Yeah, here we go. All right. Good. Well, good afternoon. Thank you, everybody, for joining us. I'm Sara Senatore, BofA's restaurants analyst. I am very pleased to have up on the dais here with me, Mike Tattersfield, President and CEO, and Joey Pruitt, Global Head of FP&A and CAO from Krispy Kreme. Thank you so much for joining us today.
Our pleasure.
I thought, you know, we'd start with just a brief kind of, you know, foundational questions. I mean, you can talk about kind of where you've come from, in the last couple of years, where you're going, and, you know, we can touch a little bit on some recent news about BTS, you know, and how that's part of your transformation.
Yeah. I mean, I've been privileged to be the CEO working on my seventh year, right? Helped to take it private as a partner with JAB and jumped in. What the vision was to how do you transform the business from what was a franchising model trying to go around the world just selling doughnut franchises to rebuild a doughnut company, and just really focus on executing fresh doughnuts to where customers are. If you roll that today, right where we stand now, we do 400 producing doughnut shops around the world. 300 of those are in the U.S., 100 are outside. We're in 31 countries, and 12,000 locations get fresh doughnut delivery every single day. That's a pretty unique business model in its own right there.
It's a pretty clear path for how we wanna grow, 'cause our business works everywhere. The brand is incredibly well-known, and we have a point of access where we're taking points of access, can be grocers, can be convenience shops, as you've learned. There's also a QSR.
Mm-hmm.
A channel that we're looking at.
There's a little bit of that, yeah.
You know, whether you get in the drug business or the club business, right, as well. When we started this journey in the IPO, you know, which is about 18 months ago, we had a lens because we had just launched the DFD business in the U.S. of 20,000 points of access. As we showed in our investor presentation in December, we're gonna be at pretty close to 20,000 points of access by the end of December 2026. Why we talked about 50,000 points of access about a year ago, because we could see that we could actually deliver on that number. I always had a vision, if you're a donut company, which you're more interested is how do you get the donuts to where the customers are, whether, you know, everybody's always the rage is e-commerce.
I go, "Well, we built a pretty good logistics system", where we can deliver fresh daily to these points of access. Some of it, we can do the demand planning for the customer, and some of it, they'll do themselves, right? They have their own demand planning. They have their own logistics system. That's the way we're thinking on how we'll continue to build our business model. We'll grow points of access 10%-15% a year. We'll build 10 equity hubs in the U.S. on a yearly basis, five in our international equity business, and then 10-15 from our partnerships around the world. That build out of hubs in its own right gets you that 10-15 points of access. That doesn't include all the efficiencies that you start to get from maximizing the current channels
Mm.
-that you have. It's always important that you look towards where the customer's going. That's the big difference now, when you really think about a doughnut company, from a franchising business to something that's we're really about doing fresh doughnuts. We do dozens. We love that business model. 37% of our doughnuts are gifted.
Mm-hmm.
Everybody gets into a frequency discussion, we're about two to three times a year. We compete against the flower business. We compete against the gifting occasion. It's not just a food based business. It's a really, really solid model that's shown itself and resilient during some pretty challenging times, whether you talk, you know, COVID couple years ago or inflation happening last year or even what's ever happening today.
Right.
Right? Everybody's saying: How does that impact the customers? I go, "They're a low frequency purchase, and we're still an affordable, sweet treat." That's what we try to be. It's about, in the U.S., it's a little over $1 a donut per dozen.
Right. Right.
That is in essence. It's a big change, right? Doing that, the growth will continue to be in all three segments. You know, the U.S., the international equity businesses that we own, a lot of growth will come from that partner business, right? Which is really attracting new partners. We'll probably open, attract three to five new countries that sign up on a yearly basis, and this year we'll open up seven countries.
Right. Even ahead of that. All right, just, yeah, touch on-
I gave you a lot.
Yeah, no, that's great. There's a lot to work with there. I do want you to touch on BTS just again very briefly.
Yeah.
-and, uh-
That's our branded sweet treat.
Right.
The BST.
