Shares of Krispy Kreme(NASDAQ: DNUT) rose 18% in March 2024, according to data from S&P Global Market Intelligence. The gains were baked on the fires of a game-changing collaboration with another food-service veteran -- mighty McDonald's(NYSE: MCD).
Sweetening the deal from Kentucky to the whole country
In a joint press release, Krispy Kreme and McDonald's announced the expansion of a small-scale test project. What started in the fall of 2022 as a nine-store distribution test in Louisville expanded to 160 Kentucky locations last summer, and now they're going nationwide. Three classic Krispy Kreme donuts will become widely available at McDonald's restaurants over time, aiming to cover the whole store network by the end of 2026.
Krispy Kreme stores nearby will deliver freshly baked donuts every morning, available as single-pastry snacks or half-dozen boxes. This deal more than doubles the locations in Krispy Kreme's overall distribution network.
Frying up a fresh batch of logistical challenges
The rollout will take time because Krispy Kreme's store chain is far smaller than McDonalds' network. With 224 American donut-making hubs serving up daily treats to 11,900 Krispy Kreme stores and partner locations, the company runs an expandable, asset-light production model. Still, adding more than 13,500 McDonald's restaurants to this system can't be done overnight.
Krispy Kreme's shares closed 39% higher on the day after this announcement, while McDonald's stock gained 1%. The excitement faded a bit in the following days, but Krispy Kreme still enjoyed an 18% gain in March as a whole. The donut shop is currently unprofitable and burned more cash than it made in three of the last four quarters.
The McDonald's agreement could boost the company's bottom line in the long run, but the expansion effort will probably be expensive at first. Further financial details are coming up as the two partners work out the details of their entwined operations.
And I can't help pointing out that McDonald's has a history of trying new menu ideas only to cancel them a few years later. The "signature crafted recipes" burgers spring to mind, next to the all-day breakfast idea. I hope Krispy Kreme has a Plan B ready in case McDonald's backs out of this agreement someday. In particular, the donut chain shouldn't spend too much money on sweetening up its production hubs.
So it's a promising partnership between two popular brands but also a risky one -- best enjoyed with a double coffee and a large pinch of salt.
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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
