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Bloomberg's Halen on JAB Holding Buying Krispy Kreme (Audio) · Bloomberg Intelligence

• 0:00
  Speaker 1: Krispy Cream Donuts is going to be purchased for one
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  Speaker 1: point three or five billion dollars. The purchase by Austria's
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  Speaker 1: billionaire Ryman family. Well, they'll be adding to Pete's Coffee
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  Speaker 1: as well as Kurg Green Mountain. A lot of glazed
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  Speaker 1: donuts coming to those brands. Perhaps, let's find out more
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  Speaker 1: from Michael Halen. He is senior restaurant analyst for Bloomberg Intelligence. Michael, So,
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  Speaker 1: this is like the complete breakfast now, right, coffee and doughnuts. Although,
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  Speaker 1: and I'm looking at the Crispy Creame website you have
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  Speaker 1: to scroll down to even see a donut. Now, this
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  Speaker 1: is about coffee and sugary drinks. Yeah, it is about coffee.
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  Speaker 1: And although Krispy Kreme has you know, hasn't had a
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  Speaker 1: ton of success increasing their coffee sells. Um obviously, j
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  Speaker 1: ABC is a significant opportunity here, um, you know, to
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  Speaker 1: to use their expertise to help Krispy Creme, you know,
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  Speaker 1: expand coffee seals not only in their stores, but but
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  Speaker 1: in the retail channel. Why are they so interested in
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  Speaker 1: these coffee and consumer brands. Well, coffee makes a lot
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  Speaker 1: of sense because it's growing faster than other packaged foods
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  Speaker 1: in the US and across the globe. You know, we're
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  Speaker 1: talking about UM growth rate in the mid single digits,
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  Speaker 1: So it's a very attractive business. Um. It's typically very
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  Speaker 1: high margin, especially at the store level. Um. You know,
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  Speaker 1: and you know, they've made a lot of acquisitions, so
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  Speaker 1: so they're purchasing power is increasing, and they're going to
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  Speaker 1: gain some leverage on their coffee buys, which should help
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  Speaker 1: margins across the organization. Now, J A. B. The company
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  Speaker 1: that is purchasing Crispy Cream, already owns Caribou Coffee, Einstein
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  Speaker 1: Noah Restaurant Group, as well as a variety of other
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  Speaker 1: restaurants that perhaps some less familiar to many listeners. But
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  Speaker 1: is this a plan just to push into the restaurant
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  Speaker 1: business the coffee business? What what exactly are they coming
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  Speaker 1: up against Starbucks? It's mainly it's mainly for the coffee business.
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  Speaker 1: You know, we don't get a ton of information right
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  Speaker 1: because it's privately owned. But from what we can tell,
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  Speaker 1: it's mainly through uh, you know, growth of the coffee
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  Speaker 1: business and the coffee brand. So, you know, Krispy Cream
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  Speaker 1: has put a lot of effort into you know, they
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  Speaker 1: have a very strong brand, and they've been putting a
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  Speaker 1: lot of effort into Krispy Kreme branded drinks UH and J. A. B.
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  Speaker 1: Sees that as some low hanging for it. They think
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  Speaker 1: they can they can take Krispy Cream beverages, UM, expand
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  Speaker 1: the distribution, UM, get a greater attachment rate in the stores, UM,
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  Speaker 1: you know, and and UH increased sales and origins. How
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  Speaker 1: do you do a back of the envelope valuation for
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  Speaker 1: a company like Crispy Cream Donuts. One point three five
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  Speaker 1: billion is the estimated value of the deal. Sure, So
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  Speaker 1: it's interesting. So they're paying us, you know, almost seventeen
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  Speaker 1: times on an even Ebada basis based on this year's
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  Speaker 1: consensus Ibadan number, which some may say is kind of aggressive,
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  Speaker 1: but that's what they've been paying. That's what they paid
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  Speaker 1: for Pezze, That's what they paid for Caribou. And what's
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  Speaker 1: interesting is they're kind of discipline, so you know, you know,
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  Speaker 1: for example, Krispy Kreme has been rumored to be in
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  Speaker 1: the work since but with Krispy Kreme, Caribou, Pezze, UH
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  Speaker 1: and even curing all of the company, the target stock
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  Speaker 1: UH dropped precipitously before J. B. Made the offer. So
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  Speaker 1: although it may seem aggressive at you know, sixteen point
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  Speaker 1: eight times forward ibada UM, you know, this may be
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  Speaker 1: a trophy ibadan number that that it's based off of.