Oh, BST, sorry.
It's all right.
Sounds like I, it sounds like a boy band from K-pop. BST. Thank you.
We'll go there. You know, in 2020, when we were, again, this is even before we IPO, and we're trying to figure out what are points of access and where we're going. You can imagine we were trying to figure out, how are you gonna grow? Right? Could you figure out a product that, you know, could compete on the grocery shelf, but it's, you know, frozen and thawed and could exist and compete in the space. We thought that, you know, Krispy Kreme's a super strong brand. It should.
Right.
We developed a frozen product, and we always knew it was small and said, "Go ahead and test it." You know, we saw some really good consumer reaction to it. You know, we kept it going, and then we realized that you actually have to go to the ambient model, just to work within the supply chains.
Right.
What was happening is we could see that the growth that we're having, just from what I had talked to you about from the points of access growth, and we haven't even talked about Insomnia.
Right.
You know, which is a super high growth cookie business. You know, we got growth across continents, countries, in the fresh business in a massive way. We have Insomnia growing and, you know, we were gonna get into this transformation. Let's see how much time and energy we wanna work with a very small part of our business, and we said, "Let's exit right now."
Right.
It's not the right time to do it. It will not impact our this year's revenue or guidance or even our earnings guidance as we've laid out. It won't affect our long-term revenue or earnings guidance as well. It keeps us really focused on what we do exceptionally well, right? Sometimes decisions at the CEO level is what you don't do.
Right.
Right?
Right.
That's a choice we made.
Yeah. Yeah.
It still, it still took some amazing learnings. We got a lot of partners that would like to do it, but that's, you know, we got a lot on our plate right now, so we'll figure that out.
Got a lot of partners everywhere who would like to carry your products.
They do.
You know, that, you know, we talk about that, you know, access is sort of one of the biggest reason, you know, that consumers don't and that they would like more of. I do wanna talk a bit about that demand. You know, you touched on it, in sort of, you know, all kinds of macroeconomic environments. You know, can you sort of dig into that a little bit, when we think about, you know, price elasticity or sensitivity, you know, what your use at two to three times, what that means in terms of how your consumer, whether in the U.S. or internationally, and I think they're different, thinks about, you know, Krispy Kreme donuts as a sort of a treat?
You know, it's I think for the most part, you know, kind of impulse buy. Maybe tell us a little bit about how consumers think about purchasing.
Yeah. I mean, it's really interesting since we really got into focusing on the dozens business and the gifting business and just focusing on donuts, what we do every day, not about the coffee and all the other sidebars, which are interesting, but add-ons.
Mm-hmm.
Just that side of the business is less, you know, coffee's about 3%-4%.
Right.
Right? It's focused on doing doughnuts, doing exceptionally well. What we've been able to see is during even all these challenges of, whether you call it COVID, whether you call it, super price inflation happening in the marketplace, our customers just shown the resilience. We haven't seen the impact because of a two to three times frequency, and them not having access to us, the ability to getting access to us and then sharing. Our model's based on selling you dozens, not selling you singles. In fact, we can attract you to come to the shop by discounting a single so that you can come into the business. You can get a free doughnut if you showed whether a vaccine card or whatever other interesting promotions the team ran, and they would buy the dozen.
Mm-hmm.
Right? We haven't seen demand challenged that way, and that's not just the U.S. piece. That's that we've seen pretty much in almost all of our countries. The ability to get the donuts out to where they are, whether in e-commerce, you know, which is another way of how's the customer reacting, 'cause you're gonna get into, you know, delivery charges, right? We didn't do delivery until February 29, 2020. We had basically e-commerce at zero.
Mm-hmm.
We're getting close to 20% now. Our best businesses in the world are doing a little bit north of 30%, in the Middle East, for example, right. Where there's a very much a habitual behavior of using e-commerce. We don't see that. We see our e-commerce business continue to grow, right. You can look at it and does it have an impact when you're pricing from what was a non-fresh model, which was when the business was in wholesale before selling five-day-old yeast donuts, which was not a good idea. We stopped that.
