Krispy Kreme, Inc. (DNUT) Earnings Call Transcript & Summary

All right. Good. Well, good afternoon. Thank you, everybody, for joining us. I'm Sara Senatore, BofA's restaurants analyst, and I am very pleased to have up on the dice here with me, Mike Tattersfield, President and CEO; and Joey Pruitt, Global Head of FP&A and CAO from Krispy Kreme. So thank you so much for joining us today.

Our pleasure.

So I thought we start with just a brief kind of foundational questions, maybe you can talk about kind of where you've come from in the last couple of years? Where you're going? And we can touch a little bit on some recent news about BTS and how that's part of your transformation?

Yes. I mean I've been privileged to be the CEO working on my seventh year, right? So help to take it private, as a partner with a [ JV ] jumped in. And what the vision was to how do you transform the business from a what was a franchising model, trying to go around the world, just selling doughnut franchises to -- they build a doughnut company, and just really focus on executing fresh doughnuts to where customers are. So if you roll that today, right, where we stand now. We do 400 producing doughnut shops around the world, 300 of those are in the U.S., 100 are outside. We're in 31 countries and 12,000 locations, get fresh doughnut delivery every single day. That's a pretty unique business model in its own right there. It's a pretty clear path for how we want to grow because our business works everywhere. The brand is incredibly well known. And we have a point of access where we're taking points of access can be grocers, can be convenience shops as you've learned, there's also QSR channel that we're looking at...

A little bit about, yes.

And whether you get in the drug business or the club right as well. And when we started this journey in the IPO which is about 18 months ago. We had a lens because we had just launched the DFD business in the U.S. of 20,000 points of access. As we showed in our Investor Presentation in December, we're going to be at -- pretty close to 20,000 points of access by the end of December 26. So why we talked about 50,000 points of access about a year ago because we could see that we could actually deliver on that number. And I always had a vision if you're a doughnut company, which you're more interested is how do you get the doughnuts to where the customers are, whether everybody is always [indiscernible] is e-commerce, I go, well, we built a pretty good logistics system, right, where we can deliver fresh daily to points of access. And some of it we can do the demand planning for the customer and some of it, they'll do themselves, right, where they can do -- they have their own demand planning to have their own logistics system. So that's the way we're thinking on how we'll continue to build our business model, and we'll grow points of access, 10% to 15% a year. We'll build 10 equity hubs in the U.S. on a yearly basis, 5 in our international equity business and then 10 to 15 from our partnerships around the world. That build-out of hubs in its own right, gets you that 10 to 15 points of access. But that doesn't include all the efficiencies that you start to get from maximizing the current channels that you have. So it's always important that you look towards where the customers going. And that's the big difference now and you really think about a doughnut company from a franchising business to something that's -- we're really about doing fresh doughnuts. We do dozens. We love that business model. 37% of our doughnuts are gifted. Everybody gets into a frequency discussion, and we're about 2 to 3x a year. We compete against the flower business. We compete against the gifting occasion. It's not just a food based business. So it's really solid model that's shown itself and resilient during some pretty challenging times whether you talk COVID a couple of years ago or inflation happening last year, even what's ever happening today right? So everybody is saying, how does that impact to customers. I go there are low frequency purchase, and we're still an affordable sweet treat. That's where we try to be. So about in the U.S., it's a little over $1 a doughnut per dozen.

Right. Right.

So that is, in essence, it's a big change, right? So doing that, the growth will continue to be in all 3 segments. The U.S., the international equity businesses that we own and a lot of the growth will come from partner business, right, which is really attracting new partners will probably open attract 3 to 5 new countries that sign up on a yearly basis. And this year, we'll open 7 countries.

Right. So even ahead of that. All right. So just yes, touch on...

I gave you a lot.

Yes. No, that's great. There's a lot to work with there. But I do want you to touch on BTS just, again, very briefly.

So it's our Branded Sweet Treats. So that was the BST.

Oh BST, sorry. Sounds like a boy band or K-pop.

