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- [00:00]
The Hartford Representative
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- [00:59]
Interviewer
of expansions, donut maker Krispy Kreme is maintaining its full year outlook as margins improve, helping to offset lower revenue. CEO Josh Charlesworth says that the company is making continued significant progress on its turnaround and so pleased to say that Josh joins us now. Josh, great to see you. And look, it's clear this turnaround that you've been doing, focusing on having more franchise stores, it's working with your improved margins. How much more efficient, all operational efficiency do you think you can squeeze out or do you need to kind of refocus on getting that top line growth back?
- [01:33]
Josh Charlesworth
Has Good morning. Great to see you. Yeah. The turnaround we announced a year ago is, is working. And you're right, we've seen margins improve this quarter, 340 basis points. That's contributed also to us our ability to pay down leverage. We're down 1.3 turns on that. But perhaps most important for the future and to your point is we're also see seeing good underlying growth. If you exclude the business we exited last year, distribution at McDonald's, we actually grew 4.4% in the second quarter which is a really good sign. And, and so I see going forward that we'll be able to continuously improve the margins like you say, but also at the same time grow the business because people want our donuts.
- [02:23]
Interviewer
Well again on the margin side, I'm wondering if you're having any impact from all of the inflation that we have seen that our worried about and whether you feel you have any pricing power to make up for.
- [02:35]
Josh Charlesworth
Well, we've made a lot of operational improvements over the last year. We have for Example outsourced our logistics. That's the deliveries from our donut shops to our customers like Wal Mart, Target and the like. And outsourcing that has provided a lot of cost of predictability and cost efficiency opportunities. We've also made sure that all our revenues are profitable. Shifting to distribution that is more profitable than before. For example, our fresh delivery channel, that's the delivery to those grocery and convenience stores. The, the sales per location are up weekly sales by 30% year over year. So, so we're able not just to address those cost pressures, but improve the underlying profitability of the whole network.
- [03:26]
Interviewer
Have you seen any changes in consumer behavior, Josh? I know when you talk about Krispy Kreme, you say, look, this is usually that people go out for. Are they maybe buying that treat less often? Are they changing exactly what they're ordering? Are they opting for maybe more of a, of a basic or a smaller package? Has anything shifted in the consumer?
- [03:46]
Josh Charlesworth
It's interesting in this dynamic consumer environment, we see that we are, we are well positioned. As you say, it's, it's because you're right. It's a relatively infrequent purchase, just on average two to three times a year. You're usually bought for sharing occasions, special occasions and celebrations. And we're seeing that, you know, those fresh doughnuts are well, well positioned in this, in this market. And that explains, I think, the underlying growth. We've seen People, people love our original glazed. It's our most popular and affordable product, usually bought in a dozen. And we're seeing even second dozen sales going up. And also we're bringing a ton of innovation that people get excited about. It's important for them to see our latest creations. It creates buzz and excitement. Brand and we're seeing those perform well in our traditional channels and increasingly in the digital channel as well. So there's a lot of engagement around the brand in this environment.
- [04:42]
Interviewer
Have you felt any pressure to sort of match some of your competition and add products to your lineup?
- [04:50]
Josh Charlesworth
Well, you know, the number one reason why people say they may not purchase Krispy Kreme is where do I get it? I want to get those amazing fresh doughnuts. And so our focus is, is more about taking those fresh doughnuts that we make in our donut shops from scratch. You can actually literally see the dough being prepared and the doughnuts being decorated in our shops. How do we get them to people more conveniently? And that's why we've been partnering with the likes of Wal Mart, Target, also making them available online. And so that's where we see the growth opportunity, really doing what we do best, make great fresh doughnuts.
- [05:28]
Interviewer
But Josh, the space is so hyper competitive, both dessert and bakery. Whether it's your big chain competitors, Dunkin Starbucks leaning into their breakfast and pastry offerings, or hyperlocal chains popping up, crumble coming up. So kind of like the sweets and dessert things feel like they are kind of cyclical, that they have these moments and now feels like one of those moments. Josh, how do you compete with the old stalwarts of again, the Starbucks and the Dunkins of the world trying to compete? Moreover, and new competitors seemingly pop up every day.
- [06:02]
Josh Charlesworth
It's a combination of innovation and creativity bringing excitement to our customers. More than half our customer base is Asia. Under 35, we have 18 million loyalty members. That's just for 400 donut shops across the country. Showing how engaging those people in the brand, engaging them in the new donut creations, whether they're seasonal variations or cadence or limited time offerings. We did a 4th of July, 250th birthday donut collection was really popular. My favorite was the orange glazed Dreamsicle. We just tomorrow will launch our pumpkin spice as part of our full collection. So we find that we're able to stay ahead of that competition by bringing what nobody else can do.
- [06:49]
Interviewer
Can I just quickly. We have like no time left, but what's the weirdest donut you guys have ever put out? I'm just listening to these, like orange Creamsicle. What do you think is the most strange donut you've ever put into the market?
- [06:58]
Josh Charlesworth
Oh, I don't know. It's amazing what you can do with a donut. My favorite was the blueberry glaze that we just did. I don't think it's strange. I think everybody loves those traditional flavors, but sometimes, yeah, we do fun stuff as well.
- [07:10]
Interviewer
Yeah, blueberry glaze isn't strange at all, Josh. It does sound delicious though. I know where our stop will be after the show. Krispy Kreme CEO Josh Charlesworth. Thank you so much for joining us.
- [07:19]
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