Krispy Kreme started this June out with a bang, filing its S-1 with the Securities and Exchange Commission (SEC) publicly and announcing its intended return to the public markets.
“Despite the challenges faced by businesses all over the world during the COVID-19 pandemic, Krispy Kreme continued to grow, reaching the highest level of sales in our brand’s history with net revenue of $1.1 billion in fiscal 2020,” the initial SEC filing noted.
New filings out this week indicate that Krispy Kreme is looking to raise between $560 million to $640 million through its initial public offering (IPO), selling stock at $21 to $24 a share. That will bring its total valuation to around $4 billion when it starts trading on the Nasdaq under the proposed ticker “DNUT.”
According to the latest filing with the SEC, net proceeds from the IPO will go toward repaying debts, repurchasing shares of stock from some of its executives and making payments on tax withholdings related to some restricted stock units. The rest of the funds will be used for general corporate purposes.
A Return To Public Markets
The public markets aren’t entirely new territory for Krispy Kreme, as it first went public 21 years ago in 2000, only to be taken private again by JAB Holding (owner of Panera Bread and Caribou Coffee, among many others) in 2016.
But the Krispy Kreme that re-enters the market will be slightly different from the one that withdrew five years ago. While the pandemic exerted negative pressure on most restaurants, Krispy Kreme’s status a premier purveyor of comfort foods meant that its profits went up as consumers stuck at home on the couch attempted to soothe their feelings. Krispy Kreme’s revenue rose 17 percent in 2020, though it still reported a net loss of $60.9 million. Net losses have become a bit of a theme for the brand, as it has reported them for the last three fiscal years while it has been investing in the business.
Moreover, Krispy Kreme is deeper into comfort foods than just donuts at this point, as it is also the owner of Insomnia Cookies. The digital dessert brand has 191 stores open in the U.S. with the majority of its sales (54 percent) coming in through online channels as of last year. Insomnia Cookies, for those unfamiliar with the brand, is best known for delivering fresh-baked cookies to consumers’ doors at all hours of the night (as the name implies). Krispy Kreme purchased Insomnia Cookies in 2016, shortly after being taken private by JAB, for $1.13 billion.
Like many delivery brands, Insomnia Cookies saw business pick up, not drop off, during 2020.
Inverting Dunkin’s Strategy
What perhaps stands out more clearly about Krispy’s Kreme’s return to the public markets is what a complete inversion it represents of the take on the markets by its main rival in the donut game — Dunkin’ (formerly Dunkin’ Donuts).
It was a little over six months ago that Dunkin’ Brands made headlines for reasons exactly opposite to why Krispy Kreme is capturing them now. In October Dunkin’ Brands announced plans to depart the public markets and be taken private by Inspire Brands, a private equity-backed company whose other properties include Arby’s, Buffalo Wild Wings and Sonic. The total price tag on that deal was $11.3 billion.
“We are excited to bring meaningful value to shareholders who have been with us on this journey and believe that Inspire Brands, a preeminent operator of franchised restaurant concepts, will continue to drive growth for our franchisees while remaining true to all that is unique and special about the Dunkin’ and Baskin-Robbins brands,” Dunkin’ Brands CEO Dave Hoffmann said in a statement at the time.
What made the Dunkin’ deal unusual for Inspire is that Dunkin’ was not a brand that was struggling or in need of turnaround like most of Inspire’s other purchases. Quite the opposite, Dunkin’, like Krispy Kreme, saw its sales increase during the pandemic and saw its stock price increase by 32 percent in 2020.
Expert opinion, like KeyBanc analyst Eric Gonzalez, noted that as appealing as Dunkin’s 12,500 Dunkin’ global locations, and $1.4 billion (as of 2019) in annual sales would be to Inspire Brands, the larger appeal was like Dunkin’s growing mobile ordering and digital loyalty programs, which, since their dual launch in 2014 have been powerful tools to bring consumers to the brand — and keep them coming back.
The donut wars, waged with diametrically opposed strategies regarding public and private markets but similar focus from both combatants on digitizing and expanding their offerings, seem to be starting up. Who will win, particularly in a word reopened but still sticking with digitized habits? Too early to tell now, but it’s a race that will be well worth watching as 2021 rolls on.
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