This Major Dessert Chain Is Closing 10 Locations Amid Declining Profits
Things have been looking a little less sweet for one beloved donut chain.
After reporting shrinking second-quarter profits and projecting lower-than-expected revenue for the year, Krispy Kreme announced it will be shuttering approximately 10 shops, according to Restaurant Business.
The 85-year-old donut giant attributed the store closings to their inability to stay profitable with the company's current business model. The "hub-and-spoke" format, which is designed to maximize donut freshness, consists of larger shops with production factories called "hubs" that ship donuts to smaller outposts called "spokes."
However, there are currently 118 shops in the U.S. without these distribution sites. While many of them have been performing well, Krispy Kreme's CFO, Joshua Charlesworth, pointed out that there's still a "significant minority" that won't be able to stay afloat long-term, which is what prompted the impending closures.
According to Krispy Kreme, hubs without spokes experienced revenue growth that was 5% slower than those with spokes. To keep the momentum going, the donut chain will be acquiring a midwestern franchisee, which will add seven additional shops to Krispy Kreme's portfolio, with the potential to open more than 100 low-cost DFD (Delivered Fresh Daily) outposts.
"The uniqueness of the model is how do you drive a business from a traditional doughnut shop, which is what it was in the past, to a hub-and-spoke system?" Mike Tattersfield, Krispy Kreme's CEO, said. "When we do that well and we get the access point, we can really drive the business."
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Additionally, Restaurant Business reported that over the past three years, Krispy Kreme has acquired more than 100 units from franchisees, with franchisee locations decreasing from 205 in 2019 to 66 at the end of 2021. The intention behind the strategy is to accelerate the shift to the hub-and-spoke model, which has shown to be more successful under corporate control.
