Krispy Kreme Doughnut Corporation was founded by Vernon Rudolph in 1937. More than 83 years later, its original glazed doughnuts and infamous “Hot Now” signs are iconic parts of the American lexicon. Starting with one shop in Winston-Salem, NC, it now has 1400 retail shops in 33 countries across the globe and it’s doughnuts can be found in over 12,000 grocery and retail outlets in the United States. The original glazed doughnuts – ever popular – remain over 60% of their sales. Krispy Kreme has filed for a $100 billion IPO in May 2021.
TL;DR
- Founded by Vernon Rudolph in 1937
- Brand focus on making glazed doughnuts to sell to grocery stores at its start
- Previously raised $63 million for its first IPO
- 2020 net revenue was $1.12 billion – highest ever
- Went through bankruptcy in 2005
- Brand revived by JAB Holdings
- Businessman Michael J. Tattersfield is CEO and President
- Seeking a $100 billion IPO in June 2021
Krispy Kreme at a glance
Vernon Rudolph grew up helping his uncle run a general store. His uncle bought the recipe for yeast-raised donuts from a New Orleans pastry chef named Joe LeBeau. His uncle experienced limited success with the business and sold it to Vernon Rudolph’s father who opened a shop in Kentucky. Vernon Rudolph’s father was able to expand to Charlestown, West Virginia and Atlanta, Georgia. In 1937, Vernon Rudolph moved to Winston-Salem and rented a shop to make the donuts so that he could sell them to grocery stores. The donuts were so popular that people began stopping by the shopping and asking if they could buy them directly from him, hot and fresh. Thus Krispy Kreme’s business initial model was born where they sold both direct to consumers and also to grocers. The company’s headquarters are still based in Winston-Salem, NC.
The brand’s tagline is “Happiness Through Donuts” and their mission is “to make the most awesome doughnuts on the planet every single day.” The fact that their original recipe still makes up over 60% of its doughnut sales more than 80 years after the company’s founding means they are definitely living out this principle every day. They believe in giving back to the community and do this through two programs: ‘Acts of Joy’ and ‘Raise Dough for Your Cause’. With ‘Acts of Joy’, the company endeavors to bring joy to people through themed events such as “Healthcare Mondays” in 2020 where healthcare workers could receive unlimited, free doughnuts as a thank you for their dedication and service during the global COVID-19 pandemic. With ‘Raise Dough for Your Cause’, local community organizations can use Krispy Kreme doughnuts to raise money for their causes. This helps non-profit organizations and youth-oriented organizations raise funds while also increasing brand awareness of Krispy Kreme. In 2019 when the Reinmanns, the German family that owns the majority stake in JAB Holdings, discovered their family roots included Nazi supporters, they decided to donate millions of dollars to charity as an act of atonement and restorative justice.
While many companies had a difficult time during the COVID-19 pandemic, Krispy Kreme saw its sales and revenues increase. 2018 Net Revenues were $795,883; 2019 increased to $959,408; and 2020 Net Revenues were $1,112,036. The company is not posting a profit, however, due in large part to high amounts of debt. The chain has increased its Krispy Kreme locations from 6040 in 2019 to 8275 at the end of 2020. Krispy Kreme has shops on all continents except Antarctica.
The company is led by CEO and President, Michael J. Tattersfield. He has been in this position since January 2017 and steered the company through its increasing revenue of the past four years. Prior to taking the helm at Krispy Kreme, he was President for Yum! Brands, COO & Executive VP at lululemon athletica, among other business leadership experience. He received his MBA from Harvard University.
Krispy Kreme fundraising at a glance
Krispy Kreme previously raised $63 million in 1 round of funding when it went public in April 2000. The company went bankrupt in 2005 and was bought out by a European investor, JAB Holdings who has heavily invested in revitalizing the chain. They are now attempting a new IPO.
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Path to the Krispy Kreme IPO
Krispy Kreme has viewed IPOs favorably for a long time. The company filed for an IPO in 2000 but went bankrupt in 2005. They traded publicly from April 2000 to July 2016 before being acquired and going private. It sold for $1.35 billion to European investment firm, JAB Holdings which has revived the ailing brand. And now they’re back again for a second IPO. They attribute a large part of the financial troubles of the brand in 2005 to the public sentiment against consuming a lot of carbs. After experiencing 2020 sales and revenue increases and expanding its footprint by approximately 37%, the company believes it is well-positioned to profit from a 2021 IPO. JAB Holdings has experience in sending its companies through IPOS having done so with JDE Peets – which owns well known brands like Pete’s Coffee and Stumptown – and preparing to do so with Panera.
