Krispy Kreme and McDonald’s mutually decided to end their partnership this week, bringing to an end one of the more surprising collaborations the industry has seen in some time long before it was truly complete.
Krispy Kreme could not sell enough doughnuts inside McDonald’s locations for it to profit from the venture. CEO Josh Charlesworth called the partnership “unsustainable” in a statement, a surprisingly strong comment in a press release, where such statements typically have any exciting commentary edited out of them.
But why couldn’t the partnership work? Why could McDonald’s not sell enough Krispy Kreme doughnuts for that to be profitable, particularly given the attention it received? Here are five reasons.
Krispy Kreme’s profit challenges
The biggest reason for the failure, frankly, is the company’s plunging profits.
The doughnut chain’s adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, plunged 67% in the first quarter. Profit margins fell 670 basis points. It reported a $33.4 million net loss in the first quarter and an operating loss of $20.3 million.
The company has long argued that its customers want more access to its doughnuts. But providing that access has thus far proven too expensive.
Krispy Kreme simply can’t afford to continue its McDonald’s partnership—or any such relationship that isn’t working. Both McDonald’s and Krispy Kreme mentioned the doughnut chain's lack of profitability in their statements.
That’s not why people go to McDonald’s
People do not visit McDonald’s for doughnuts, or for pastries for that matter.
The fast-food giant has long struggled to effectively sell pastries to go along with its extensive coffee menu, despite repeated attempts. In 2023, for instance, it removed its cinnamon roll, blueberry muffin and apple fritter from the menu.
The company has wanted to sell pastries for some time, believing them to be a hole in its breakfast menu. It had hoped the Krispy Kreme partnership would fill that hole—no pun intended—but that’s not what consumers want from McDonald’s. They are going there for breakfast sandwiches.
The doughnuts are not at their best
Under Krispy Kreme’s current business model, the company makes doughnuts at its shops and then delivers them to kiosks at retailers and other locations, known as DFD doors.
It makes sense to improve the economics of those shops and to increase access without a heavy capital investment.
But few things are better than a hot glazed Krispy Kreme doughnut. So customers would be driving to McDonald’s for a product that isn’t quite as good as they could get from the shop itself. Many customers in social comments to me argued that this was a reason this partnership didn’t work.
That’s fine in a place like Walmart or Walgreens, but at McDonald’s, customers can get an Egg McMuffin instead that is at its best.
McDonald’s traffic has been weak
The fast-food giant hasn’t exactly been rolling in excess customer traffic lately.
The Krispy Kreme rollout has coincided with McDonald’s sales and traffic challenges, brought on by consumer price frustration and economic issues. Breakfast has had some of the worst traffic this year. According to Revenue Management Solutions, traffic in the morning was down 8.1% in May at fast-food restaurants.
In other words, Krispy Kreme was selling the same doughnuts customers can get in many other places nearby in a restaurant that serves fresher food at a time when there are fewer customers coming in. That was always difficult.
No marketing
Krispy Kreme had little choice but to roll out the sale of doughnuts at McDonald’s locations gradually, so it could prepare the logistics and build new locations—as it is doing in Minneapolis.
As such, McDonald’s wasn’t really marketing the partnership. Most of its customers couldn’t get the doughnuts. The company could do local marketing. But its real power is in its national marketing capabilities.
The lack of marketing meant many customers didn’t know they could get Krispy Kreme doughnuts at their local McDonald’s. But if the company did start marketing too early, many customers would go to their local McDonald’s only to not find doughnuts.
One wonders whether the partnership would have been better off as a long-term test in one region while Krispy Kreme developed its locations so it could roll the whole thing out nationwide more quickly.
UPDATE: This story has been updated to clarify that Krispy Kreme and McDonald's are concerned with the doughnut chain's profitability.