Dive Brief:
- Krispy Kreme is planning to build delivery-only locations in the U.S. and Mexico this year, the company said during its Q4 2021 earnings call. This announcement follows a pilot in the United Kingdom, which grew to include more than 50 "dark shops."
- Fresh doughnuts will be sent to these dark shops to be picked up by third-party delivery drivers, CEO Mike Tattersfield said during the call. "Our dark shops will piggyback on existing spoke routes, which ensures a fresh doughnut distribution daily and opens up further access to more customers," he said.
- The company believes this additional access to the brand will generate double-digit revenue growth in 2022. Krispy Kreme's 2021 e-commerce revenue reached $134 million, marking a 15% increase over 2020.
Dive Insight:
Like many concepts, Krispy Kreme shifted much of its attention to digital channels to navigate the COVID-19 pandemic. In 2021, 17% of its retail sales came from e-commerce channels, nearly double pre-pandemic levels. The company has stated its long-term goal is for its e-commerce penetration to top 25%.
Krispy Kreme has used campaigns, such as the "Day of Dozens" to offer promotional codes and drive more business to its delivery channels. Tattersfield said the Day of Dozens campaign yielded a 50% increase in e-commerce business the day of the promotion, for instance. Adding more delivery access points could drive digital orders even higher.
That increase in delivery is part of Krispy Kreme's "hub-and-spoke" model, where production facilities deliver products to multiple locations within a market, including retail shops and convenience stores. On the company's earnings call, Tattersfield called dark shops another spoke intended to expand its e-commerce business. Dark shops also shorten the delivery route, which could increase convenience for consumers.
"What we do with dark shops is just another opportunity to get another spoke, which increases the ability of having delivery along the route, which we couldn't do directly from one of just our hubs. So it's a low-cost investment, but it gives you a fresh doughnut drop that can get to that customer," Tattersfield said.
These dark shops also support the company's goal of reaching 50,000 points of access around the world in the next several years. The company finished 2021 just shy of 10,500 points of access, marking a 25% increase from 2020. Tattersfield said increasing access and e-commerce transactions leads to higher same-store sales and profitability.
Krispy Kreme's off-premise business has been successful in markets like the U.K. and Australia, generating up to 40% of the sales mix in 2018, well before the pandemic accelerated off-premise channels. Other markets have since adopted more off-premise access points facilitated by digital capabilities. In the U.S., Krispy Kreme began focusing more on digital sales in 2019 with a store remodel that integrated in-store ordering with online orders, delivery and an area for mobile order pickup.