Yeah.
We ended up basically doubling the price to go fresh, which is what the DFD does. We didn't see the impact there. You don't see it in e-commerce. It comes true, again, you do have pricing power, but you don't have, you know, just 'cause you have it doesn't mean you always wanna throw it all the way out. In fact, you just wanna be very disciplined about it. I use the appropriate pricing that you should do with as well as the premiumization of the category. Krispy Kreme does tend to lead a lot of the category from really interesting products with partners.
Right.
Products with our own way of doing hand-cut donuts and that, where we can sometimes charge 100% more than what we do on our regular line per donut.
Right.
The consumers are looking for that, right? And the partners want to have the donut companies willing to do that. All I ever ask for is I want real authenticity.
Right.
You know, I wanna see that, you know, the TWIX is in the middle of the doughnut when you break the doughnut, like breaking the TWIX bar, right?
Right.
I want to see if you could do something with the M&M's, that it feels like you're biting into the outer shell and you can taste, you know, the element of an M&M's, if that's what it is, but it's a Krispy Kreme donut, right? You know, you get that experiential part of innovation. It changes a little bit about how you think about the consumer, right? They, they're pretty demanding on what they want or expect from us. I always think if they're gonna spend the $12 or $15 for a dozen, we'll make sure it's worth it.
Right. Right. I wanna come back to that because I know from personal experience how compelling the innovation is. I thought I would just touch briefly because, you know, you talked about the demand and one market where it was, you know, you saw more, let's call it volatility, was the U.K. The reason I'm mentioning this has more to do with, as a segue to how people buy donuts. I think the issue was just retail traffic on the whole, and traffic to groceries were coming down. Maybe you can help use that to inform how people make their purchases.
It's really interesting. The business of this, you know, fresh doughnut and the deliveries, you know, the hub-and-spoke system we talked about, I mean, it was started in the U.S. 85 years ago, right? That's what Vernon Rudolph did, right, going to the pharmacies. The U.K. perfected it over the last 20 years, right? Being, they run 14 hubs, and they serve over 1,400 spokes in the U.K., somewhere in that range. You know, there was a big challenge that happened to the U.K. economy, right? You had a just tremendous challenge on the grocer trade, and people were really using the baskets or opportunities, and Tesco was losing a lot of market share to other grocers.
The challenge that I pre-gave to the team is more of, listen, you are still an amazingly loved brand. By the way, your retail shop businesses are doing very well on their own. The U.K. had actually implemented what they call this HFSS rule, which is the government imposed on the largest grocery retails, where you could sell sweet or salty treats, and percent closeness to the door, to the counters, or to the check-in system. You never, you know, fighting with governments is really not the best use of your time.
Right.
What you end up doing is saying, "You have a great business. See how it adjusts, because the customer's gonna find you."
Mm.
They do, right? They end up going, "Well, where is what I wanna buy, not what you're asking me to buy?" Then the opportunity becomes, how do you get secondary placement? The whole unlocking is, you know, rules will always change, whether whatever's going on or whatever's happening macro, it's just like, how are you gonna operate now?
Mm-hmm.
That's what we try to teach, you know, all of the businesses around Krispy Kreme. You actually have the ability to just don't sit back. Actually be a lot more proactive because your brand is exceptionally loved. You can see it still. If we didn't see that behavior in our retail doughnut shops.
Right.
I'd probably have a different view.
Right. The retail doughnuts are sort of control group. You can see it there.
They are. You see it, and, you know, they understand what innovation is, and they've been great at getting the same doughnut in the doughnut shop...
Right.
to the, you know, to the trade. They just haven't been always focused on all the other trade.
Right. Right.
You end up kind of saying there are more channels than Tesco and Sainsbury's.
Okay.
Right? You know, you need to look beyond this type of business. I spent some time with them in the market, when I thought the Brits would be out right before holiday.
Right.
Right? They were out in full force, right? You can just say, "Listen, the opportunity is different."
