This is an English adaptation of a FoodBud historical article originally published on May 15, 2022.
FoodBud has previously referenced Krispy Kreme's hub-and-spoke model in several articles. This article organizes the operating logic behind that model and how it translates from aviation and logistics into foodservice chains.
A hub-and-spoke model uses a concentrated center to serve and connect surrounding demand points. It is widely used in logistics, healthcare, and aviation.
In aviation, a large hub airport aggregates passengers from surrounding smaller cities, builds more efficient flight waves, lowers operating costs, and improves yield per flight wave. The alternative is point-to-point flying, as practiced by Southwest Airlines and Spring Airlines in China.
China's four major airline groups, including Air China, China Eastern, China Southern, and Hainan Airlines together with their subsidiaries, control more than 90% of domestic routes and dominate slots at major airports. They mainly operate full-service models with meals and more spacious seating. Spring Airlines, as a private carrier, uses a different low-cost model: direct sales through its official website, secondary airports near cities, less desirable slots such as red-eye flights, highly efficient boarding, denser seating, and limited service. Southwest has been able to board passengers in about 15 minutes.
The basic airline business is transporting passengers from point A to point B, but commercially it is selling seats. Airlines usually operate from a base airport: Air China is centered on Beijing, China Eastern on Shanghai, and China Southern on Guangzhou. Guangzhou Baiyun Airport is a major hub for China Southern.
The operational goal is to raise load factors and build efficient route and flight waves. In theory, every city could have its own airport and direct flights to Beijing. Around Guangzhou, for example, Foshan, Zhongshan, Shantou, and Zhuhai could each fly directly to Beijing. But small-city demand often cannot support that structure efficiently.
A centralized hub therefore covers surrounding cities and creates a network. In aviation, the hub's value lies in route accessibility and transfer convenience: one route can create multiple connected destinations, which helps airlines reduce operating costs.
For example, if three morning flights arrive in Beijing from Shenyang, Changchun, and Harbin, and three more arrive from Zhengzhou, Xi'an, and Wuhan, the network can connect Shenyang to Zhengzhou, Xi'an, and Wuhan, while also connecting Changchun and Harbin to those cities. Each flight supports access across multiple city pairs.
A hub requires large capital investment, similar to a foodservice company building a central kitchen or factory.
China and the United States differ in how airline hubs form. In China, core hubs are already economic centers with large populations and strong demand, such as Beijing, Shanghai, and Guangzhou. The constraint is that airport slots and throughput are finite. Guangzhou Baiyun expanded from Terminal 1 to Terminal 2, but a main hub airport still has only 24 hours of slots per day.
Another approach is to build new hubs. China Eastern, beyond Shanghai, has also been building hubs in Kunming and Xi'an.
In the U.S., the largest hubs are not necessarily in cities such as New York or San Francisco. Atlanta is Delta Air Lines' main base. According to 2020 census data, Atlanta had fewer than 500,000 residents, compared with more than 18 million permanent residents in Guangzhou. Yet Atlanta's airport has repeatedly exceeded 100 million annual passengers and is one of the world's busiest airports. Delta is headquartered there.
According to Flight Manager data cited in the original article, in October 2021 Atlanta Airport had more than 60,000 inbound and outbound passenger flights, of which Delta operated 47,000, or 76.4%. The airport had 395 inbound and outbound routes, of which Delta operated 380, giving Delta 96.2% route coverage.
The article summarizes the difference as: China's major airports already are hubs, while the U.S. example shows an airline building a hub. In theory, Chinese cities such as Wuhan, Xi'an, and Zhengzhou have natural conditions suited to hub construction and efficient flight waves, but domestic airlines had not yet shown the same drive to build an Atlanta-style hub.
FedEx Express, part of FedEx Corp., is one of the world's busiest cargo airlines and provides express services to more than 220 countries and regions. Its global headquarters are at Memphis International Airport in Tennessee. Memphis International Airport is the largest cargo airport in the U.S. and a U.S. cargo hub.
According to the original article, Memphis International Airport is the world's second-largest cargo airport after Hong Kong International Airport. As FedEx's global hub, cargo takes a large share of airport slots. In October 2021, passenger flights accounted for 27.2% of Memphis operations and cargo flights for 72.8%. By airline share, FedEx accounted for 71.3% of inbound and outbound slots and 98% of cargo slots.
FedEx's Memphis route network is both domestic and international. In October 2021, FedEx had 266 direct inbound and outbound routes at Memphis, including 219 domestic routes and 47 international routes, covering 113 domestic destinations and 27 international destinations. Although the U.S. population is denser in the east than the west, Memphis' route network covers regions across the country while radiating internationally.
FedEx also uses 235 Cessna 208B light general aviation aircraft, each with about 1.3 tons of effective payload. These aircraft have lower usable payload than other freighters, occupy fewer hub-airport slot resources, and are mainly used for ultra-short-haul markets, with an average route length of 162 km and average flight time of 42 minutes. They supplement feeder markets and support collection and distribution at secondary hubs.
