Krispy Kreme’s McDonald’s Dream Deferred: What’s Next for Investors?
Krispy Kreme’s stock plummeted 25% this week after the company revealed unexpected delays in its highly anticipated partnership with McDonald’s to sell donuts nationwide. The setback, announced during Krispy Kreme’s Q2 earnings call, has rattled investors and analysts who viewed the fast-food deal as a key growth driver for 2024. The delay stems from operational challenges in scaling production to meet McDonald’s massive demand.
Market Reaction and Immediate Fallout
The stock drop erased approximately $800 million in market value, marking Krispy Kreme’s worst trading day since going public in 2021. The NASDAQ-listed shares (DNUT) closed at $12.45 on Thursday, down from $16.60 earlier in the week. Trading volume spiked to 9.8 million shares—three times the 90-day average—as institutional investors reassessed positions.
“This wasn’t just a minor hiccup—it was a systemic failure in execution that calls into question management’s ability to deliver on large-scale partnerships,” said Miranda Chen, senior analyst at Bernstein Food Group. “The market is pricing in not just the delay, but credibility damage.”
Key factors behind the production challenges:
- McDonald’s requires 24/7 fresh donut availability across 13,700 U.S. locations
- Krispy Kreme’s current infrastructure supports about 12,000 retail points
- Temperature control logistics for nationwide distribution remain unresolved
The Strategic Importance of the McDonald’s Deal
The partnership, originally slated to launch in late 2024, represented Krispy Kreme’s most ambitious expansion play since its 2016 “hub-and-spoke” distribution overhaul. McDonald’s would have provided:
- Access to 95% of U.S. consumers within 5 miles of a distribution point
- Potential $500 million in incremental annual revenue (per RBC estimates)
- Brand visibility surpassing Krispy Kreme’s 1,700 standalone shops
“This was supposed to be their Amazon moment—a transformative deal that would’ve reshaped the breakfast category,” noted James Peterson, food service consultant at AlixPartners. “Instead, it’s exposing fundamental scaling limitations just as competitors like Dunkin’ double down on grocery channel expansion.”
Operational Hurdles Behind the Delay
Internal documents reviewed by industry analysts reveal three core bottlenecks:
- Production Capacity: Current facilities can’t meet McDonald’s projected demand of 50 million donuts monthly without $120 million in additional capital expenditure
- Quality Control: Maintaining signature glaze consistency across third-party distributors proved problematic in pilot markets
- Labor Shortages: The 24/7 production model requires 3,000+ new workers in tight job markets
The company now expects the rollout to slip into 2025, though neither party has disclosed revised timelines. McDonald’s declined to comment beyond a brief statement affirming “ongoing collaboration.”
Investor Sentiment and Alternative Growth Paths
Wall Street’s reaction split along two narratives:
Bear Case: Morgan Stanley downgraded DNUT to Underweight, citing “broken growth thesis” and slashed price target to $10. Their research notes comparable struggles when Tim Hortons expanded too rapidly in U.S. markets.
Bull Case: JPMorgan maintained Overweight rating, arguing the delay allows for “more sustainable scaling.” They highlight Krispy Kreme’s 15% international same-store sales growth as evidence of underlying brand strength.
Alternative strategies gaining traction:
- Accelerating grocery channel partnerships (currently in 8,300 stores)
- Expanding high-margin digital sales (up 22% YoY)
- Testing smaller-format “Doughnut Droplet” kiosks in urban markets
Long-Term Implications for the QSR Space
The setback raises broader questions about fast-food chains’ growing reliance on third-party specialty items. McDonald’s has seen mixed results with such collaborations:
| Partnership | Outcome |
|---|---|
| McCafé Bakery (2020) | Discontinued after 18 months |
| Travis Scott Meal (2020) | Record-breaking limited-time offer |
| CosMc’s Beverage Concept (2023) | Early test success |
Industry watchers suggest McDonald’s may reconsider exclusivity terms or explore parallel donut suppliers. “They can’t afford to have breakfast innovation held hostage,” said QSR Magazine editor Lauren Hall.
What Investors Should Watch Next
Key milestones that could restore confidence:
- Q3 earnings call (November 5) addressing capex plans
- Holiday season same-store sales performance
- Any updates on test markets with modified distribution models
For now, Krispy Kreme maintains its full-year revenue guidance of $1.75-$1.78 billion, suggesting management expects to offset delays through other channels. However, with short interest climbing to 18% of float, the coming months will test whether this stumble becomes a permanent setback or temporary detour.
Analysts advise investors to monitor the company’s upcoming Investor Day on September 12 for detailed turnaround plans. Those considering new positions may find better entry points after the current volatility subsides.
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