Right. Actually I'm glad you mentioned that, you know, different channels, and, you know, sort of the hub-and-spoke model. One of the things I think you said was, you know, 300 producing, you know, facilities here, shops here versus 100 in all of the international markets. I think earlier we talked about that sort of the legacy of the U.S. Does that preclude productivity per hub in the U.S. from getting to where it is in international markets? Is there, you know, by virtue of having this big footprint, does that mean they just simply won't ever get to that, you know, $8 million or whatever it is per hub?
Why don't I bring my partner in here? I don't wanna keep him here all by himself, right?
We have the hard questions.
I'll give that one to you, but I want him to engage.
Sure. Yeah. I mean, you know, certainly let's back up and talk a little bit about the U.S. market and how it's laid out differently than the international market. You know, to your point, 300 producing hubs in the U.S. market and 100 internationally. Clearly, it was built differently.
Mm-hmm.
Internationally, we have a significant number of fresh shops. In the U.S., there's only about 100 fresh shops. You're looking at a completely different way of operating in the market. The Hot Light matters much more in the U.S. market as well. One of the things that we've undergone recently is, you know, looking at where we have hubs with spokes and hubs without spokes, and really analyzing how we can transition and utilize all this excess capacity that we have in the U.S. market to generate additional spokes. We recognize we're a hub-and-spoke business, and we get this massive efficiency from building the spokes, adding the spokes to the hubs. There are certain hubs without spokes that are just gonna remain hubs without spokes.
We've closed, we talked about closing a little more than 20, because they were the more underperforming hubs without spokes. The ones that we've kept on hubs without spokes were either transitioning to hubs with spokes, or we are willing to keep them because they are so high performing in and of themselves. They're either in a local market where they're just a pillar of the community and ultimately still providing substantial margin returns, or they're in a location where we have, you know, multiple hubs, and we only need so many hubs to have spokes. Yet, again, still performing, still providing enough margins. To your question, the U.S. market will never be exactly the same as the international market. The international market was built with the hub-and-spoke model in mind.
Ultimately, you know, every hub was established to have, you know, 50 to 75 to 100 spokes. In the U.S. market, some will not have that. Some will be, you know, a little lower margin, and will not have those spokes. As we're adding the spokes, we do expect, obviously, the margins to expand, the efficiencies to get greater, and for us to move much closer to those international margins. To think that we will get to be exactly the same, I think is probably, you know, at least unlikely in our mind at this time, but it is something that could happen, you know, in the long term as we, you know, continue to evolve as a company.
I think, you know, when we started talking about different channels. One of the ways that you start addressing those problems by looking at the channels. When you start thinking about a QSR partner or a club partner, that probably fits the American market a lot more to a T, whether it's how it's developed and what's there, you can look at that as an opportunity is how do you start maximizing those routes that you lay out? You can lay out a partner that if they're using the same DFD system that you have, and it just makes your route economics just more profitable and more efficient, you actually get to stretch into routes where you wouldn't actually have reached one of your grocer partners before because it was inefficient. You know, I might have only had three spokes on the route.
I'm not gonna do the route.
Right.
Right. We're not doing small routes. Routes have to be efficient from day one. We have enough grocer partners, convenience partners to know what routes can be built up. If you add the right partnerships to it without changing what you do in your DFD logistics, then you're gonna be very efficient, which could enable you to get closer to margins because that QSR model is much more linked in the American market than it is to the international markets, right? They don't have the density.
Right.
They might have a density maybe in a city, right, but the density in America is 14,000 McDonald's.
Right. Right.
Right. That's a whole different way to look at the business, right? You end up saying interesting partners, but let's start with 160 in Lexington and Louisville.
Right. Right. You have more hubs, but you could ultimately also have more access points just-.
Right.
and spokes, if you will, so that, you know, in this market, so that, you know, as I said, as time goes on, you get closer. I do wanna ask about that channel, of course, and maybe.
It's got a lot of attention.
