Krispy Kreme executives in February said Insomnia Cookies, a brand it acquired in 2018, had room for more than 4,000 locations. It just appears that result will be driven by somebody else. The company on Tuesday shared it’s exploring strategic alternatives for the dessert brand, including a potential all-cash sale.
Krispy Kreme noted Insomnia Cookies expects revenues of roughly $230 million this year, but believes the decision enables the company to “unlock shareholder value and focus on its core strategy of producing, selling, and distributing fresh doughnuts daily.”
“We acquired a majority stake in Insomnia Cookies to build our e-commerce and digital capability as well as assist Insomnia’s U.S. and International expansion. Both efforts have been successful and it’s time for the next strategic step for both companies,” said Mike Tattersfield, Krispy Kreme outgoing CEO, in a statement. Tattersfield, who helmed the role since 2017, is scheduled to leave on January 1, with global president and chief operating officer, Josh Charlesworth, stepping in. Tattersfield, a “significant” investor in the company, will remain on the board.
Insomnia presently operates in three countries with more than 250 bakeries. About 45 percent of revenue is generated digitally. Insomnia finished 2022 with 231 shops, an increase from 210 stores at the end of 2021 and 184 after 2020. In Q2, the brand opened 23 stores, putting it at 244 U.S. locations. Insomnia also opened an innovation center in Philadelphia.
When Krispy Kreme took a majority stake in the concept, there were 135 units.
Executives told investors in February Insomnia could eventually ramp up to 100 new openings per year.
Insomnia’s revenue grew 24 percent in Q4 2022, driven by double-digit same-store sales and “very high” productivity from openings, executives said. The chain’s AUV increased to $850,000, an 8 percent rise versus 2021.
“It has been an honor to partner with Krispy Kreme in an unprecedented chapter of growth for Insomnia Cookies,” founder and Insomnia CEO Seth Berkowitz added in a statement. “As we enter our 20th year of delivering warm, delicious cookies, we are now a sizeable multi-channel enterprise but still have a huge runway ahead in the attractive $700 billion indulgence industry [according to Euromonitor], and I look forward to leading our Insomniacs in our next phase of significant domestic and global expansion.”
Berkowitz, a student at the University of Pennsylvania, founded the brand in 2003. The concept was named “Insomnia” because stores stay open until 3 a.m. And they’re typically based near college campuses, catering to a host of young adults pulling all-nighters.
But Tattersfield said earlier Insomnia continued to experience successes beyond college campuses and urban markets and into select suburban locations. The belief, in turn, was the chain boasted a strong enough pipeline to deliver unit growth in the mid-teens percentage each year moving forward.
After debuting opening 20-plus shops in 2022, the goal for Insomnia was to debut 30 to 40 this year. The payback for new stores is roughly a year, or around 100 percent ROIC, because of four-wall margins approaching 30 percent.
Tattersfield also called the recent crop of new openings “one of our best return classes ever.”
While Krispy Kreme holds a majority stake in Insomnia, the exact share is unkown as the deal didn’t disclose terms in 2018.
For Krispy Kreme, sans Insomnia, the brand will turn focus to a “capital light omnichannel model,” as Tattersfield phrases it. The brand has grown to 37 countries and sells fresh doughnuts through nearly 13,000 points of access daily. “Looking ahead, our goal is to expand to more than 75,000 points both by entering three to five new countries each year and developing new channels like quick-service restaurants,” Tattersfield said.
The 75,000 number was unveiled in December and designed around the chain’s decision to move away from growth through retail shops and toward production center hubs that distribute fresh doughnuts every day to spokes, otherwise known as points of access. Those locales include grocery stores, gas stations, carts, food trucks, and smaller retail stores.
The company ended 2022 with 11,837 global points of access, growth of 13.5 percent year-over-year. By the end of Q2 2023, there were 12,872 global access points.
Additionally, Krispy Kreme has tested selling doughnuts at McDonald’s units for over a year now (the quick-service restaurants call-out Tattersfield made). McDonald’s is serving as a Delivered Fresh Daily Door (DFD), or spot where Krispy Kreme sends fresh doughnuts every day. Alongside McDonald’s, Krispy Kreme has experimented with a small format shop inside Amazon Fresh grocery stores in Chicago. It also expanded a relationship with Kroger to more than 1,000 U.S. locations.
As of July 2, there were 10,796 DFD Doors worldwide. Of that, 6,320 are in the U.S. Average sales per location increased 16 percent in Q2 year-over-year to $632 per week.