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Krispy Kreme CEO on global expansion: Brand awareness ‘is exceptionally high’

Krispy Kreme CEO Mike Tattersfield joins Yahoo Finance Live to discuss earnings, global growth, new fall offerings, and more.

Video Transcript

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- We are diving for doughnuts this morning. Krispy Kreme shares are under some pressure after the company lowered its full-year profit outlook. But the doughnut giant did see a strong quarter for sales in the US and in key international markets. Let's welcome in Krispy Kreme CEO Mike Tattersfield. Yahoo Finance's Brooke DiPalma joins us as well. Good to see you both.

Mike, I'll start with you. Lots of great-smelling doughnuts in front of me here on our "Yahoo Finance" set. How is demand looking? A lot of consumers are under a lot of financial pressure. What are you seeing?

MIKE TATTERSFIELD: I mean, if you saw from our third quarter, we grew almost 9%. Across the world, every single one of our countries actually grew. And it's truly, it really evolves around our hub-and-spoke model with our omnichannel approach, where we really use those doughnut shops, and then really then use the spoke system to get fresh doughnuts out to the grocer and convenience shops around the world.

We see that demand continuing. As we even disclosed our start in the third quarter also started to be a double-digit, low double-digit organic growth as well. So we see the demand still there.

BROOKE DIPALMA: Demand is still there. And so Krispy Kreme is introducing a new price tier here, with customized handmade doughnuts. What is the expectation there? And do you see consumers trading down at all, perhaps getting less doughnuts or looking for more of those value offerings?

MIKE TATTERSFIELD: I mean, you know, it's really interesting. We use pricing very strategically, whether you're proactive or reactive, right? Just to give you an idea, we didn't even take price in the US or the UK during the first half of the year. In fact, what we want to always do is we serve across our spectrum all the consumer base, all their economics. And what's really interesting is they're going to look for value and they're going to look for great innovation and they're going to look for pretty unique product lines.

We did something in the US, which we've been consistent in the past, such as providing a act of joy. We did the beat-the-pump promotion where it matches the price of gas for a dozen doughnuts. That continues for another two weeks. That had just tremendous traction across all of our shops in the US.

We also started really to tweak and start to think about the next pricing opportunity. Hand-cut doughnuts is actually something that our consumers are really looking for. We've seen that. We specialize on cinnamon rolls on Sundays. It has a big take. It is sometimes 50% more than any other doughnut that we have. So across the spectrum, we see people taking that.

And what's really interesting is the innovation. We can now just, you know, what you saw the last time talking about Twix bars, right now we're ready to launch a fritter. There's a lot of really interesting innovation. Are consumers always going to be realistic? If it's worth it, they're going to come to us.

And we're always trying to be very thoughtful about what's the affordable, sweet treat that they want to do. The one advantage that we still always will have is we're an infrequent product. And it's gifted a lot. So when the seasonality comes in like in October for Halloween or something in the holidays as well, it is clearly where you see sometimes gifting is a box of Krispy Kreme. So you can see that as well.

- Mike, I have in my hand right now a doughnut that I believe is part of one of those seasonal promotions here. And I was going on a tirade earlier about the statute of limitations that we may need to place on PSL season here, because it's gotten outrageous. So perhaps you can help us break this down. When you are increasing the earlier seasonality of some of these promotions, what type of flow-through to your revenue, to your profits, do you see?

MIKE TATTERSFIELD: So any time we do an innovation, right, it's always, we sell the business in dozens. When we do gifting, whether it's Halloween doughnuts, right now you're getting the pumpkin spice, the team decided to do something pretty unique and go a bit earlier, which is pretty fun and for the American consumer. But innovation is a key driver of change, and really drives the productivity and the economics of the business.

So you'll always see us, we're going to launch a new fritter, a product that will come out in the next probably month and a half. We'll probably try to specialize it as well. But innovation and the balance of also what everybody also loves about us is the original glazed doughnuts.

BROOKE DIPALMA: Krispy Kreme is also making a big bet overseas today. Krispy Kreme announced a partner in Turkey, part of a larger plan to expand to three new countries per year. Of course, here you're doing mega-marketing to win over consumers. But when you go overseas, how exactly are you winning consumers over there?