You could say, yeah. We've gotten a couple of questions on it ourselves. We'll start with a broader discussion, which is, you know, you have shops, and then you have the DFD. How, I guess, do we think about the incremental margins on each? Part of that question has to be cannibalization. I think ultimately what it comes down to is, you know, my clients wanna know, you know, if I open another DFD door, if you open another DFD door, how many of those doughnuts, if any, would have been sold through one of your, you know, hubs, one of your own shops? To the extent that there's a sales transfer, what does the margin profile look like?
The margin profile on the incremental doughnut through a, you know, a shop will be, you know, theater shop will be almost infinite, right? Like, there's not a whole lot of incremental costs associated with it. That's, I guess, you know, sort of a lot of detail to try to get at this, you know, what's the highest margin doughnut you can sell.
Yeah. I'd answer it in a couple of ways, right? First off, when we were just doing the 20,000, you know, when we had the points of access, right? That was really grocers and convenience. In the TAM of 300,000 + doors, right, you're not even getting close to 10% access. Right? Your cannibalization, that opportunity isn't being met, right?
Mm-hmm.
The biggest challenge has always been is I can't get to you. Please get to me.
Right.
I'm not willing to spend, you know... Imagine when gas prices are up at $5, $6. You're asking someone to then go 25 miles-
Right.
to a Krispy Kreme, everybody's saying, "Aren't you gonna build a new one next to me?" I'm like, "No. We're actually gonna get the doughnuts closer to you." Right? you know, it makes the experience of doughnut shop, really, it's a family treat.
Right.
It's something you want the hot experience, you wanna do that, but it's infrequent for you.
Right.
You have to look at the business that way. As we think about adding even the restaurants and that, all you're doing is the occasions are different.
Mm-hmm.
Right? When people are buying in the grocer business, we really sell it just in dozens, right? Again, 37% of our doughnuts are gifted, 80% are shared. They're bought for something to do. That access became very interesting to them.
Mm-hmm.
The convenience store business tends to be a much more about the individual, right? 'Cause they can grab the individual doughnut. There's a display. It's a small display, but they can do that. When we tested with the QSR, they had very clear points of view of how it was, how it's gonna work.
Mm-hmm.
We said, "You need to understand how Krispy Kreme works 'cause people like to share our donuts. If you put them in your shop, they're gonna ask for a sharing size." We gave them a six-pack, and they learned very quickly that that six-pack was very very...
Popular.
popular. Because you went to take the drive-thru, you now brought donuts for somebody else.
Right.
Right? The same behaviors happened. Was that going to happen where they were gonna drive by...
Right.
10 McDonald's to eventually get to the Krispy Kreme? I don't. You know, depending on the occasion.
Right.
Right? You have to think about how we look at channels by occasion, even pack size. It's different. It's not the same, you know. If everybody thinks that every opportunity of purchasing doughnuts is the same-
Right.
We can tell you from our experience in our shop, right, it's 2 to 3 x.
Yeah.
It's gifting, it's celebrations, it's gatherings. Our brand does every day. When you look at the other channels, you can complement that, you get into different need states.
Right.
Right? The need states are different.
First point is there's just not a lot of cannibalization. To your point, I might not drive 25 miles. That might be an efficient route for you to get the doughnuts from the shop to an access point, but it's not gonna be something that I'm gonna do on a regular basis. The cannibalization certainly with only, I think, what, 400 you know, shops is pretty minimal, presumably.
In international, it's you have 100.
Right. Right.
Around 27 countries, right?
Yes. Right.
Yeah. One quick add for you. I mean, the cannibalization for DFD, we've done studies on it, and it's less than 10%, you know, compared to our retail shops. It's really not, you know, cannibalizing the sales of our retail shop. That's DFD.
Right.
QSR-
You wanna do the Walmart A, then Walmart B, right?
QSR we don't know as much about yet, but yeah.
Right. Okay. Right.
It definitely supports what Mike was saying.
Yeah. All right. You know, that to some extent, if it's almost wholly incremental, it almost doesn't matter what the margin is. I'll ask the question anyway. You know, as we think through, you know, a sale, incremental margin in a shop versus at a DFD, you know, where you're paying, you know, you're revenue sharing with the, your, you know, with your DFD partner, what does that look like?