At Memphis, FedEx's flight waves are clear. The first inbound peak is from 22:00 to 24:00 on the previous day, and the first outbound peak is from 03:00 to 05:00 on the current day. The second inbound peak is from 08:00 to 12:00, and the second outbound peak is from 15:00 to 18:00. This creates two separated inbound-outbound waves, with average ground time of about 6.5 hours.
More than 80% of FedEx's Memphis flights are widebody freighters. FedEx concentrates arrivals, sorts and loads cargo, then concentrates departures. This improves aircraft-capacity utilization, raises transport efficiency, enables next-day parcel delivery, and strengthens hub transfer capacity.
Krispy Kreme's hub-and-spoke model also appears in China, even if companies use different language. Bakery chain Happiness Cake and Pizza Hut have used similar models; Pizza Hut often calls the smaller units satellite stores.
In foodservice, the model mainly appears in two forms:
Krispy Kreme is an 80-plus-year-old bakery brand. In 2016, JAB acquired and privatized it for USD 1.35 billion. After the acquisition, Krispy Kreme began adjusting its strategy.
JAB classified Krispy Kreme's category as “Indulgence”: relatively low-frequency consumption with high emotional value. According to JAB's annual report cited in the article, JAB still held a 45% stake in Krispy Kreme.
As of April 3, Krispy Kreme had 11,027 stores and retail points globally, including 1,849 Krispy Kreme and Insomnia Cookies stores, 34 mobile trucks, and 9,144 DFD Doors, which are similar to retail points inside convenience stores.
Key strategic moves included:
In September 2018, Krispy Kreme acquired 74.7% of Insomnia Cookies. Insomnia Cookies was online-first: in 2020, 54% of sales came from online channels, and it sold 65 million cookies. As of April 4, 2021, Insomnia Cookies sold through 191 stores, offered delivery within 30 minutes, and expanded U.S. delivery coverage to more than 95% for next-day delivery. It also tested new formats such as Insomnia Lab.
From 2018 to April 2021, Krispy Kreme spent USD 470 million acquiring control of 165 U.S. stores and 304 international stores from 24 franchisees, raising company-operated store share in North America to 84%.
Doughnuts are Krispy Kreme's core product and accounted for 93% of total sales. Beyond Original Glazed, Krispy Kreme offers 15 to 20 other doughnut varieties. In 2021, it sold 1.5 billion doughnuts.
Krispy Kreme's hubs include Donut Factories, Hot Light Theatre Shops, and smaller Mini Hot Light Theatre Shops.
A Hot Light Theatre Shop takes about 60 weeks on average from lease signing to opening. Construction takes 10 to 36 weeks, and cost ranges from USD 2.4 million to USD 4.3 million. The average area is 3,300 square feet, or about 307 square meters, with seating for about 26 guests.
Krispy Kreme uses factories and large stores to produce doughnuts, then distributes them to smaller stores and retail points. Large stores also create offline brand experience. Its Times Square store in New York operates 24 hours a day, seven days a week.
Larger Hot Light Theatre Shops can reach 3,700 square feet, or about 344 square meters. Smaller ones are about 2,900 square feet, or about 269 square meters. A large store can typically produce 270 dozen doughnuts per hour. More than 75% of Krispy Kreme doughnuts are sold by the half-dozen or dozen.
The spokes include Fresh Shops, mobile trucks, convenience-store retail points, and e-commerce.
A company-operated Fresh Shop can take 6 to 40 weeks from lease signing to opening, with construction cost from USD 200,000 to USD 1.5 million. Store area ranges from 1,000 to 3,000 square feet, or 93 to 279 square meters, with an average of 600 square feet, or 56 square meters.
DFD Doors are retail points in partners such as Walmart, Kroger, and 7-Eleven. They became one of Krispy Kreme's core growth drivers.
Krispy Kreme uses more than 500 vehicles to connect delivery routes from large stores and factories to small stores and retail points. It continually evaluates route efficiency and retail-point sales performance. E-commerce orders are also delivered from large and small stores to offices and homes.
As of October 3, 2021, Krispy Kreme had 381 large stores, 40 doughnut factories, including 23 operated by franchisees, more than 1,100 Fresh Shops, and more than 8,000 DFD Doors.
As of April 3, 2022, Krispy Kreme had 125 hub markets in North America, 37 international hub markets, and 133 hub markets in developing markets. In North America, each hub market generated annual sales of USD 4.3 million.
In international markets, annual sales per hub market were USD 7.9 million at the end of Q3 2019, declined during the 2020 pandemic, rose to USD 8.6 million by the end of Q3 2021, and reached USD 9.7 million at the end of Q1 2022.
At the end of 2020, each Krispy Kreme hub in the U.S. and Canada could cover 37 to 45 small stores and retail points, while each international hub could cover 65 to 71 small stores and retail points. In Q1 2022, each hub could cover roughly 50 to 80 stores and retail points, with a hub-market payback period of three years.
In fiscal 2019 and fiscal 2020, Krispy Kreme made one-time investments of USD 4.1 million and USD 20.5 million, respectively, to shift DFD Doors to a fresh-product strategy and add production lines. These costs included consulting, labor, and store conversions.