We'll go there, we'll go there. In 2020, when we were -- again, this is even before we IPO and we're trying to figure out what are points of access and where we're going. You can imagine we were trying to figure out how are you going to grow, right? So could you figure out a product that can compete on the grocery shelf, but it's frozen and thawed and could exist in compete in the space. We thought that Krispy Kreme is a super strong brand. It should. So we developed a frozen product, and we always knew it small and said, go ahead and test it. And we saw some really good consumer reaction to it and we kept it growing, and then we realized that you actually have to go to the ambient model, just to work within the supply chains. And what's happening is we could see that the growth that we're having, just from what I talked to you about from the points of access growth, and we haven't even talked about Insomnia, which is a super high-growth cookie business. We had growth across continents, countries, in the fresh business in a massive way. We have Insomnia growing and we were going to get into this transformation. Let's see how much time and energy we want to work with a very small part of our business, and we said, let's exit right now. It's not the right time to do it, It will not impact our -- this year's revenue or guidance or even our earnings guidance, as we've laid out, it won't affect our long-term revenue or earnings guidance as well. And it keeps us really focused on what we do exceptionally well, right? And sometimes, decisions at the CEO levels what you don't do.

Right, right.

So that's a choice. And it still took some amazing learnings. We got a lot of partners that would like to do it, but we got a lot on our plate right now. So we'll figure that out.

A lot of partners, everywhere would like to carry your products that we talk about that. Your access is sort of one of the biggest reason that consumers don't and that they would like more of. So I do want to talk a bit about that demand. You touched on it in sort of all kinds of macroeconomic environments. Can you sort of dig into that a little bit when we think about price elasticity or sensitivity, what you're using 2 to 3x, what that means in terms of how your consumer, whether in the U.S. or internationally, and I think they're different, thinks about Krispy Kreme doughnuts is sort of a treat. It's -- I think, for the most part, kind of impulse buy, but maybe tell us a little bit about how consumers think about purchasing?

Yes. I mean it's really interesting since we really got into the focusing on the dozens business and the gifting and just focusing on doughnuts what we do every day, not about the coffee and all the other side bars which are interesting, but add-ons. Just that side of the business is less. Coffee is about 3% to 4%, right? So it's focused on doing doughnuts doing exceptionally well. What we've been able to see is doing even all these challenges of whether you call it COVID, whether you call it super price inflation happening in the marketplace. Our customers just shown the resilience. We haven't seen the impact because of a 2 to 3x frequency and then not having access to us. The ability of getting access to us and then sharing our models based on selling new dozens, not selling you singles. In fact, we can attract you to come to the shop by discounting a single. So that you can come into the business, you get a free doughnut, if you showed whether a vaccine card or whatever other interesting promotions the team ran and they would buy the dozen, right? So we haven't seen demand challenged that way. And that's not just the U.S. piece that we've seen pretty much in almost all of our countries. So the ability to get the doughnuts out to where they are, whether e-commerce, which is another way of how is the customer reacting because you're going to get into delivery charges, right? We didn't do delivery until February 29, 2020, we had basically e-commerce at zero. We're getting close to 20% now. Our best businesses in the world are doing a little bit north of 30% in the Middle East, for example, right, where there's a very much a habitual behavior of using e-commerce. We don't see that. We see our e-commerce business continue grow, right? So you can look at it and does it have an impact when you're pricing from what was a non-fresh model, which was when the business was in wholesale before, selling 5-day old yeast doughnuts, which was not a good idea. So we stopped that. We ended up basically doubling the price to go fresh, which is what the DFD does, we didn't see the impact there. You don't see any e-commerce. And it comes true, again, you do have pricing power which don't have -- just because you have it doesn't mean you always want to throw it all the way out. In fact, you just want to be very disciplined about it. And I use the appropriate pricing that you should do with as well as the premiumization of the category. Krispy Kreme does tend to lead a lot of the category from really interesting products with partners, products with our own way of doing hand cut doughnuts in that where we can sometimes charge 100% more than what we do on our regular line per doughnut. And the consumers are looking for that, right? And the partners want to have the doughnut companies willing to do that. All I ever asked for is, "I want real authenticity." I want to see that the Twix is in the middle of the doughnut when you break the doughnut. It's like breaking the Twix bar, right? I want to see if you could do something with the M&M that it feels like you're biting into the outer shell and you can taste the element of an M&M, if that's what it is, but it's a Krispy Kreme doughnut, right? So you get that experiential part of innovation. It changes a little bit about how you think about the consumer, right? And they are pretty demanding on what they want to or expect from us. And I always think, if you're going to spend the $12 or $15 for a dozen, we'll make sure it's worth it.