Me or you? I'll do it.
All right.
Again, we always look at the business as one.
Right.
Right? Our donut manager, our donut product manager, they have no idea where that donut's going. The labor in there is set up every day. They go, "Here's the donuts you need to make today for the demand planning. Let's see where it goes." When you start to make that decision, you're already taking decisions on how cost accounting labor-
Right.
is going to happen.
Yeah.
We're like, "We're not doing that." Here's how we need to think through it, right? You can look at the flow through of the DFD, right?
Mm-hmm.
You know, as a very incremental piece to the business.
Right.
Not necessarily what's the profitability of each sub business. We always will look at it as a doughnut company. How much volume did we do this period?
Right.
How much volume did we do this period last year?
Right.
What's our margins of this period? You know, it's as much a CPG experiential company, which has a pretty unique approach to what we do every day.
Right. Right. Again, to the extent that it's not either/or. You're not, you know,
Nope
selling a doughnut through your shop or through a partner. It's both.
It is.
Yeah.
When you start to cut it, you're getting into pieces. It doesn't make sense.
Right. Right.
One way we can talk about it, Sara, is, you know, when we established it, we had a hub with no spokes.
Right.
We haven't added the spokes yet. We're generally looking at, like, mid-teens, you know, margins for that standalone location, that hub. As we add spokes, we're usually looking at 25%-40% incremental margins, you know, at the spoke level. Ultimately, you know, that's how you end up driving the margins up for the hubs with spokes and getting to one that is much more like what we've talked about with the international margins.
Right.
So.
Right. Okay. The numbers that you're sharing are, you know, sort of as a restaurants analyst, kind of how I think through, right?
Yeah.
Average margins in the high teens, incremental or flow through margins in that 30%, 40%.
Yep.
Okay. All right. That's helpful. Wanted to ask, since we're on the topic of margins, and the question about pricing or the comment about pricing came up. You know, you have pricing power, but you need to be disciplined. I guess how should we all think about the cost inflation in 2023 versus what we saw in 2022, which was, I know, an unprecedented year, and hopefully not to be repeated, in terms of whether it's commodities or labor. Just kind of remind us where your expectations are and whether or not that, you know, also assumes any kind of pricing actions.
Yeah. I can take that one. For 2023, we're locked in for, you know, about 50% or so of our commodities. We lock in, you know, the top three or four commodities, usually in, you know, in the range of, you know, six months to a year out. We're locked in for almost all of 2023 on those. It's around a low double-digit inflation for commodities, much lower than we saw in 2022, as you mentioned. On the labor side, we're kinda high single-digit inflation expectations around the world.
At the end of the day, when you look at pricing, you know, versus that, we're in the low double digits, you know, on average in terms of the pricing that we've taken, particularly if you think about the U.S. and the U.K. markets that have been most impacted. Ultimately expect, you know, that flow-through is and the inflation that we're gonna have in 2023 is more than covered by the pricing.
Okay.
Yeah.
When you talk about low double digits, you're saying if we don't see you do anything further over the course of the year, you'll average run rate will be about this.
Yeah. I mean, if you think about the phasing on the commodities, it's a little heavier front half in terms of.
Right
... you know, the higher costs in the front half. It'll be a little more level in the back half of the year, from a phasing standpoint, but.
Your year-over-year pricing will follow a similar cadence? Is that?
Year-over-year pricing, I mean, you know, we believe we'll be able to maintain, you know, somewhere in that, you know, that level, low double digits most of the year.
Okay. more level loaded.
Yeah.
Is the right way to think about margins then that the back half looks better or different, you know, than the, than the first half?
Yeah, back half does look a little bit better.
Yeah.
Yeah.
Part of that would just be deciding on what Joey said. You know, I call it the community giving or discounting.
Mm-hmm.
