McDonald's and Krispy Kreme have been testing a partnership.
McDonald's Needs a Doughnut and Coffee Brand
McDonald's and Krispy Kreme already have a limited partnership where the burger chain is selling its doughnuts in over 160 McDonald's restaurants in Kentucky, which kicked off at the end of March.That fits with Krispy Kreme's strategy of becoming a wholesaler of doughnuts. Its model includes standalone restaurants, but its growth will come from adding thousands of new distribution points for its doughnuts.
A national deal with McDonald's would immediately deliver that growth, but the doughnut company does not have the resources to support the burger chain on a national level (or across all dayparts).
"With the McDonald's in Kentucky test, adding trucks and adding significant -- adding production, doubling production in those existing hubs completely sort of changes the context of us becoming a much more of an operator behind the scenes, as well as obviously upfront at the doughnut counter," Krispy Kreme COO Josh Charlesworth said during the doughnut company's first-quarter earnings call.
McDonald's has over 13,000 US locations. Krispy Kreme can't grow fast enough to serve the chain nationally on its own. If the burger chain bought its partner, it could not only fund that expansion, it could also add a Krispy Kreme-branded coffee product.
McDonald's Needs Non-Meal Options (and Better Coffee)
McDonald's could help protect its morning dominance from Wendy's and Taco Bell (its most-aggressive competitors in that daypart) by adding Krispy Kreme nationally. It could also become a viable Starbucks alternative if it offered not just doughnuts, but better coffee all day long.Krispy Kreme does not actually have a great coffee product, but it has a better name than McCafe. If McDonald's owned Krispy Kreme, it could rebrand at least some of the McCafe line and simply have a more credible snack and coffee play that's higher-end but still speaks to its working-class roots (as opposed to Starbucks' snootier airs).
McDonald's has not hinted at considering acquiring Krispy Kreme, and it's possible the two sides could simply slowly ramp up their relationship. A deal, however, would bring the two brands together and allow McDonald's to control which rival channels sell Krispy Kreme doughnuts.
It might, for example, want to build its grocery relationships and its sales at Target (TGT) - Get Free Report and Walmart (WMT) - Get Free Report, but want to cut back on certain convenience store chains. No matter how McDonald's would leverage Krispy Kreme, this deal would make sense for the company as it looks to maintain its morning position and become more viable the rest of the day.