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  Speaker 1: So it's interesting because they showed discipline, UM, but they
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  Speaker 1: seem to strike when they feel the opportunity is right
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  Speaker 1: and they place a bid that doesn't seem to that
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  Speaker 1: you know, may not get any UM competition. Point to
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  Speaker 1: you about valuation. Are there other companies that that if
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  Speaker 1: you are invested in Krispy Kreme for just this type
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  Speaker 1: of situation, are there other brands that you would also
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  Speaker 1: pay attention to? Well, there's there's it's a dwindling numbers.
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  Speaker 1: J B has been very busy over the last four years.
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  Speaker 1: But um, there's only two left really that are publicly traded.
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  Speaker 1: We got Starbucks and Duncan brand. Starbucks doesn't make any sense.
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  Speaker 1: There are eighty three billion dollar market cap. Is is
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  Speaker 1: uh significantly larger we think than j a B. Duncan
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  Speaker 1: makes sense on a certain level because you know, the
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  Speaker 1: business model with the restaurants and a strong consumer branded
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  Speaker 1: retail business UM is very similar to Cariboo and Pezza
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  Speaker 1: and the other companies in the portfolio. They have stores,
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  Speaker 1: so they have a ubiquitous presence. But it's almost a
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  Speaker 1: hundred percent franchise, so it the presses the market cap
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  Speaker 1: of the company, it's only four point three billions, so uh,
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  Speaker 1: you know, you can you know, they maybe they may
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  Speaker 1: decide they want to purchase this brand and they might
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  Speaker 1: be able to get at a manageable price because of
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  Speaker 1: the franchise nature of it. You know. That being said,
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  Speaker 1: there's you know, there isn't the same amount of low
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  Speaker 1: hanging fruit like there were at at Crispy Cream and
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  Speaker 1: then at Pete and Cariboo, which were kind of regional
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  Speaker 1: and struggling to expand. So they don't really have the
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  Speaker 1: low hanging fruit here with Duncan doughnuts. Um. So if
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  Speaker 1: they are interested, they may remain patient. You know. Like
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  Speaker 1: I said, they pay about sixteen to seventeen times off
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  Speaker 1: for their targets. Uh, Duncan is at fourteen and a
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  Speaker 1: half times. Um. It may be too rich for this
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  Speaker 1: their blood at this time. Hey, my cloud want to
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  Speaker 1: I I know you maybe not primed for, but I've
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  Speaker 1: been reading your stuff on Sonic and I just find
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  Speaker 1: this to be a very interesting uh company. Uh, Sonic
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  Speaker 1: you believe has the opportunity to increase their average unit sales.
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  Speaker 1: And I'm wondering whether that has anything to do uh
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  Speaker 1: with at least stable, if not less expensive gasoline prices. Yeah,
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  Speaker 1: so they think they can do that, uh irrespective of
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  Speaker 1: what gasoline prices do, I'm And obviously lower gasoline prices
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  Speaker 1: will give their lower income consumers, um, you know, more
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  Speaker 1: pocket change and more money to buy Sonics burgers and
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  Speaker 1: talks and and all that good stuff line maids, you know,
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  Speaker 1: you name it, um, and it could give them a
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  Speaker 1: boost should gasoline prices remain low. But Sonic thinks they
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  Speaker 1: can increase those average una violnes by even without help
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  Speaker 1: from gasoline. And and what gives them confidence is that,
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  Speaker 1: you know, their best sites in their best restaurant in
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  Speaker 1: the best sites are doing significantly higher volumes. So, uh,
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  Speaker 1: it's to me they may be, you know, maybe getting
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  Speaker 1: a little bit more comfortable with their restaurants selection methodologies
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  Speaker 1: and could be giving them the confidence to to set
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  Speaker 1: such a to set such a lofty goal. Thanks very
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  Speaker 1: much for spending time with us. Michael Halen is senior
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  Speaker 1: restaurant analyst for Bloomberg Intelligence.