Noting that its international markets have a “proven model” for what its hub-and-spoke model should look like, Krispy Kreme, Inc. now will look to mirror that success in the United States and Canada, said Michael J. Tattersfield, president and chief executive officer.
“As of the end of the quarter, we had over 5,700 points of access (in the United States and Canada) and saw sales per hub of $3.8 million on a trailing 12-month basis, up 15% from a year ago,” Tattersfield said during a Nov. 9 conference call to discuss third-quarter financial results. “Expansion of this model will enable us to increase our margins and sales per hub to align more closely to those we see in our international segment at a manageable cost, thanks to our capital-efficient model. In hubs that we converted in the last two years, we’re seeing great success. Delivered Fresh Daily, or DFD, is driving incredibly strong performance with over 100% sales growth compared to our third quarter of 2020. When you look at our growth year-over-year, our momentum is accelerating, making opening new points of access easier and allowing us to expand into more profitable initiatives, like utilizing limited-time offers such as our pumpkin spice donuts in our DFD channel.”
As part of the hub-and-spoke model the traditional Krispy Kreme donut locations serve as the “hub” while the points-of-access in which donuts are sold outside of those locations (grocery stores, retailers, c-stores, etc.) serve as the “spokes.”
He said Krispy Kreme has identified many large markets in the United States in which it hopes to expand, with New York City standing out as especially “ripe for growth.” Krispy Kreme opened its Times Square Flagship Shop on Sept. 15, 2020, the company’s first store in New York City since earlier units were closed in 2009. The first-of-its-kind store delivers 24 hours-per-day donuts and more to customers.
“New York City is a fantastic example of a white space opportunity in a densely populated and premium market,” Tattersfield said. “This market specifically is the epitome of what we’re trying to do as we build our hub-and-spoke transformation in the US and Canada and is an excellent example of omnichannel execution. We actually view this market similar to opening an entirely new country. We see that much potential.
“We see this opportunity as being very similar to our London market where we have 5 hubs and roughly 600 spokes. We currently operate New York City with 1 hub and 150 spokes and see a massive opportunity starting to materialize as fresh shops and DFD doors are gaining traction month by month across all the boroughs as people continue to return to the city as restrictions are lifted and vaccination rates increase. It took us 10 years to fully build out the London market, which is our highest-margin market, 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 capital light.”
Tattersfield said Krispy Kreme envisions similar growth opportunities for Canada. In October, Krispy Kreme took majority control of its franchisee operations in Canada and over the past month has begun the integration of those former franchise locations into its systems.
“This means we now control 75% of our operations across our global network,” he said. “We are also planning to build out our physical presence in Canada, and you will start seeing spoke development next year with a greater number of hubs in place by 2023. To give you some greater perspective, we currently have just 10 points of access, including 4 hubs, throughout the Ontario and Quebec markets and plan to target 700 and 800 points of access throughout the provinces over the next five years with the expectation that this will mirror a market of similar size like Australia and New Zealand that currently have margins comparable to our international business.”
Krispy Kreme sustained a loss of $5.66 million in the third quarter ended Oct. 3, which compared with a loss of $14.85 million in the same period a year ago. Adjusted net income, meanwhile, totaled $12.62 million, up 7% from $11.78 million in the same period a year ago. Adjusted EBITDA increased 9% to $41.42 million from $37.79 million.
Net revenues totaled $342.8 million in the third quarter, up 18% from $290.23 million in the same quarter a year ago.