Right, right. And I want to come back to that because I know for personal experience, how compelling the innovation is. But I thought -- I would just touch briefly because you talked about the demand, one market where it was -- you saw more, let's call volatility was the U.K. And the reason I'm mentioning this has more to do with, as a segue to how people buy doughnuts. So I think the issue was just retail traffic on the whole and traffic to groceries were coming down. So maybe you can help use that to inform how people make their purchases.

It's really interesting. The business of this fresh doughnut in the deliveries. They know the hub and spoke system we talked about. I mean, it started in the U.S. 85 years ago, right? And that's what Vernon Rudolph did, right? Going to the pharmacies. But the U.K. perfected it over the last 20 years, right, being they ran 14 hubs, and they serve over 1,400 spokes in the U.K. somewhere in that range. And there is a big challenge that happened to the U.K. economy, right? So you had a just tremendous amount of challenge on the grocer trade. And people were really the baskets or opportunities and Tesco is losing a lot of market share to other grocers. So the challenge that I gave to the team is more of a, listen you are still an amazingly loved brand. By the way, your retail shop businesses are doing well on their own. And the U.K. had actually implemented what they call this HFSS rule, which is they were the government imposed on the largest grocery retails where you could sell sweet or salty treats, and percent closeness to the door to the counters or to the check-in system. And you never -- fighting with governments is really not the best use of time. What you end up doing is saying, you have a great business, see how it adjust because the customer is going to find you. And they do, right? They end up going, where is what I want to buy, not what you're asking me to buy. And then the opportunity becomes, how do you get secondary placement? So the whole unlocking is rules will always change whatever is going on or whatever is happening macro, it's just like how are you going to operate now. And that's where we try to teach all the businesses around Krispy Kreme. You actually have the ability. Just don't sit back, actually be a lot more proactive because your brand is exceptionally loved. You can see it still. If we didn't see that behavior in our retail doughnut shops then I'd probably had a different view.

Right the retail owners are sort of control group?

They are. And you see it and they understand what innovation is and they've been great in getting the same doughnut in the doughnut shop to the trade. They just haven't been always focused on all the other trade. So you end up kind of saying there are more channels than Tesco and Sainsbury. Right? You need to look beyond this type of business. And I spent some time with them in the market when I thought the Brits would be out, right, before holiday, right? And they were out in full force, right? So you can just say, listen, the opportunity is different.

Right. And actually, that's -- so I'm glad you mentioned that. Different channels and sort of the hub-and-spoke model. One of the things I think you said was 300 producing facilities here -- shops here versus 100 in all of the international markets. I think earlier, we talked about that sort of the legacy of U.S. Does that preclude productivity per hub in the U.S. from getting to where it is in international markets? Is there -- by virtue of having this big footprint, does that mean they just simply won't ever get to that $8 million or whatever it is per hub?

Why don't I bring my partner in here. I don't want to keep him here all by himself.

We'll give him the hard question.

I'll give that one very well I don't want to engage.

Sure. Yes. So I mean -- certainly, let's back up and talk a little bit about the U.S. market and how it's laid out differently than the international market. So to your point, 300 producing hubs in the U.S. market and 100 internationally. Clearly, it was built differently. Internationally, we have a significant number of fresh shops in the U.S. There's only about 100 fresh shops. So you're looking at a completely different way of operating in the market. The Hot Light matters much more in market as well. So one of the things that we've undergone recently is looking at where we have hubs with spokes and hubs without spokes and really analyzing how we can transition and utilize all this excess capacity that we have in the U.S. market to generate additional spokes. Because we recognize we're a hub-and-spoke business and we get this massive efficiency from building the spokes, adding the spokes to the hubs. So there are certain hubs without spokes that are just going to remain hubs without spokes. We've closed -- we talked about closing a little more than 20 because they were the more underperforming hubs without spokes. But the ones that we've kept on hubs without spokes. We're either transitioning to hubs with spokes or we are willing to keep them because they are so high performing in and of themselves. They're either in a local market where they're just a pillar of the community, and ultimately still providing substantial margin returns, or they're in a location where we have multiple hubs, and we only need so many hubs to have spokes. But yet again, still performing, still providing enough margins. But to your question, the U.S. market will never be exactly the same as the international market. The international market was built with the hub-and-spoke model in mind and ultimately, every hub was established to have 50 to 75 to 100 spokes. In the U.S. market, some will not have that. Some will be a little lower margin and we'll not have those spokes. But as we're adding the spokes, we do expect -- obviously, the margins to expand, the efficiencies to get greater and for us to move much closer to those international margins, to think that we will to be exactly the same, I think, is probably at least unlikely in our mind at this time, but it is something that could happen in the long term as we continue to evolve as a company.