MIKE TATTERSFIELD: Well, one thing that's pretty neat is the brand awareness of Krispy Kreme is exceptionally high. Consumers travel all over the world and they've engaged our brand, in whether it's England, whether it's Japan, whether it's in Singapore, whether it's in Mexico or Canada. So brand awareness is high. What's uniquely different now, and what used to be the old franchising model, now we're partnering and trying to-- either we partner with a group with them, or it's a franchise partnership that actually develops the brand.

But they develop it in a hub-and-spoke model, right? So they're not building doughnut shops everywhere. And they're building a hub so then they can really build the spokes. That is very attractive to franchise partners. So you'll see even more news as we open up with probably our biggest development agreement in Turkey recently.

But there'll be others that come up probably even in the third or fourth quarter as well. So the demand of really figuring out how to get the doughnut business, and then getting fresh doughnuts and access to the customers in a very capital-efficient way is what the hub-and-spoke system does.

- Mike, just two guys sitting here eating and talking doughnuts, as I am right now. You tease an analyst day coming up in December, looking to put out some longer-term targets. I mean, how much growth do you see this brand having over the next three to five years?

MIKE TATTERSFIELD: So we're not changing our long-term guidance right now, right? So you think about what we have, a 9% to 10% organic growth, 12 to 14 earnings, and 18 to 22 from adjusted net income. That's there. What we're going to be doing is actually highlighting the transformation that we've continued to do. When we bought the US, we bought the system to control the brand, so then we can really run the hub and spoke model, give an update on that.

We'll give a little deeper update on what's going on with Insomnia Cookies, which is a fantastic brand. And the team is just doing a tremendous job. They own the night. It's a very e-commerce oriented cookie brand, which is just continuing to grow. We'll give an update on our branded sweet treat line, which really then gives us access to all the consumers across the US, and where its plans are.

And we'll also really update, release the growth opportunity that starts to exist in international and the prioritization.

BROOKE DIPALMA: And on that note with Insomnia Cookies, we've seen so many players come into the competition in recent years, especially on TikTok with Crumbl Cookies. How are you keeping an eye on that competition there?

MIKE TATTERSFIELD: You know, we always keep an eye on competition. We've just got a great team in Insomnia, you know, that really is always focused about delivering warm cookies fast. And they do it with an e-commerce model. They're in their season right now. They started it in a college town environment, and they continue to really build the business.

They're going to open up a significant amount of shops. Their long-term growth in the US is getting to 600 cookie shops. And in fact, they're exploring actually how to go international. So they can see that opportunity. That is what we saw from Krispy Kreme when we actually said, why would we acquire Insomnia.

- Mike, lastly, just settle this debate for us, if you could. I'm hoping you could. How much in pumpkin spice sales will you do this year? Coffee, doughnuts, how big a business is this?

MIKE TATTERSFIELD: So, again, we're not a big coffee business, right? Think, we're a doughnut business, right? So that's where we focus all our energy. Innovations can sometimes drop up, you know, pop up to about 10% of a mix, right? Anytime between 5% to 10% depending on product. But that's what we'll see.

We do have a coffee business. So we will make sure that we provide some pumping piece. But our focus is on doughnuts. Our ability to focus on doughnuts is really what's helped transform this company. And even in a challenging quarter, that you can see the consumers stressed over the world. One little data point that's pretty interesting, we grew doughnut sales again 7%.

- Mike, we got to go. Perfect amount of time to microwave--

- Yeah, I got to go eat.

- --a Krispy Kreme doughnut, what is it? Is it still 8 seconds?

MIKE TATTERSFIELD: It is. It is.

- It's 8 seconds. Wonderful.

MIKE TATTERSFIELD: 8-10 seconds.

- We get a little everything here, there, Mike. Get a leverage.

MIKE TATTERSFIELD: Good.

- Thanks so much Mike. That's Krispy Kreme CEO, Mike Tattersfield field as well as our own Brooke DiPalma. Brooke, which one do you have in your hand?

BROOKE DIPALMA: Oh, Boston creme. The best, the best one. I saved it for the end, unlike you two.

- I was surprised that there was filling in the one I had.

- Doughnut shares, right? I think we did that right. Dougnut shares, there you do.