Krispy Kreme pauses donut rollout with McDonald's
McDonald's and Krispy Kreme are putting their partnership on hold in the face of financial hardship for the donut chain. Krispy Kreme announced on Thursday that it would be 'reassessing' its alliance with the fast food giant after announcing its year-over-year net revenue declined nearly $60million, or just over 20 percent.
The company sells its donuts at more than 2,400 McDonald's across the US but will not be expanding into additional locations. Krispy Kreme CEO Josh Charlesworth had originally aimed to sell donuts at all of McDonald's US restaurants by 2026 . The US is home of more than 13,600 McDonald's restaurants and over 350 Krispy Kreme locations.
The donut chain's stock tumbled by 25 percent at yesterday's opening bell. 'I remain confident in the long-term national opportunity, but we need to work together with them to identify levers to improve sales,' Charlesworth told CNBC . Krispy Kreme and McDonald's entered their partnership back in October 2022. The fast-food empire began selling Krispy Kreme donuts at nine restaurants in Louisville, Kentucky , for a limited time later that year.
The chains expanded to 160 McDonald's locations in Louisville and Lexington, Kentucky, by February 2023. Krispy Kreme treats became a highly requested menu item at McDonald's, and the donut chain's expansion announcement raised its stock by more than 20 percent at the time. But Krispy Kreme had shown signs of financial struggles early on.
The chain lost about 73 percent of its market value over the past year and began noticing 'demand drops' after launching its regional rollout. McDonald's has also suffered major sales slumps after entering the partnership, recently suffering its worst quarter since the Covid-19 pandemic.
The recent drop was mainly the result of an E.coli outbreak in Quarter Pounders , which left one person dead and over 100 infected . Krispy Kreme also announced the discontinuation of paying dividends to shareholders. This will help the chain save $6 million each quarter.
'Our ability to become a bigger Krispy Kreme requires that we become better, and we are taking swift and decisive action to pay down debt, de-leverage the balance sheet and drive sustainable, profitable growth,' Charlesworth said. The company is working with Walmart and Costco to sell its donuts in their stores after coming to Sam's Club earlier this year.
McDonald's is working to bounce back from its financial issues by doubling down on its value meals and McValue platform.
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