Just a few short weeks after announcing a rare collaboration with fast-food juggernaut McDonald’s, one of America’s most beloved donut brands is planning on closing another 14 locations next year.
No two words are more synonymous with light, flaky deliciousness quite like Krispy Kreme, and all things considered, the donut chain has had a strong 2022. Krispy Kreme saw its net revenue grow to $377.5 million in Q3 of this year—representing a 10.1% year-over-year increase! All in all, the donut brand has generated $1.52 billion in net revenue this year.
“We had positive organic growth in every country around the world, despite a tough macro environment,” Krispy Kreme president and CEO Mike Tattersfield said on a recent earnings call.
On top of all that, Krispy Kreme recently announced plans to start selling its donuts at select McDonald’s locations in Kentucky and Indiana on a trial basis last month. McDonald’s rarely partners with other food brands or chains, so the collaboration is a definite coo for Krispy Kreme.
Curiously, however, in the midst of all this good news, the donut brand has also quietly announced plans to close more locations. Krispy Kreme had already shuttered eight shops earlier this year, citing those locations’ inability to remain profitable. Now, the donut brand is planning on closing another two underperforming locations, and has already identified an additional 12 stores that will close in the near future.
“All of these shops are low revenue and have flat on negative EBITDA (earnings before interest, taxes, depreciation, and amortization) margins and most are hubs without spokes, which could not be converted to produce for DFD (delivered fresh daily),” Josh Charlesworth, Krispy Kreme’s global president, chief operating, and financial officer, said on the earnings call. “We closed eight shops during the third quarter. We also identified a further 12 shops, which we will close in the coming months. We believe these 20 locations represent the overwhelming majority of potential closures.”
Krispy Kreme’s current business model is all about the “hub-and-spoke” format. Intended to maximize donut freshness, the business model entails operating larger locations complete with donut production facilities called “hubs” that ship out donuts to smaller shops called “spokes.” Most of the Krispy Kreme shops being closed are hubs that did not benefit from nearby spokes.
Still, Krispy Kreme is optimistic for the future, especially its new partnership with McDonald’s. “Obviously, this is a small test to partner with a global company. But we think this represents the type of opportunity that shows why we remain very confident in our long-term goal of achieving more than 50,000 points of access globally,” Tattersfield added.