You know, that the brand tends to do, which is core to its kind of DNA, right? Whether you do it through fundraising, whether you do it through events. You know, there's a lot of really interesting things the brand tried last year and really stepped in on a couple discounting things when they didn't know what was really gonna happen. Some of them were probably too rich in one aspect or another, but they really build a lot of brand love.
Mm-hmm.
When you dial that back without seeing the negative impact because you actually did that.
Right.
Right? Instead of, you know, what I'm talking about, for example, is the Beat the Pump.
Right.
Right, where you're giving the price of a dozen doughnuts to a gallon of gas and then ran that instead of just for the month of April when it launched, saying, "Well, why don't we run it from Memorial Day to Labor Day?" I'm like, "We didn't need to do that." We learned a lot.
Right.
We learned the discipline of actually it's the second dozen that you have to sell, you know, that really makes sense. It's the individual doughnut that you can give away to get the full purchase and then be really disciplined about how you want the brand, because it still has to serve.
Right.
Right? When it serves, it serves all customers, you know, across all economic needs and bases, right? All demographics, right? People wanna interact with the brand. It is one of those kind of loved community brands. You can't lose that aspect. That's why that pricing discipline, that margin discipline has to continue to do that. I think those are things that you'll see an opportunity as we talked about margin improvement in the back end of the year.
Right. What does that say, you know, to your point, you know, you had the Beat the Pump. It was really successful in driving incremental sales, the first month, and then, you know, you saw a little less of it. When you pulled it back, you didn't see any sort of degradation. To your point, presumably you didn't see degradation 'cause you brought in customers, they have this affinity that they developed because you did this, you know, sort of very timely, you know, sensitive, if you will, to the environment, like the economic environment. I guess what were the lessons from that in terms of not just like from a financial standpoint, but from like talking to customers, getting them to return?
You know, what works in terms of, you know, increasing frequency or increasing awareness or any kind of lessons on the, you know, how you talk directly to customers?
Yeah. I think some of the really interesting things, you know, the brand had a history sometimes discounting for discounting's sake.
Mm-hmm.
Right? And we've really moved away from that aspect, right? Just make sure whatever you do is worth it. Really stepped up innovation in a big way so that they can see, you know, when we're gonna do events around Halloween, you know, that you really have the assortment that really matches and that people aspire to wanna be able to. The affordability is there, and I want those, not just the Original Glazed. You have to provide that alternative a lot more, right? If you've seen how we started the year with the, a Biscoff Lotus, you know, cookie. You know, you follow that with a Hershey's Valentine promotion. Then, you know, starting tomorrow, there'll be green glazed doughnuts, you know, for Thursday and Friday, right, with a whole St. Patrick's assortment.
You can't lose that experiential touch point, and people are looking, what are they going to do?
Mm-hmm.
You need to understand that part as a merchant and do that exceptionally well. You have to give back in pretty interesting ways, but be thoughtful what that give back is, right? You know, when you saw from Beat the Pump one way, but when we did the vaccine promotion, right, where they could come in for a whole half of a year, but they were walking in or driving 25 miles to get one doughnut, they're not gonna do that.
Right.
They appreciate that you're actually giving them something.
Yeah.
That then they'll buy the doughnuts, right? It's that mindset that you wanna build that community sense in all of our markets, not just the U.S. market.
Right. Right.
When you can then bring in today's world, which is e-commerce and the technology and the delivery and all of those aspects to it, you're making it easier for folks to have access to you or easier 'cause it's now in the grocery store.
Right.
Right? If the assortment in the grocery store looks like the exact same assortment, St. Patrick's donut assortments in the grocery store that's the exact same assortment that's in the donut shop, the customer starts to see that trend, then they start thinking about the convenience aspect for them.
Right. Right.
The trip to the shop is just a special treat for them and their family and something else that they wanna engage in and get a hot doughnut off the line, for example.
Right. Right.
Those have been there for a while. It's just reteaching.
Yes. Yeah.
You know, don't forget who you serve every day.
Right. Right. Yeah, no. Remembering your customer and, you know, what they, you know, what their relationship is with the brand is so critical. It, you know, and, your jobs are very difficult, so and all that, you know, it can be, for some of us, easy to lose sight of that.
