Krispy Kreme CEO: Robots will start frosting and filling donuts in ‘next 18 months’

Krispy Kreme CEO Mike Tattersfield joins Yahoo Finance Live to discuss company earnings, using robots to help fulfill donut orders, full-year guidance, competition within the food industry, expansion to Brazil, and the outlook for growth.

Video Transcript

BRIAN SOZZI: Hurry back here, Brad. We got donuts on the desk. All right, shares of Krispy Kreme, they're in focus after investors took a bite out of shares yesterday with the donut chain announcing guidance that wasn't as sweet as the Street expected. We're joined by Krispy Kreme CEO Mike Tattersfield, alongside our very own Brooke DiPalma. Good morning to you both. Mike, I'll start with you. Really a very in-depth presentation by you and your management team. Is there something that maybe you didn't get across to Wall Street?

MIKE TATTERSFIELD: No, we spend time talking about our US transformation and all the things that we need to do to drive the business forward, showed the growth story even now, even up to 75,000 points of access, and both the US and international and even gave the first glimpse of what's going on with Insomnia Cookies, which is one of the brands that's under our guidance.

And we own about 70% of that brand. And it's showed its TAM of 4,000 cookie shops, 1,000 in the US, performing incredibly well. It gets basically a year payback on a cookie bakery, right? So, again, very bullish. We even tell them how we reiterate our guidance, which is going to be a 12% organic revenue.

And then if you even take it in constant currency at 7% this year in EBITDA, the layout, what you're trying to do in '26, it's within the same algorithm that we've had. So we're-- I'm focused on driving the business. This is where I spend a lot of my time. It's a great business.

BROOKE DI PALMA: Well, Mike, it took about one minute for Brian and Brad to dive into the donuts. So while they're chowing down, I'm going to ask you a question here. But Wall Street keeping an eye this morning on longer term automation. They're certainly saying, can we expect to see robots in the next year to increase productivity in terms of icing, filling, boxing? So break it down for us. Will we see robots in locations in the backend in the next few years?

MIKE TATTERSFIELD: So probably within the next 18 months, you'll see some automation starting to go into the frosting, the filling, the sprinkles, and even the packaging. We've got some pretty big factory stores, again, that we do 12,000 points of access today, which get fresh donuts globally. You need to start looking at what the automation capacity of that is because it is going to the grocers. It is going to the convenience shops.

So you'll start seeing that start to happen next year. And you'll continue to see a little bit. We still are going to continue to drive the experience side with our Krispy Kremers and Insomniacs. So I always find that when companies do a great job, they're balanced in how they try to do that. And you try to get the repetitive task out of the business.

BRAD SMITH: Mike, talk to us about this global expansion here because that was one of the major items that you were pointing out to investors, and particularly, what that looks like over the next five years here. What is the key country that you see as the biggest opportunity for Krispy Kreme to move into?

MIKE TATTERSFIELD: So it's pretty interesting. We spent a lot of time over the last 4 plus years really getting this transformation to a hub and spoke model, right? A hub being those theater shops that you know that make the donuts, but then it's really the backend or logistics system takes them to the grocers and other places where consumers are. When you have a model like that in international, instead of-- it's a donut company versus a franchising business. A partner comes in and can build four of these theater shops and then potentially build between 500 or even more than that points of access to the grocer points. That's very attractive to partners.

They-- we've had no problem signing up the right partners and the right countries. So you heard about our venture with France. We're looking forward to seeing how that will come about in the next five years. So you're getting to that 500 points of access with the right balancing of theater shops. We will open up between 10 and 25 what I call theater hub shops on a yearly basis between equity and partner, doing that.

But you'll see that 80% of the business will start to be in new unit development, will be in franchises-- in the international part of the world. The growth is significant. You'll see Western Europe. You'll see South America, right? And you'll see continued development in even the 30 countries that we're in today outside the United States. It is the largest part of our business is international. And there's still tremendous growth opportunity in the United States as we really think about a hub and spoke model.

BROOKE DI PALMA: And when you think about that consumer here in the US, pricing is certainly top of mind as we make way into 2023. Of course, you have different-- have classic, you have premium, you have those handmade donuts. When you think about the pricing of those more premium donuts, are you noticing consumers still going to those? And can we expect pricing across the board to tick again in 2023?

