In a bid to further satisfy doughnut cravings, Krispy Kreme and McDonald's are discussing expanding their partnership to additional locations beyond Kentucky. The two restaurant giants originally joined forces over a year ago to serve Krispy Kreme doughnuts at select McDonald's restaurants. Shares of Krispy Kreme took a hit in morning trading as the company's third-quarter earnings and revenue fell short of Wall Street's expectations.

The talks to expand the collaboration were announced by Krispy Kreme on Thursday. The initial partnership began in a handful of McDonald's locations in Kentucky, testing the appetite of Big Mac eaters for doughnuts. By March, the pilot project had expanded to approximately 160 restaurants in Louisville and Lexington, Kentucky. The larger-scale test aimed to evaluate customer demand and assess the impact of a wider launch on restaurant operations.

As McDonald's focuses on strengthening its coffee offerings to attract more customers, the collaboration with Krispy Kreme, known for its indulgent doughnuts, aligns well. It is worth noting that McDonald's has recently reduced its bakery items, such as cinnamon rolls and blueberry muffins.

Krispy Kreme has managed to raise prices without negatively impacting sales due to the willingness of consumers to pamper themselves with affordable treats like fresh doughnuts. Discussions between Krispy Kreme and McDonald's have revolved around the doughnut company's ability to consistently deliver fresh doughnuts on time, determining the necessary scale for expansion beyond Kentucky, and evaluating the commercial viability of the partnership.

Incoming Krispy Kreme CEO, Josh Charlesworth, shared insights on the company's conference call on Thursday, noting that consumer behavior at fast-food restaurants aligns with those at Krispy Kreme's other retail locations. Both individually sold doughnuts and pre-packaged options have been well-received, thus positively impacting the Krispy Kreme brand.

Utilizing its efficient "hub and spoke" model, Krispy Kreme utilizes production hubs - either stores or doughnut factories - to ensure timely distribution of its treats. Freshly made doughnuts are dispatched daily to retail locations such as grocery stores and gas stations.

Shares of Krispy Kreme experienced a nearly 7% decline in afternoon trading following the disappointing third-quarter earnings. However, the stock has risen over 20% this year, contributing to a market capitalization of $2.10 billion. It is important to note that Krispy Kreme also owns the late-night cookie chain, Insomnia Cookies, with the company recently announcing its exploration of strategic alternatives for that business.

As negotiations continue, both Krispy Kreme and McDonald's hope to satisfy the sweet tooth of customers across more locations, providing a delightful alliance of irresistible doughnuts and fast-food favorites.

Overall, the expansion of this partnership could potentially bring smiles to doughnut lovers nationwide.