1 00:00:00,240 --> 00:00:04,560 Speaker 1: Krispy Cream Donuts is going to be purchased for one 2 00:00:04,680 --> 00:00:09,520 Speaker 1: point three or five billion dollars. The purchase by Austria's 3 00:00:09,680 --> 00:00:14,800 Speaker 1: billionaire Ryman family. Well, they'll be adding to Pete's Coffee 4 00:00:14,840 --> 00:00:17,880 Speaker 1: as well as Kurg Green Mountain. A lot of glazed 5 00:00:17,920 --> 00:00:21,639 Speaker 1: donuts coming to those brands. Perhaps, let's find out more 6 00:00:21,800 --> 00:00:27,280 Speaker 1: from Michael Halen. He is senior restaurant analyst for Bloomberg Intelligence. Michael, So, 7 00:00:27,320 --> 00:00:32,320 Speaker 1: this is like the complete breakfast now, right, coffee and doughnuts. Although, 8 00:00:32,400 --> 00:00:35,640 Speaker 1: and I'm looking at the Crispy Creame website you have 9 00:00:35,720 --> 00:00:38,519 Speaker 1: to scroll down to even see a donut. Now, this 10 00:00:38,600 --> 00:00:43,199 Speaker 1: is about coffee and sugary drinks. Yeah, it is about coffee. 11 00:00:43,240 --> 00:00:46,239 Speaker 1: And although Krispy Kreme has you know, hasn't had a 12 00:00:46,280 --> 00:00:50,879 Speaker 1: ton of success increasing their coffee sells. Um obviously, j 13 00:00:51,000 --> 00:00:55,200 Speaker 1: ABC is a significant opportunity here, um, you know, to 14 00:00:55,200 --> 00:00:58,360 Speaker 1: to use their expertise to help Krispy Creme, you know, 15 00:00:58,440 --> 00:01:00,920 Speaker 1: expand coffee seals not only in their stores, but but 16 00:01:01,000 --> 00:01:03,920 Speaker 1: in the retail channel. Why are they so interested in 17 00:01:03,960 --> 00:01:08,600 Speaker 1: these coffee and consumer brands. Well, coffee makes a lot 18 00:01:08,640 --> 00:01:12,480 Speaker 1: of sense because it's growing faster than other packaged foods 19 00:01:13,000 --> 00:01:15,399 Speaker 1: in the US and across the globe. You know, we're 20 00:01:15,440 --> 00:01:19,120 Speaker 1: talking about UM growth rate in the mid single digits, 21 00:01:19,240 --> 00:01:24,280 Speaker 1: So it's a very attractive business. Um. It's typically very 22 00:01:24,360 --> 00:01:29,119 Speaker 1: high margin, especially at the store level. Um. You know, 23 00:01:29,240 --> 00:01:31,240 Speaker 1: and you know, they've made a lot of acquisitions, so 24 00:01:31,480 --> 00:01:34,800 Speaker 1: so they're purchasing power is increasing, and they're going to 25 00:01:35,200 --> 00:01:37,800 Speaker 1: gain some leverage on their coffee buys, which should help 26 00:01:37,840 --> 00:01:42,520 Speaker 1: margins across the organization. Now, J A. B. The company 27 00:01:42,560 --> 00:01:48,240 Speaker 1: that is purchasing Crispy Cream, already owns Caribou Coffee, Einstein 28 00:01:48,280 --> 00:01:53,880 Speaker 1: Noah Restaurant Group, as well as a variety of other 29 00:01:54,160 --> 00:01:57,400 Speaker 1: restaurants that perhaps some less familiar to many listeners. But 30 00:01:57,960 --> 00:02:01,560 Speaker 1: is this a plan just to push into the restaurant 31 00:02:01,560 --> 00:02:04,320 Speaker 1: business the coffee business? What what exactly are they coming 32 00:02:04,400 --> 00:02:10,720 Speaker 1: up against Starbucks? It's mainly it's mainly for the coffee business. 33 00:02:10,800 --> 00:02:12,480 Speaker 1: You know, we don't get a ton of information right 34 00:02:12,520 --> 00:02:16,040 Speaker 1: because it's privately owned. But from what we can tell, 35 00:02:16,320 --> 00:02:19,919 Speaker 1: it's mainly through uh, you know, growth of the coffee 36 00:02:19,919 --> 00:02:22,839 Speaker 1: business and the coffee brand. So, you know, Krispy Cream 37 00:02:22,840 --> 00:02:25,400 Speaker 1: has put a lot of effort into you know, they 38 00:02:25,440 --> 00:02:27,240 Speaker 1: have a very strong brand, and they've been putting a 39 00:02:27,240 --> 00:02:31,160 Speaker 1: lot of effort into Krispy Kreme branded drinks UH and J. A. B. 40 00:02:31,360 --> 00:02:33,560 Speaker 1: Sees that as some low hanging for it. They think 41 00:02:33,560 --> 00:02:37,280 Speaker 1: they can they can take Krispy Cream beverages, UM, expand 42 00:02:37,320 --> 00:02:41,959 Speaker 1: the distribution, UM, get a greater attachment rate in the stores, UM, 43 00:02:42,360 --> 00:02:46,000 Speaker 1: you know, and and UH increased sales and origins. How 44 00:02:46,000 --> 00:02:48,720 Speaker 1: do you do a back of the envelope valuation for 45 00:02:48,800 --> 00:02:52,160 Speaker 1: a company like Crispy Cream Donuts. One point three five 46 00:02:52,200 --> 00:02:55,760 Speaker 1: billion is the estimated value of the deal. Sure, So 47 00:02:55,800 --> 00:02:59,279 Speaker 1: it's interesting. So they're paying us, you know, almost seventeen 48 00:02:59,400 --> 00:03:03,320 Speaker 1: times on an even Ebada basis based on this year's 49 00:03:03,320 --> 00:03:07,080 Speaker 1: consensus Ibadan number, which some may say is kind of aggressive, 50 00:03:07,080 --> 00:03:09,000 Speaker 1: but that's what they've been paying. That's what they paid 51 00:03:09,000 --> 00:03:11,320 Speaker 1: for Pezze, That's what they paid for Caribou. And what's 52 00:03:11,360 --> 00:03:14,520 Speaker 1: interesting is they're kind of discipline, so you know, you know, 53 00:03:14,560 --> 00:03:16,679 Speaker 1: for example, Krispy Kreme has been rumored to be in 54 00:03:16,720 --> 00:03:21,040 Speaker 1: the work since but with Krispy Kreme, Caribou, Pezze, UH 55 00:03:21,080 --> 00:03:24,160 Speaker 1: and even curing all of the company, the target stock 56 00:03:24,760 --> 00:03:29,480 Speaker 1: UH dropped precipitously before J. B. Made the offer. So 57 00:03:30,040 --> 00:03:33,000 Speaker 1: although it may seem aggressive at you know, sixteen point 58 00:03:33,000 --> 00:03:36,520 Speaker 1: eight times forward ibada UM, you know, this may be 59 00:03:36,640 --> 00:03:38,960 Speaker 1: a trophy ibadan number that that it's based off of. 60 00:03:39,080 --> 00:03:41,960 Speaker 1: So it's interesting because they showed discipline, UM, but they 61 00:03:42,000 --> 00:03:45,160 Speaker 1: seem to strike when they feel the opportunity is right 62 00:03:45,200 --> 00:03:47,720 Speaker 1: and they place a bid that doesn't seem to that 63 00:03:47,760 --> 00:03:52,200 Speaker 1: you know, may not get any UM competition. Point to 64 00:03:52,200 --> 00:03:57,120 Speaker 1: you about valuation. Are there other companies that that if 65 00:03:57,160 --> 00:03:59,800 Speaker 1: you are invested in Krispy Kreme for just this type 66 00:03:59,800 --> 00:04:03,600 Speaker 1: of situation, are there other brands that you would also 67 00:04:03,640 --> 00:04:07,040 Speaker 1: pay attention to? Well, there's there's it's a dwindling numbers. 68 00:04:07,440 --> 00:04:10,480 Speaker 1: J B has been very busy over the last four years. 69 00:04:10,480 --> 00:04:13,560 Speaker 1: But um, there's only two left really that are publicly traded. 70 00:04:13,560 --> 00:04:16,479 Speaker 1: We got Starbucks and Duncan brand. Starbucks doesn't make any sense. 71 00:04:16,520 --> 00:04:19,120 Speaker 1: There are eighty three billion dollar market cap. Is is 72 00:04:19,279 --> 00:04:23,599 Speaker 1: uh significantly larger we think than j a B. Duncan 73 00:04:24,480 --> 00:04:27,760 Speaker 1: makes sense on a certain level because you know, the 74 00:04:27,839 --> 00:04:31,360 Speaker 1: business model with the restaurants and a strong consumer branded 75 00:04:31,360 --> 00:04:35,000 Speaker 1: retail business UM is very similar to Cariboo and Pezza 76 00:04:35,000 --> 00:04:41,159 Speaker 1: and the other companies in the portfolio. They have stores, 77 00:04:41,160 --> 00:04:44,320 Speaker 1: so they have a ubiquitous