Because that’s the result of the brand partnership between McDonald’s and Krispy Kreme.
People like coffee, and people like donuts — and they even go together — so what could possibly go wrong? A little over a year after announcing a brand partnership, Krispy Kreme is “pausing” its nationwide rollout into all McDonald’s locations. “Pausing” has become popular corporate-speak or jargon that usually doesn’t mean what it says. In real life, when you pause, it is a temporary situation that continues after the pause. In business, it means we totally screwed up and don’t want to admit it, with the pause serving to start the process of unraveling whatever it is.
Krispy Kreme is in 2,400 McDonald’s restaurants. But demand dropped below expectations after the initial launch, "requiring intervention." Whatever that means. Krispy Kreme is said to be “reassessing” the brand partnership. That’s a roundabout way of dealing with quarterly earnings below expectations, declining net revenue, and no dividend for stockholders. As MarketWatch put it, “Shares of Krispy Kreme Inc. plunged toward a record low … amid uncertainty on McDonald’s partnership, the economy.” Now it’s “working with McDonald’s on ways to drive sales and improve costs, such as outsourcing deliveries to simplify the supply chain.” To repeat a theme from our original PositionistView® on this cross-promotion strategy, “Uh-oh.”
That’s because Krispy Kreme is all about making “the most awesome doughnuts on the planet every single day” that are “FUN. FRESH. WARM.” They can’t control that quality and experience if they outsource deliveries. Outsourcing will only compound the problem.
Cold cash for a hot breakfast.
A marriage of convenience does not work out. There is no underlying love. Do you think McDonald’s truly loves Krispy Kreme or that Krispy Kreme truly loves McDonald’s? As America’s #1 Positioning Ad Agency, Innis Maggiore poses the more important question, “Should they truly love one another?”
McDonald’s enjoys the perennial brand position as the world’s leading hamburger restaurant. However — since positioning doesn’t preclude other offerings so long as there is no conflict with that position — McDonald’s also has a strong connection to breakfast. They invented it for fast food when they introduced the Egg McMuffin in 1971. And that’s the McDonald’s way. Invent something and name it. Think about this: Every gas station, convenience store, QSR, fast casual restaurant, diner, hotel restaurant, and any place that serves breakfast has a version of a breakfast sandwich that’s based on the Egg McMuffin.
McDonald’s holds over 35% of the breakfast share vs. Starbucks at 16%. Wendy’s is now a player, as is Dunkin’. Taco Bell is only 2%, accounting for only 6% of its total sales. McDonald’s breakfast (now an all-day affair) contributes 25% of its total U.S. sales, representing its most profitable daypart for 50 years.
Every food item is HOT! In fact, a perusal of McDonald’s website shows that every menu item with the exception of frozen treats, other desserts, and beverages is HOT! McDonald’s is known and appreciated for a hot breakfast consisting of items of its own invention. Donuts are NOT hot and were not invented by McDonald’s. Neither are doughnuts, which is how Krispy Kreme spells theirs. Moreover, McDonald’s hot breakfast items must provide more margin than a doughnut, even before taking out Krispy Kreme’s portion of profit from each sale.
Simply put, McD’s and Krispy Kreme not only aren’t compatible, they clash. Why would you settle for even the best donut/doughnut when you can enjoy a hot Egg McMuffin, McGriddle, breakfast burrito, or hash brown?
While we commented that the two brands didn’t work well together and necessitated too much compromise from Krispy Kreme’s fundamentals and brand position, our original article on this brand partnership didn’t even anticipate a failure this bad.
The next time you want to consider a brand partnership, perhaps you should check with America’s #1 Positioning Ad Agency — Innis Maggiore — before you dip your doughnut in one of the 8 million cups of coffee sold at McDonald’s each day. You don’t want a soggy donut (or a soggier earnings report). Contact our brand partnership team today!