We also participated in the IPO of Krispy Kreme, Inc. (KKD, Financial), one of the most beloved and well-known sweet treat brands in the world. Krispy Kreme operates in the large, stable, and steadily growing $650 billion global indulgence market. Indulgence foods have proven to be recession resilient, and data indicates that nearly 97% of consumers enjoy indulgences at least occasionally. We believe that Krispy Kreme’s iconic, globally recognized brand with rich history positions it well to meet this growing consumer demand.
The company operates an omni-channel model, selling doughnuts across its iconic Hot Light Theater Shops, Fresh Shops (smaller shops and kiosks), and Delivered Fresh Daily (“DFD”), where Krispy Kreme branded doughnut cabinets are placed within high traffic grocery and convenience locations. To reach consumers, they operate a Hub & Spoke model, with Hot Light Theater Shops and Doughnut Factories (hubs) providing fresh doughnuts to Fresh Shops and DFD doors (spokes). Going forward, we expect the company to grow both “Hubs” and “Spokes” to further expand its reach and ensure products are available wherever consumers choose to shop.
New management has expanded the company’s reach by launching additional products and through strategic acquisitions. Krispy Kreme launched its Branded Sweet Treats line in 2020. Products include nine different packaged, shelf-stable offerings, including a variety of Doughnut Bites and Mini Crullers that are available at a range of grocery, mass merchandise, and convenience retailers. The company also has a 74.7% interest in Insomnia Cookies, a fast-growing, digital first cookie concept that can deliver warm treats locally within 30 minutes, or next-day to more than 95% of addresses in the U.S.
We see Krispy Kreme as fitting squarely within the Core Growth category highlighted above. We believe that growth from the core doughnut business, combined with Branded Sweet Treats and Insomnia cookies will enable the company to grow revenue in the high single to low double-digit range over the long term. Additional efficiencies from scaling the hub-and-spoke model in the U.S. and leverage on recent investments in Branded Sweet Treats should lead to low to mid double-digit EBITDA growth. Finally, we expect earnings to grow even faster than EBITDA as the company generates cash flow and pays down debt.
From Ron Baron (Trades, Portfolio)'s Baron Growth Fund third-quarter 2021 letter.