presence. But it's almost a 78 00:04:44,360 --> 00:04:46,920 Speaker 1: hundred percent franchise, so it the presses the market cap 79 00:04:46,920 --> 00:04:50,039 Speaker 1: of the company, it's only four point three billions, so uh, 80 00:04:50,080 --> 00:04:53,280 Speaker 1: you know, you can you know, they maybe they may 81 00:04:53,320 --> 00:04:55,920 Speaker 1: decide they want to purchase this brand and they might 82 00:04:55,920 --> 00:04:58,640 Speaker 1: be able to get at a manageable price because of 83 00:04:58,640 --> 00:05:01,200 Speaker 1: the franchise nature of it. You know. That being said, 84 00:05:01,200 --> 00:05:03,320 Speaker 1: there's you know, there isn't the same amount of low 85 00:05:03,360 --> 00:05:07,240 Speaker 1: hanging fruit like there were at at Crispy Cream and 86 00:05:07,279 --> 00:05:09,480 Speaker 1: then at Pete and Cariboo, which were kind of regional 87 00:05:09,520 --> 00:05:11,800 Speaker 1: and struggling to expand. So they don't really have the 88 00:05:11,839 --> 00:05:16,000 Speaker 1: low hanging fruit here with Duncan doughnuts. Um. So if 89 00:05:16,040 --> 00:05:19,200 Speaker 1: they are interested, they may remain patient. You know. Like 90 00:05:19,240 --> 00:05:22,040 Speaker 1: I said, they pay about sixteen to seventeen times off 91 00:05:22,080 --> 00:05:25,040 Speaker 1: for their targets. Uh, Duncan is at fourteen and a 92 00:05:25,080 --> 00:05:28,280 Speaker 1: half times. Um. It may be too rich for this 93 00:05:28,480 --> 00:05:30,719 Speaker 1: their blood at this time. Hey, my cloud want to 94 00:05:30,760 --> 00:05:34,360 Speaker 1: I I know you maybe not primed for, but I've 95 00:05:34,360 --> 00:05:36,520 Speaker 1: been reading your stuff on Sonic and I just find 96 00:05:36,520 --> 00:05:40,320 Speaker 1: this to be a very interesting uh company. Uh, Sonic 97 00:05:40,960 --> 00:05:45,279 Speaker 1: you believe has the opportunity to increase their average unit sales. 98 00:05:45,360 --> 00:05:48,440 Speaker 1: And I'm wondering whether that has anything to do uh 99 00:05:48,600 --> 00:05:54,839 Speaker 1: with at least stable, if not less expensive gasoline prices. Yeah, 100 00:05:54,880 --> 00:05:58,400 Speaker 1: so they think they can do that, uh irrespective of 101 00:05:58,440 --> 00:06:01,960 Speaker 1: what gasoline prices do, I'm And obviously lower gasoline prices 102 00:06:02,000 --> 00:06:05,800 Speaker 1: will give their lower income consumers, um, you know, more 103 00:06:05,839 --> 00:06:08,840 Speaker 1: pocket change and more money to buy Sonics burgers and 104 00:06:09,279 --> 00:06:12,240 Speaker 1: talks and and all that good stuff line maids, you know, 105 00:06:12,320 --> 00:06:14,640 Speaker 1: you name it, um, and it could give them a 106 00:06:14,680 --> 00:06:19,919 Speaker 1: boost should gasoline prices remain low. But Sonic thinks they 107 00:06:20,040 --> 00:06:24,640 Speaker 1: can increase those average una violnes by even without help 108 00:06:24,680 --> 00:06:27,960 Speaker 1: from gasoline. And and what gives them confidence is that, 109 00:06:28,000 --> 00:06:30,960 Speaker 1: you know, their best sites in their best restaurant in 110 00:06:31,000 --> 00:06:35,920 Speaker 1: the best sites are doing significantly higher volumes. So, uh, 111 00:06:36,000 --> 00:06:38,480 Speaker 1: it's to me they may be, you know, maybe getting 112 00:06:38,520 --> 00:06:42,320 Speaker 1: a little bit more comfortable with their restaurants selection methodologies 113 00:06:42,720 --> 00:06:46,640 Speaker 1: and could be giving them the confidence to to set 114 00:06:46,680 --> 00:06:49,320 Speaker 1: such a to set such a lofty goal. Thanks very 115 00:06:49,400 --> 00:06:51,840 Speaker 1: much for spending time with us. Michael Halen is senior 116 00:06:51,839 --> 00:06:54,880 Speaker 1: restaurant analyst for Bloomberg Intelligence.