McDonald's (MCD) is set to add Krispy Kreme (DNUT) doughnuts to its menu across the United States by the end of 2026, the two companies announced on Tuesday.
DNUT surged rocketed nearly 40% in Tuesday trading.
The introduction of Krispy Kreme doughnuts in McDonald's restaurants will begin in the latter half of this year, with the full rollout expected to span approximately two and a half years.
This expansion is due to Krispy Kreme's plan to significantly increase its distribution capacity to meet the demands of this new partnership. McDonald’s (NYSE:MCD) will hold exclusive rights as Krispy Kreme's fast-food partner in the U.S. during this period.
Krispy Kreme operates using a "hub and spoke" system, allowing efficient production and distribution of its doughnuts from production hubs to various retail outlets, including grocery stores and gas stations.
This collaboration marks a significant step for Krispy Kreme in broadening its market presence. As of the end of December, the company’s products were available in 6,800 third-party retail locations.
McDonald's, with its approximately 13,500 outlets in the U.S. and plans to add 900 more by 2027, offers Krispy Kreme a substantial platform for expansion.
“We think we can service about 6,000 restaurants with our existing infrastructure, mostly doughnut shops, which have excess capacity,” said Krispy Kreme CEO Josh Charlesworth in an interview with CNBC.
In their take on the deal, analysts at Truist Securities said the partnership represents "a strong development for DNUT, increasing the availability and number of occasions consumers can try a Krispy Kreme doughnut."
"We also believe the long testing phase (17 months) will reduce the risks to both parties over the long term," analysts said.
"The stock has already popped more than 20% this morning which we believe is fully justified. However, we believe investors should wait for more color before chasing the stock," they added.