Yes. I think when we started talking about different channels, one of the ways that you start addressing those problems by looking at the channels and when you start thinking about a QSR partner or a club partner that probably fits the American market a lot more to a tea with that's how it's developed and what's there. You can look at that as an opportunity is how do you start maximizing those routes that you lay out. And you can lay out a partner that if they're using the same DFD system that you have, and it just makes your route economics just more profitable, more efficient, you actually get to stretch into routes where you wouldn't actually have reached one of your grocer and partners before because it was inefficient. I might have only had 3 spokes on the route. You're not going to do the route, right? We're not doing small routes. Routes to have be efficient from day 1. We have enough grocer partners, convenience partners to know what routes can be build up. If you add the right partnerships to it without changing what you do in your DFD logistics, then you're going to be very efficient. Which could enable you to get closer to margins because that QSR model is much more linked in the American market than it is to the international markets, right? They don't have the density. They might have a density may be in a city, right? But the density in Americas, 14,000 McDonald's.

Right. Right.

That's a whole different way to look at the business, right? So you end up seeing interesting partners, but let's start with a 160 in Lexington and Louisville.

Right, right. You have more hubs, but could ultimately also have more access points just -- and spokes, if you will, so that -- in this market. So that, as you said, as time goes on, you get closer. I do want to ask about that channel, of course and maybe...

It's got a lot of attention.

You could say, yes, we've gotten a couple of questions on it ourselves. But -- and we'll start with a broader discussion, which is, you have shops and then you have the DFD. And how, I guess, do we think about the incremental margins on each? And again part of that question has to be cannibalization. But I think, ultimately, what it comes down to is my clients want to know if I open another DFD door, if you open another DFD door, how many of those doughnuts, if any, would have been sold through one of your hubs, one of your own shops? And to the extent that there is a sales transfer, what does the margin profile look like? Because the margin profile and the incremental doughnut through a shop will be beta shop will be almost infinite, right? Like there's not a whole lot of incremental costs associated with it. So that's, I guess, sort of a lot of detail to try to get at this. What's the highest merchant doughnut you can sell?

Yes. So I'd answer it in a couple of ways, right? So first off, when we were just doing the 20,000, when we had that points of access. Right now it's really grocers and convenient. In the TAM of 300,000-plus doors, right, you're not even getting close to 10% access, right? So your cannibalization. That opportunity is isn't being met, right? So the biggest challenge has always been is I can't get to you. Please get to me. I'm not willing to spend -- imagine when gas prices are up at $5, $6, and you're asking someone to then go 25 miles to a Krispy Kreme, and everybody is saying you're going to build a new one next to me, and I'm like, no, we're actually going to get the doughnuts closer to you, right? And it makes the experiential doughnut shop, really -- it's a family treat. It's something you want the hot experience, you want to do that, but it's infrequent for you. So you have to look at the business that way. So as we think about adding even the restaurants, and that all you're doing is the occasions are different, right? When people are buying in the grocer business, we really sell it just in dozens, right? So they're serving -- again, 37% of our doughnuts are gifted, 80% are shared. They're bottom for something to do. That access became very interesting to them. The convenience store business tends to be much more about the individual, right? Because they can grab the individual doughnut. There's a display. It's a small display, but they can do that. When we tested with the QSR, they had very clear points of view of how going to work. We said, you need to understand how Krispy Kreme works because people like to share our doughnuts and if you put them in your shop, they're going to ask for a sharing size. So we gave them a 6 pack. And they learned very quickly that, that 6-pack was very, very popular because you want to take the drive-through, you now brought doughnut for somebody right? So the same behaviors happen. Was that going to happen where they were on to drive by 10 McDonald's to eventually get to the Krispy Kreme, I know -- depending on the occasion, right? So you have to think about how we look at channels by occasion, even pack size. So it's different. It's not the same if everybody thinks that every opportunity of purchasing doughnuts is the same. What we can tell you from our experience in our shop, right, it's 2 to 3x. It's gifting, it's celebrations, it's gatherings. That's not -- that's what we -- our brand does everyday. When you look at the other channels, you can complement that. And then you get into different need states, right? So the need states are different.

