As per Krispy Kreme, its donuts would be available across McDonald’s U.S. restaurants by the end of 2026 as the companies expand a pilot project. Krispy Kreme shares soared 39% on Tuesday. Krispy Kreme shares earlier were on track for its best day ever. Krispy Kreme and McDonald were testing the program in 160 McDonald’s restaurants in the Lexington and Louisville, Kentucky areas as part of the partnership that began in October 2022.
Exclusive fast-food partner
As per the Krispy Kreme and McDonald deal the rollout will start in the second half of this year. But it will take roughly two and a half years as Krispy Kreme more than doubles its distribution to satisfy the partnership. For the duration of the agreement, McDonald’s will be the exclusive fast-food partner for Krispy Kreme in the U.S.
Krispy Kreme said it would not supply its donuts to any other quick service restaurant in the U.S. through Dec. 31, 2026, as part of the agreement.
The doughnut chain uses a “hub and spoke” model that lets it make and distribute its treats efficiently. Production hubs, which are either stores or doughnut factories, send off freshly made doughnuts every day to retail locations such as grocery stores and gas stations. The company has been aiming to open its outlets in at least 75,000 points of access.
Major opportunity for Krispy Kreme
The partnership with McDonald’s is a major opportunity for Krispy Kreme to expand its reach. It delivers its doughnuts to 6,800 third-party stores, as of December 31. McDonald’s has about 14,000 stores in the U.S., and said in December that it planned to open about 10,000 restaurants globally by 2027.
“We think we can service about 6,000 restaurants with our existing infrastructure, mostly doughnut shops, which have excess capacity,” said Krispy Kreme CEO Josh Charlesworth.
Krispy Kreme said in February that it ended 2023 with 2,300 more points of access than 2022.
The company’s shares were at an eight-month high, and were headed for their highest percentage rise ever, at current levels.
Krispy Kreme expansion
Krispy Kreme has also been expanding its capacity so it can deliver fresh doughnuts to the roughly 7,500 McDonald’s restaurants that it can’t currently reach.
While McDonald’s is the primary reason the company is expanding its distribution so quickly, Charlesworth said Krispy Kreme will also be using the opportunity to land in grocery and convenience stores that prefer national suppliers.
Additionally, Krispy Kreme’s doughnut shops typically make more of the sweet treat than the chain can sell. The extra demand from McDonald’s and other new customers means its production lines can churn out higher volume with few additional costs.
Krispy Kreme boycott
The company has struggled with weak overseas demand at its restaurants as a result of boycott campaigns against the burger giant in some international markets related to the Israel-Hamas conflict, as well as tough macro economic conditions in China.
Stock of both companies
Shares of Krispy Kreme have fallen 20% over the past year, dragging its market value down to $2.11 billion. As hype over weight loss drugs such as Novo Nordisk’s Ozempic has soared, investors have worried about whether the treatments will cut into Krispy Kreme’s future sales.
Similar concerns have weighed on McDonald’s, although its stock has risen 2% in the past year as consumers trade down to its cheap food and drinks. The company has a market value of $201 billion.