Krispy Kreme's exit from traditional wholesale reduced performance by USD 22 million, but growth in fresh bakery products and daily-delivery store formats offset part of that decline.
According to information disclosed at Krispy Kreme's shareholder meeting, average weekly sales per DFD Door rose from USD 370 in 2019 to USD 600 in Q3 2021.
In the U.K. market in 2016, one Krispy Kreme hub covered two small stores and 26 retail points. Including the hub, this 29-point network generated GBP 2.3 million in overall hub sales.
In 2017, the same hub added two small stores and 32 retail points, becoming one large store, four small stores, and 58 retail points. Including the hub, the 63-point network generated GBP 4.1 million.
In 2018, it added 16 retail points, becoming one large store, four small stores, and 74 retail points. The article notes that the chart's arithmetic appears to omit one location, while total sales points reached 80. Hub sales reached GBP 5.4 million.
In 2019, it added one small store, becoming one large store, five small stores, and 71 retail points. Total sales points fell to 77, while hub sales reached GBP 6.0 million.
The long-term plan cited in the article was for Krispy Kreme to reach 10,000 stores and retail points in North America, 20,000 across the 29 international countries where it already operated, and another 20,000 in undeveloped markets such as China, Brazil, and Western Europe.
Krispy Kreme moved competition from the single-store level to a small regional-network level. The company evaluates input and output by hub, using a large store or factory as the cost center and small stores plus retail points to densify coverage.
The key logic is to expand the network and customer reach covered by each hub without adding, or while only slightly adding, to the hub cost center. In the U.K. example, hub investment rose only from GBP 2.1 million in 2016 to GBP 2.6 million in 2019, while annual hub sales rose from GBP 2.3 million to GBP 6.0 million.
The model also helps operators use retail-point data to identify where future small stores may be more viable.
At Yum China's 2021 investor meeting, the company disclosed that Pizza Hut had opened more than 50 satellite stores, meaning smaller-format stores.
A regular Pizza Hut store has a relatively large dining area, requires upfront investment of RMB 2.0 million to RMB 2.5 million, and usually has a payback period of three to four years. Satellite stores have lower capital expenditure and lower operating costs.
Compared with regular stores, satellite stores can bring higher profit margins and shorter payback periods, usually around two to three years. Among Pizza Hut's planned new stores in 2021, more than half were satellite stores or small stores.
Pizza and bakery share operating similarities because core products use frozen dough, with comparable supply-chain and operating logic.
Ready-to-eat braised snacks depend on freshness, taste, safety, and timely supply. Juewei Food uses production subsidiaries as bases for distributing products to its national sales network. With optimal cold-chain delivery radius as the coverage boundary, it built a supply-chain system described as close to sales outlets, fast in production and supply, and focused on freshness.
When Juewei enters a new regional market, it first builds the relevant product supply and logistics distribution system. These production subsidiaries serve as regional production bases and support efficiency, cost reduction, and food safety.
Based on sales-network needs, Juewei lays out supply-chain capacity within a 300 to 500 km radius. It had built a nationwide supply-chain network centered on 21 production bases, including two under construction. Each base can serve regional markets and support “same-day order, same-day production, same-day delivery, and sales starting within 24 hours.” As of June 30, 2021, Juewei worked with nearly 2,000 cold-chain logistics vehicles.
In 2018, Juewei established the wholly owned subsidiary Shanghai Juepei to build a dedicated digital system. By integrating third-party cold-chain partners and using internet and big-data tools, Juepei became a catering and retail supply-chain service provider covering cold-chain transport, large-scale warehousing, urban distribution, intercity transport, fresh delivery, braised-snack contract manufacturing, and central-kitchen industrial parks.
After serving Juewei's own stores, Juepei's spare capacity began serving invested companies and partner foodservice businesses with cold-chain fresh daily delivery. Juewei's other main-business revenue mainly came from Juepei Supply Chain. In 2020, external Juepei services contributed about RMB 173 million. In 2021, Juewei's other revenue rose directly to RMB 540 million, showing the value of Juewei's investment ecosystem to Juepei.
Juewei uses production bases as hubs covering stores within 300 to 500 km. In this model, production efficiency and supply efficiency must be matched, and supply efficiency faces natural limits. The most economical model is same-day round-trip delivery. The largest cost is drivers; the more stores in the network, the higher the supply-chain efficiency and the lower the cost.
As of the end of 2021, excluding Hong Kong, Macau, Taiwan, and overseas markets, Juewei had 13,714 stores in mainland China. Fewer than 200 were company-operated. Juewei's cost centers are mainly factories, so supply-chain investment requires enough demand at the front end and continued growth.
Beyond encouraging franchisees to keep expanding into lower-tier markets, Juewei has also acquired regional braised-snack chains and converted them under its brand. It has invested across the foodservice ecosystem so portfolio partners can share procurement, warehousing, production capacity, distribution, sales systems, and management resources, while Juewei's cost-center structure changes relatively little.
Note: Forward plans, IPO-related context, acquisition values, investment amounts, payback periods, and operating figures are historical as of the original article date, May 15, 2022.