Doughnut divorce: McDonald’s and Krispy Kreme end their partnership due to cost challenges

Krispy Kreme (NASDAQ:DNUT) fell in early trading on Tuesday after the company announced that a joint decision was made with McDonald’s (NYSE:MCD) to end their partnership, effective July 2.

Krispy Kreme (NASDAQ:DNUT) CEO Josh Charlesworth said efforts to bring costs in line with unit demand were unsuccessful, making the partnership unsustainable for the company.

To drive future sustainable growth, Krispy Kreme (DNUT) said it is focused on making its fresh doughnuts available in more places, not just to eat but to share, through its two largest opportunities: profitable U.S. expansion through high-volume retail points of distribution and capital-light international franchise growth.

As for McDonald’s (NYSE:MCD), Krispy Kreme (DNUT) products represented a small, non-material part of the breakfast business. Breakfast was still called a core pillar of the fast-food giant’s business strategy.

“We had strong collaboration with Krispy Kreme and they delivered a great, high-quality product for us, and while the partnership met our expectations for McDonald’s and Owner/Operators, this needed to be a profitable business model for Krispy Kreme as well,” highlighted Alyssa Buetikofer, McDonald’s USA’s Chief Marketing and Customer Experience Officer.

The partnership between McDonald’s (MCD) and Krispy Kreme (DNUT) began with a small-scale test in October 2022. Initially, Krispy Kreme doughnuts were offered at nine McDonald’s locations in the Louisville, Kentucky area. The pilot aimed to assess consumer demand and operational impact, with both companies seeking to leverage each other’s strong brand recognition and customer bases.

Following positive results, the test expanded in early 2023 to 160 McDonald’s restaurants in Kentucky. Earlier this year, McDonald’s and Krispy Kreme officially announced plans for a phased, nationwide rollout of Krispy Kreme doughnuts at McDonald’s restaurants. The goal was to make fresh Krispy Kreme doughnuts available daily at McDonald’s locations across the United States, with full nationwide availability targeted by the end of 2026.

Shares of Krispy Kreme (DNUT) were down 4.7% in premarket action. McDonald’s (MCD) was up 0.3%.