percent increase year-over-year. The company expects to reach 50,000 in the coming years through at least 10 percent annual growth. That includes another 10,000 in the U.S. and 30,000 between international markets and the market development segment (stores in Japan and the franchise business).

    READ MOREKrispy Kreme Aims for Top Status in Sweets Segment

    The growth will come primarily through delivered fresh daily doors (i.e. grocery, convenience stores) that cost only $2,000–$10,000 per outlet and allow the company to drive economies of scale from its 411 production hubs globally.

    Currently, Krispy Kreme operates in more than 30 countries, and going forward, it plans to debut in at least three new countries each year. In 2022, hubs will open in Switzerland and Chile, and more entries will be announced in the coming months.

    “Overall, we see a great deal of runway for international growth and are working to expand efficiently, particularly in neighboring markets where we can both leverage existing core equity markets and franchise partnerships,” Tattersfield said. “This balanced approach will ensure quality is not compromised while opening up access to more consumers.”

    The expansion will be supported by a budding digital business. Last year, 17 percent of retail sales came from e-commerce, an increase from less than 10 percent prior to the pandemic. The long-term goal is to achieve more than a 25 percent mix. Krispy Kreme earned $134 million in e-commerce revenue in 2021, growth of 15 percent compared to 2020.

    In the fourth quarter, Krispy Kreme’s “Day of Dozen” special on December 12 resulted in a 50 percent increase in sales that day compared to 2020, thanks to promotional activity on its e-commerce channel.

    “We benefit from the fact that the majority of our e-commerce business comes from directly through our own channels, and we continue to strengthen our capabilities,” Tattersfield said.

    Krispy Kreme

    Krispy Kreme’s 'Day of Dozen' special on December 12 resulted in a 50 percent increase in sales because of e-commerce promotion. 

    The increase in points of access, combined with e-commerce growth, will fuel sales per hub and profitability, according to the CEO. U.S. and Canada earned $4 million per hub in 2021, an increase of 14.3 percent, while international outlets hauled in $9.1 million per hub, or growth of 42.2 percent year-over-year.

    To widen its delivery coverage and further leverage its e-commerce platform, Krispy Kreme is investing in "dark shops." Unlike a ghost kitchen, nothing is produced inside the outlet; fresh doughnuts are sent to the location, and then picked up by third-party delivery drivers. After opening more than 50 dark shops in the U.K., the company is looking to ramp up growth in the U.S. and Mexico.

    “It's a low-cost investment, but it gives you a fresh doughnut drop that can then get to that customer in there and it gives you a delivery radius where people will want to use the e-commerce channel,” Tattersfield said. "… You've got to deliver fresh, right? That's what the customer has their expectation. And this is what this hub-and-spoke system can do, even including the dark shop in that portfolio.”

    Meanwhile, doughnut LTOs—such as the chain’s Halloween and winter holiday assortments—are driving engagement and premiumization. The innovation gives Krispy Kreme strong pricing power, sometimes up to 50 percent more per item than the original glazed doughnut.

    READ MORE: Krispy Kreme Takes a Fresh Approach to Growth

    In 2021, 30 percent of purchases were to celebrate special occasion and events.

    “In general, our teams rally around seasonal events, which is when branded sweet treats really matter, such as Valentine's Day, which happens to be one of the top events for Krispy Kreme across the globe,” Tattersfield said. “Chinese New Year would be another example of a growing, gifting celebratory event. The product, the packaging, the emotional storyline connection, really matter for our customer.”

    Efficiency of the hub-and-spoke model and price increases in September and November more than offset labor and commodity inflation, CFO Josh Charlesworth said. For the full year, adjusted EBITDA increased 29.2 percent to $187.9 million, with margins increasing 60 basis points to 13.6 percent. The chain expects 15 percent company-wide margins in 2023.

    Krispy Kreme ended the year with double-digit price increases in the U.S., and high single-digit hikes across the world on average. The chain saw wage inflation accelerate throughout 2021, but it has since stabilized; the brand is projecting high single digits for 2022.

    As for commodities, the chain has a good line of sight because sugar is locked in for the year and oil and gasoline are covered through 2023.

    “That means we have a lot of confidence in our ability to deliver on the margin increase that we've been talking about already,” Charlesworth said.

    Krispy Kreme’s digital-first cookie company, Insomnia Cookies, is experiencing notable growth, as well. The chain ended 2021 with 210 stores, or net growth of 26 locations.

    Revenue grew by more than 30 percent, and by nearly 20 percent if excluding new store revenue. Insomnia is looking to reach more than 600 locations in the U.S., with plans to also expand internationally. In the fourth quarter, the brand reached—for the first time—adjusted EBITDA margins on par with the U.S. doughnut business.