So first point is there's just not a lot of cannibalization to your point, I might not drive 25 miles. That might be an efficient route for you to get the doughnuts from the shop to an access point, but it's not going to be something that I'm going to do on a regular basis. So the cannibalization is certainly with only, I think, what, 400 shops is pretty minimal, presumably.

In international you have 100, about 27 countries.

Yes. Yes. Right.

One quick add for you. I mean, the cannibalization for DFD, we've done studies on it, and it's less than 10% compared to our retail shops. So it's really not cannibalizing the sales of our retail shop. So that's DFD.

[indiscernible] Walmart [indiscernible].

Definitely supports what Mike was saying.

Yes. All right. So that, to some extent, if it's almost wholly incremental, it doesn't almost doesn't matter what the margin is, but I'll ask the question anyway. As we think through a sale incremental margin in a shop versus at a DFD, where you're paying your revenue sharing with your DFD partner. What does that look like?

Near you. So again, we don't -- we always look at the business as one, right? So our doughnut Manager or doughnut product manager, they have no idea where that doughnut is going. So the labor in there and the set up every day to go, here's the doughnuts you need to make today for the demand planning. Let's see where it goes. So when you start to make that decision, you're already taking decisions on how costs accounting labor is going to happen. We're like, we're not doing that. Here's how we need to think through it, right? So you can look at the flow-through of the DFD, right, it's a very incremental piece of the business. Not necessarily what's the profitability of each sub business. We always will look at it as a doughnut company. How much volume did we do this period? How much volume did we do this period last year? What's our margins of this period? So it's as much as CPG experiential company, which has a pretty unique approach to what we do every day.

Right, right. And again, to the extent that you're not -- it's not either or. You're not selling it on it through your shop or through a partner, it's both.

It is. So when you start to cut it, you're getting into pieces, which is -- it doesn't make sense.

Right, right.

One way we can talk about it, Sara is, when we establish if we had a hub with no spokes and we haven't added the spokes yet. We're generally looking at like mid-teens margins for that stand-alone location that hub. As we add spokes, we're usually looking at 25% to 40% incremental margins at the spoke level. So ultimately, that's how you end up driving the margin up, for the hubs with spokes and getting to one that is much more like talked about with the international margins.

Right. Okay. And the numbers that you're sharing are sort of as a restaurants analyst kind of how I think through right average margins in the high teens incremental or flow-through margins in that, 30%, 40%?

Yes.

Okay. All right. That's helpful. I wanted to ask, since we're on the topic of margins and the question about pricing or the comment about pricing came up, you have pricing power, but you need to be disciplined. I guess how should we all think about the cost inflation in 2023 versus what we saw in 2022, which was, I know, an unprecedented year and hopefully not to be repeated in terms of whether it's commodities or labor. Just kind of remind us what your expectations are and whether or not that also assumes any kind of pricing actions?

Yes. So I can take that one. So for 2023, we're locked in for about 50% or so of our commodities we lock in the top 3 or 4 commodities. Usually in the range of 6 months to a year out, and so we're locked in for almost all 2023 on those. And it's around low double-digit inflation for commodities, much lower than we saw in 2022, as you mentioned. And then on the labor side, we're kind of high single-digit inflation expectations around the world. So at the end of the day, when you look at pricing versus that. We're in the low double digits on average in terms of the pricing that we've taken, particularly if you think about the U.S. and the U.K. markets that have been most impacted and ultimately expects that -- that flow through is in the inflation that we're going to have in 2023 is more than covered by the pricing.