When is the Krispy Kreme IPO date?
Krispy Kreme filed confidentially for the IPO in May 2021. Their S-1 statement has been publicly available since June 1, 2021. They intend to use the ticker symbol DNUT. Leading the IPO are J.P. Morgan, Morgan Stanley, BofA Securities and Citigroup. Trade publication Restaurant Business Online had this to say about the expected IPO, it “comes at a time when the public markets appear to be more friendly to restaurant companies.” Neither Krispy Kreme nor JAB Holdings have released an official statement regarding the IPO. Industry insiders expect Wall Street to be unconcerned with their past bankruptcy and withdrawal from public trading as long as there is “money to be made”.
What investors should know about the Krispy Kreme IPO
All investments have risks and an IPO is no exception. What’s important is exploring the types of risks investors might need to consider with a Krispy Kreme IPO. The first thing investors should be aware of is that even though the company has had increasing revenues, it has not turned a profit due to the large amount of debt it is carrying. In 2018, they posted a $14.1 million loss; in 2019, the loss was $37.4 million and in 2020, the net loss hit $64.3 million. They have a working deficit of $328.9 million and debt of $1.2 billion.
Krispy Kreme intends to pay off their debt with the money raised from the IPO. On the one hand, the debt is preventing them from making a profit which is never acceptable when shareholders are involved. On the other hand, this means that they won’t have a huge amount of capital for further investments and expansion.
The next thing to understand is that Krispy Kreme is part of the food and beverage industry. They ran into trouble before when healthy living became synonymous with eliminating all carbohydrate consumption. They ended up in bankruptcy. Now that the brand has been revived by an outside investor, for the past 4 years, revenues have grown on average 19% each year. In general they reach towards growth strategies. They have identified markets they want to expand into outside of the U.S. including deeper penetration into Western Europe, China and Brazil. Three years ago for an undisclosed amount, they acquired Insomnia, a cookie brand that has vegan options and conducts more than half of its sales on-line in addition to its 100+ retail locations.
This diversification means that Krispy Kremes sales are divided between branded retail locations, e-commerce and having their products sold in other grocery and retail outlets. They have recently opened a manufacturing facility in Ireland and between 2019-2020 increased the Krispy Kreme branded retail outlets by 37%. The company intends to expand its e-commerce and delivery options – which have been extremely successful during the pandemic.
The company did well during the pandemic. In 2020 they experienced their highest net revenue ever: $1.12 billion. First quarter 2021 sales were $321.8 million which was 23% higher than first quarter 2020 sales, putting the company on pace to earn even more in 2021 than 2020. They have retail shops in over 33 countries. They also have production facilities overseas. You can find Krispy Kreme doughnuts in UAE, Bahrain and South Africa, just to name a few. Expansion always carries risk in terms of navigating the political and regulatory frameworks that exist and in terms of investing capital in opening a physical location. All food-oriented companies carry risks associated with food-borne illnesses and the need to maintain strict standards regarding sanitation and food handling. Krispy Kreme recently opened its largest location ever in Times Square. It is open 24/7 and the company touts its capacity to produce more than 4500 doughnuts per hour.
The major competitors of Krispy Kreme are other quick service food and beverage companies like Starbucks, Dunkin Donuts and McDonald’s. Dunkin’ Donuts used to be publicly traded but it has returned to being a private company. Both Starbucks and McDonald’s are publicly traded. In addition to being part of the food and beverage industry, Krispy Kreme views itself as part of the global indulgence market. This market is estimated to be worth $650 billion globally. Industry research company IBIS World expects the fast food industry to grow by 8.9% in the US by 2027. The US market size alone is approximately $278 billion.
Bottom line
After filing with the SEC in May 2021, Krispy Kreme is pursuing an IPO as soon as possible. They will trade on the NASDAQ under the ticker symbol: DNUT. They aim to benefit from the current industry and market trends of growth in the fast food, food and beverage and global indulgence industries. While no one is exempt from risk, if they can eliminate their debt and continue growing their revenues, there is a potential for gain for investors.