McDonald’s and Krispy Kreme call it quits on doughnut partnership after rocky rollout

McDonald’s and Krispy Kreme call it quits on doughnut partnership after rocky rollout

After nearly three years of collaboration, McDonald’s and Krispy Kreme are parting ways. The fast-food giant is pulling the doughnut maker’s signature treats from its menus this week, ending a partnership that was once seen as a win-win: a boost to McDonald’s breakfast business and a dramatic expansion opportunity for Krispy Kreme, the Wall Street Journal reported.

The initiative began in October 2022 at a handful of McDonald’s restaurants in Louisville, Kentucky. Encouraged by promising early results, the two companies expanded to 160 locations by March 2023, and by the following year, they had announced plans to take the doughnuts nationwide by 2026. But behind the scenes, cracks were forming.

Operational challenges and uneven sales

For Krispy Kreme, delivering doughnuts daily to McDonald’s sprawling network of over 13,000 US restaurants quickly turned into a logistical nightmare. The company struggled to maintain consistent deliveries, especially during holidays and poor weather. Quality suffered too, with complaints of cold doughnuts, scant toppings, and messy presentation.

The Charlotte-based company ramped up investments in a “hub and spoke” distribution model, relying on production hubs and retail stores to serve surrounding McDonald’s locations. But the demands proved overwhelming. Some stores were responsible for supplying more than 100 McDonald’s restaurants, often over long distances.

Krispy Kreme was also financially exposed: it was liable for unsold doughnuts during the first three months at each McDonald’s location. In some areas, such as rural Kentucky, as much as 20% of stock went unsold and was returned. A McDonald’s worker in Chicago claimed they had sold only 10 doughnuts in three months.

Falling short on growth and marketing

Initially, Krispy Kreme’s stock surged nearly 20% after the deal was announced, and company executives projected an additional $340 million to $430 million in annual revenue from the McDonald’s expansion. However, the optimism faded as McDonald’s scaled back advertising and promotional support. Franchisees reported sluggish sales, even as prices remained high—up to $2.59 per doughnut or $10.39 for a six-pack.

The strain became evident when Krispy Kreme lowered its profit guidance in late 2023 and reported a steep $33 million net loss in early 2024. By May, the company announced it was pausing the rollout due to underwhelming demand. Shares plummeted 23% following the news. On Thursday, the company disclosed the departures of its chief financial officer and chief growth officer.

McDonald’s moves on

McDonald’s emphasized that doughnuts were a small part of its breakfast strategy. In an internal message to operators, it said the doughnuts were profitable for franchisees, but it had sought “improvements across [Krispy Kreme’s] invoicing, operations, and distribution approach.”

With fewer than 20% of McDonald’s U.S. locations ever carrying Krispy Kreme products, the rollout remained limited. Now, McDonald’s is turning its attention to other breakfast innovations. The chain has already brought back its bagel sandwiches and plans to debut a Spicy Egg McMuffin on July 8.

For Krispy Kreme, the failed partnership underscores the challenges of scaling through large national chains. The company says it will now focus on distributing to higher-volume locations where demand justifies the cost. As its CEO Josh Charlesworth acknowledged last week: “Efforts to bring our costs in line with unit demand were unsuccessful.”

What began as a match made in fast-food heaven has ended with lessons in overextension, supply chain misfires, and the realities of trying to bring premium pastries to a drive-thru empire.