Okay. And so when you talk about low double digits, you're saying, if we don't see you do anything further over the course of the year, you'll -- your average run rate will be about...

Yes. I mean if you think about the phasing of the commodities, it's a little heavier front half in terms of the higher cost in the front half, it will be a little more level in the back half of the year from a phasing standpoint. But...

And your year-over-year pricing will follow a similar cadence. Is that?

Year-over-year pricing we're trying to -- we believe we'll be able to maintain somewhere in that low double digit.

So more level loaded. So is the right way to think about margins then that the back half looks better or different than the first half?

Yes, back half does look a little bit better.

Part of that would just be I'm just adding on what Joey said, I call it the community given or discounting that the brand tends to do, which is core to it's kind of DNA, right, whether you do it through fundraising, whether you do it through events. There's a lot of really interesting things that brand tried last year and really stepped in on a couple of discounting things when they didn't know what was really going to happen and some of them are probably too rich in one aspect or another, but they really build a lot of brain lift. And so when you dial that back without seeing negative impact because you actually did that.

Right.

Right. And instead of what I'm talking about, for example, is beat the pump.

Right.

Right, where you're giving a price of a dozen doughnuts to a gallon of gas and then ran that instead of just for the month of April, when it launched saying, "Well, why don't we run it from Memorial Day to Labor Day." and I'm like, we didn't need to do that, but we learned a lot and we learned the discipline of actually -- it's the second dozens that you have to sell that really makes sense. It's the individual doughnut that you can give away to get the full purchase. And then we really disciplined about how you want to brand. Because it still has to serve right? And when it serves, it serves all customers across all economic needs and basis, right, all demographics, right? So people want to interact with the brand. It is one of those kind of loved community brands. You can't lose that aspect. That's why that pricing discipline and margin discipline has to do continue that. And I think those are things that you'll see an opportunity, as we talked about margin improvement in the back end of the year.

Right. And what does that say to your point, you had to beat the pump, it was really successful in driving incremental sales first month, and then you saw a little less of it. And when you pulled it back, you didn't see any sort of degradation. But to your point, it -- presumably, you didn't see degradation because you brought in customers, they have this affinity that they develop because you did this sort of very timely sensitive, if you will, to the environment, like the economic environment. So I guess, what were the lessons from that in terms of not just like from a financial standpoint but from like talking to customers, getting them to return, what works in terms of increasing frequency or increasing awareness? Or any kind of lessons on the -- how you talk directly to customers?

Yes. I think some of the really interesting things. The brand had a history sometimes discounting for discounting sake, right? And we've really moved away from that aspect, right? Just make sure whatever you do is worth it. Really stepped up innovation in a big way so that they can see when we're going to do events around Halloween that you really have the assortment that really matches and that people aspire to want to be able to -- the affordability is there, and I want those, not just the Original Glazed. So you have to provide that alternative a lot -- more, right? So if you've seen how we started the year with the Biscoff Lotus cookie and you follow that with a Hershey’s Valentine promotion. And then starting tomorrow, there will be Green Glazed doughnuts for Thursday and Friday, right, with the whole St. Patrick's assortment. You can't lose that experiential touch point and people are looking, what are they going to do? So you need to understand that powered as a merchant and do that exceptionally well. You have to get back in pretty interesting ways. But be thoughtful what that giveback is, right? When you saw from -- to beat the pumps one way, but when we did the vaccine promotion, right, where they could come in for the whole -- half of the year, but they were walking in or driving 25 miles to get one doughnut, they're not going to do that. They're going to buy -- they appreciate that you're actually giving them something and then they'll buy the doughnuts, right? So it's that mindset that you want to build that community sense in all of our markets, not just the American market.

Right, right.

So it's a -- and when you can then bring in today's world, which is e-commerce and the technology and the delivery and all of those aspects to it. So you're making it easier for folks to have access to you or easier because it's now in the grocery store, right? And if the assortment in the grocery store looks like the exact same assortment, St. Patrick's doughnuts assortments in the grocery store that's the exact same assortment that's in the doughnut shop, and the customer starts to see that trend, then they start thinking about convenience aspect for them. And so the trip to the shop, it's just a special treat for them, and their family and something else that they want to engage and then get a hot doughnut off the line, for example.

