Once Krispy Kreme, Inc. discovered the biggest barrier to purchase for its freshly-baked donuts was access, not price, the company has been working to expand distribution. During a Dec. 15 investor day presentation, the company said it has increased fresh points of distribution from a 2016 baseline of 4,800 locations to a current total of approximately 11,700 locations.
“The big driver of our points of access growth has been the DFD (delivered fresh daily) business,” said Joshua Charlesworth, global president, chief operating officer and chief financial officer, speaking at the company’s investor day. “Right now already, (DFD is) over $165 million in annual sales, largely coming through grocery and convenience store access.”
The company said it is currently distributing DFD to approximately 5,700 doors, with more than 75% of those accounts in the grocery channel.
According to the company’s research, 51% of consumers said they prefer buying freshly-baked donuts through DFD rather than at a Krispy Kreme shop simply because it’s more convenient.
In 2022, the company posted total revenue of $780 million for fresh donuts. Krispy Kreme credited this growth to its omni-channel model, made up of the following four pillars: hot light theater shops, DFD, fresh shops and ecommerce.
Foundational to this omni-channel distribution is its hub-and-spoke model, said Matthew Spanjers, chief growth officer. The hub-and-spoke model depends on donut facilities and theater hubs to produce fresh donuts, which are then delivered daily to fresh shops and DFD doors.
Mr. Spanjers said the company first realized the value of this distribution system in the United Kingdom.
“We acquired the UK market in 2016,” he said. “What we saw in the UK was pretty interesting right away. What we saw was a hub-and-spoke model, right? They were operating from these highly efficient production hubs and delivering donuts out to a network of fresh shops and grocery partners, most notably Tesco.
“It was obvious that this model, this omni-channel hub-and-spoke model that we talk about so much today was what was driving these incredibly high levels of productivity, and we knew this model could be replicated.”
Over the next four years Krispy Kreme wants to add around 2,000 DFD doors to its distribution system, Mr. Spanjers said. He detailed the company’s plans increase revenue per door in grocery outlets by upgrading its DFD merchandising displays.
Using its existing tower/table display as a baseline, Krispy Kreme estimated a revenue increase of 30% per grocery outlet if it were to add a hybrid display cabinet, and 70% increase in annual revenue per door with the upgrade to a loose cabinet combined with a tower display.
Replying to a question from an analyst about the profitability of the DFD model in the United States, Mr. Charlesworth said the company is working to create more efficiencies.
“It’s fair to say that we’ve been in a rapid expansion over the last couple of years, not necessarily optimization and rationalization mode for the DFD doors,” Mr. Charlesworth said. “It’s not so much the door profitability, although that is something we consider and manage, it’s the route profitability that really counts because it’s the routes that have the fixed cost associated with them, the driver, the truck et cetera.”
Michael Tattersfield, president and chief executive officer, said DFD presents a significant opportunity in the United States, as the company has been expanding into channels beyond the grocery and convenience categories.
“We’ve also been testing the drug channel, we’ve been testing the club channel,” Mr. Tattersfield said. “And recently, we started to test the QSR channel. Why is that so relevant? Same DFD process, right?“We’re going to be building 10% to 15% of points of access on a yearly basis from 10 to up to 25 hubs, whether it’s equity or partnership that’s involved in that. And they will then start to build their points of access as well.”