I think a lot of people sometimes don't think of Krispy Kreme out, you know, when especially in a gifting occasion. You know, when the Mother's Day, you see it very clearly. Valentine's Day, you see it really clearly. It's like you're actually competing for against the flower business, against the chocolate business, against all these other, and you are, have a really affordable sweet treat, that's actually really loved by all. That opportunity then becomes a pretty unique approach. We just have to be able to, you know, our challenge is the demand planning gets
Right
... pretty tough because everybody wants their Valentine's Day doughnuts at 6:30 A.M. in the morning so the teachers can bring them into school.
Right. Right.
Right? You're trying to manage that type of wave. When you can get the doughnuts to different points of access. The customer starts to believe that, you know, "Hey, they're there. Those are the Hershey doughnuts that are in front of me at the Kroger."
Right.
"Thank you, Krispy Kreme. I picked them up here today. I didn't have to get in the hour line."
Yes. Yeah, no, like I said, access. We only have a few minutes left. I didn't, I don't see any hands raised, so, you know, if you have questions, obviously please feel free. In, I guess, the sort of 2 minutes now, 57 seconds, can we talk about Insomnia?
Yeah.
You know, we didn't leave a whole lot of time for it, but I do wanna understand, you know, where it fits in the growth strategy and, you know, how we should all be thinking about it.
You know, we were able to catch Seth's discussion in the Investor Day, right? You have this amazing cookie brand, that's now at 200 shops. You know, we've had them since 2018, so we've seen that hard growth from 100 to 200, which is a big growth curve when you're starting to really figure out how you're gonna grow. When you can open up cookie shops at 100% cash on cash return, at a 25%-30% margins, open up 30 to 40 across the United States, see that it works not just in the college environment, the urban environment, but the suburban environment, you know, the TAM starts to go to 1,000 pretty quickly. Experiential, so that love of brand and that connection to brand is very similar to Krispy Kreme.
You know, we're, you know, I don't like telling a founder what to do. I just said, "You need to actually log of a lot of what your thinking is, so that the company knows how you thought one day. Take advantage of an 85-year-old brand about how it thinks about its brand essence, right? Try to match up to that. That's the benefit of being near Krispy Kreme. The other benefit is it will launch international. It'll launch in the U.K. It'll launch in Toronto, right? They have a built-in franchise system, i.e., Krispy Kreme's corporate market.
Right.
We need to teach them how to actually serve another customer, not just Insomnia's company-owned system. It's 100% company-owned in the United States. We have 27 partners that would like to have Insomnia right now, and we're like, "You're not ready for that yet, right? You got supply chain, you got a lot of things. Plus, you have this huge growth story in the U.S., but you will be, right? Let's get the U.K. going. Let's get Canada going." They'll do it. They'll help you do it, and then you'll have another tremendous growth story. When we talked about that, you know, wow, you got all this fresh business growth, the U.S., international, you got, you know, the market development side, you got Insomnia. I was like, well, no wonder you guys start to get much more focused.
Yeah.
Say, "Here it is." I just think they've shown that, you know, Insomnia can compete against the category directly. It's a dozens type business as well. Again, those are all the things that attracted us to the business. It's not easy to keep a founder around for 20 years, right? You know, when they assumed when we took the majority control that he was gonna be doing something else. I said, "Absolutely not."
Right.
They run this as a very completely different team. I might not have all the details.
The synergies are there. You have, like you said, you have even the dozens business. You can, you know, sweet treats. You have a built-in sort of franchise market, and you have supply chain and logistics expertise. There's a lot to benefit the Insomnia brand and to accelerate growth from being part of Krispy Kreme.
Yeah. I think they're world-class at what they do, right? you know, I think Krispy Kreme is world-class at what it does, right? Just get real focused. It's right in front of us. I don't know a lot of brands that have these types of growth stories.
Yeah. That's a great place to end this on. Thank you so much for joining me.
Thank you. Appreciate it.