Right, right.

So those are all the -- those have been there for a while. It's just reteaching.

Yes.

Don't forget serve who you serve every day.

Right, right. Yes. Now remembering your customer and what their relationship is with the brand is so critical. But your jobs are very difficult. So and all that it can be -- for some of us easy to lose sight of that.

I think a lot of people sometimes don't think of Krispy Kreme [indiscernible] when -- especially in the gifting occasion. When there is Mother's Day, you see it very clearly, Valentine's Day. You see it really clearly. It's like you're actually competing for -- against the flower business, against the chocolate business, against the other and you have a really affordable sweet treat. So that's actually really loved by all. So that opportunity then becomes a pretty unique approach have to be able to -- our challenges, the demand planning gets pretty tough because everybody wants their Valentine's Day doughnuts at 6:30 a.m. in the morning, so the teachers can bring them into school.

Right.

You're trying to manage that type of wave. When you can get the doughnuts points of access and the customer starts to believe that, hey, there. Those are the Hershey doughnuts are in front of me at the Kroger. Thank you, Krispy Kreme put them up here today. I didn't have to get in the hour line.

Yes. Yes. No, I like you said, access. We don't have -- we only have a few minutes left. I don't see any hands raised. So if you have any questions, obviously, please feel free. But in, I guess, the sort of 2 minutes now, 57 seconds we talk about Insomnia? Didn't leave a whole lot of time for it, but I do want to understand where it fits in the growth strategy and how we should all be thinking about it?

If you were able to catch Seth's discussion in the Investor Day, right? You have this amazing cookie brand. I know that's not a 200 shops. We've had them since 2018. So we've seen that hard growth from 100 to 200, which is a big growth curve when you're starting to really figure out how you're going to grow. When you can open up cookie shops at 100% cash-on-cash return. I'm at a 25% to 30% margins, open up 30 to 40 across the United States, see that it works not just in the college environment, the urban environment, but the suburban environment. The TAM starts to go 1,000 pretty quickly, experiential. So that love brand and that connection to the brand is very similar to Krispy Kreme and we're -- I don't like a founder what to do. I just said actually log of a lot of what you're thinking is so that the company knows how you thought 1 day. Take advantage of an 85-year-old brand about how it thinks about its brand essence, right? And try to match up to that. That's the benefit of being near Krispy Kreme. The other benefit is it will launch international. It will launch in the U.K. It will launch in Toronto, right? So they have a built-in franchise system, i.e., Krispy Kreme's corporate market, but we need to teach them how to actually serve another customer, not just Insomnia as company-owned system. It's a 100% company owned in the United States. And we have 27 partners that would like to have Insomnia right now, we're like you're not ready for that right? You've got supply chain a lot of things. And plus you have this huge growth story in the U.S., but you will be, right? So let's get the U.K. going. Let's get Canada going. They'll do it on -- they'll help you do it. And then you'll have another tremendous growth story. So when we talked about that. Wow, you've got all the fresh business growth, the U.S. international, you've got the market development side, you got Insomnia I was like, well, no wonder you guys start to get much more focused and say, here it is. I just think the -- they've shown Insomnia that can compete against the category directly. It's dozens type business as well. So again, those are all the things that attracted us to the business. And it's not easy to keep a founder around for 20 years, right? When they assume when we took the majority control, he was going to be doing sometime else I said, absolutely not. They run this as a very completely different team. And I have all the details.

Right. So the synergies are there. You have -- like you said, even the dozens business, you can sweet treats. You have a built-in sort of franchise market and you have supply chain and logistics expertise. So there's a lot to benefit the Insomnia brand and to accelerate growth from being part of Krispy Kreme.

Yes. I think they're world class at what they do, right? So I think Krispy Kreme's is world-class on what it does, right? Just get real focused. It's right in front of us. I don't know a lot of brands that have these types of growth stores.

Yes. That's a great place to end this on. So thank you so much for joining me.

Thank you. Appreciate it.