MIKE TATTERSFIELD: So, again, we do-- we're a dozens business, right? So even, we always try to focus on how do you do the affordable sweet treat reach? So that's always on our mind as we go around the world. That's why you have that range from the original glazed up to hand-cut donuts. But you can get to a pricing model in the original glazed that is pretty close to $1 per donut, which is very still reasonable, that it's freshly made, right, every single day. Even if you go to the premium side of that, we're talking about $2.50.

So it's not that far out of reach. We have not-- and in fact, we see more people trying to try that premiumization because they're exceptional. All of our donuts are. But they're pretty unique when we try to go after some of these things. We are-- the company thrives on innovation. So we continue to make sure that that's at the forefront. And everything, even our own challenges, make sure it's worth it.

BRAD SMITH: Mike, how do you compete for employees in this environment, too? I mean, especially across the different environments that they can choose to work in, how do you go about creating a compelling pitch to make sure that even within the expansion that you're eyeing, that people are attracted towards the Krispy Kreme brand, that want to interface with customers day in and day out?

MIKE TATTERSFIELD: So there's different aspects to our brand, right? So there's the donut production folks and as well as the experience folks, as well as the logistics people that you got to look in how they're dealing with their consumer base. You've got to just make it a brand that people love that want to be with every day. You got to be competitive in terms of what's the wages that you're paying per hour, and how is that going to be across some of the functional parts. So if you're a driver, how you're competing in that space.

And then it's really about the growth opportunity. So when you're in a company of our size that even, today, it's still just 400+ producing donut shops with a long trajectory of growth, right, that growth across country, so that becomes a very attractive proposition. I love to see that our donut shop managers are now owners, right? So they get to experience [INAUDIBLE] stock, and they become very vested in that. We'll continue to look at tools and benefits that are pretty unique to us.

And then I think one of the pieces that people love about Krispy Kreme is just the community aspect of it, how we give back. It's built into our DNA from our founder. It's Vernon Rudolph that wanted to build the donut shop and give back to the community. So with that aspect and the unique part of being a pretty fun brand all the time, right? So it's always a social media, very entertaining brand. Six continents. Maybe we'll get to the seventh continent, but that's Antarctica. So we'll figure out how that's going to work one day. But it's-- I-- at the end of the day, I always think about this very simple equation.

BRAD SMITH: And--

MIKE TATTERSFIELD: How many Krispy Kremers equal happy donuts equal happy customers? That's what we try to do.

BRAD SMITH: That's so true. Are any of your investors or shareholders asking you questions about where the employee base or if the employee base is paying attention at all to the unionization efforts that are taking place over at some of your competitors right now and how you would approach that situation?

MIKE TATTERSFIELD: In a global business, we do have the union partners that we work with along the world. So it's not something that we're not used to working with unions. At the end of the day, I'm always about how do we make sure we keep our Krispy Kremers happy and growing and career paths as we continue to evolve.

BRIAN SOZZI: Hey, Mike. Are you opening in Brazil? When does that happen? That deck, that part of the slide, what really took me by surprise, some of the surprising markets you're opening up internationally soon.

MIKE TATTERSFIELD: Yeah, so, again, we're just in a little bit of dialogue sometimes with the right partners. That'll be an enormous market for a Krispy Kreme. There's a love and passion for the sweet treats down in that country. [SPEAKING SPANISH] But it's pretty close. But I love the country. I love the passion as we start to really build an international business. And Brazil clearly is on our radar.

BRIAN SOZZI: All right, we'll leave it there. Always good to get some time with you. Krispy Kreme CEO Mike Tattersfield, alongside our very own Brooke DiPalma.

MIKE TATTERSFIELD: I'd like to just say thank you to all the Krispy Kremers and Insomniacs. And I hope you guys have a happy holiday. And here's my ugly sweater that I wear [INAUDIBLE]

BRIAN SOZZI: And thank you for wearing that on camera. You're now getting beamed out all over the internet. Mike Tattersfield, always good to see you, brother. Be good.