Krispy Kreme

Krispy Kreme Doughnuts, Inc.

Type	Public (NYSE: KKD)
Industry	Restaurant
Founded	July 13, 1937
Headquarters	Winston-Salem, North Carolina, United States
Key people	James Morgan, Chairman/CEO
Products	Doughnuts Sausage Rolls Soft drinks Hot Drinks
Revenue	362 million USD (2011)
Net income	7.6 million USD (2011)
Employees	4000 (2011)[1]
Website	krispykreme.com

Krispy Kreme Doughnuts, Inc. is a doughnut company founded on July 13, 1937. Krispy Kreme founder Vernon Rudolph bought a secret yeast-raised recipe from a New Orleans chef, rented a building in what is now historic Old Salem in Winston-Salem, NC, and began selling to local grocery stores.^[2]

Products are sold in Krispy Kreme stores, grocery stores, convenience stores, gas stations, Wal-Mart, and Target stores in the United States. Internationally, doughnuts are sold in Loblaws supermarkets, Petro-Canada gas stations^{[citation needed]}, and as freestanding stores in Canada, along with BP Service Stations and BP Travel Centres and 7-Eleven stores in Australia.^[3] In the United Kingdom, Tesco supermarkets, Tesco Extra, and most Tesco service stations carry Krispy Kreme products.^[4] The company's growth was steady prior to its initial public offering but profits have decreased in recent quarters.

History

Krispy Kreme delivery truck, circa 1939

Krispy Kreme Doughnuts

Krispy Kreme's founder Vernon Rudolph and his uncle purchased Joseph LeBeouf's donut shop on Broad Street in Paducah, Kentucky along with a secret recipe for yeast-raised doughnuts in 1933 acquired from a New Orleans French Chef. Rudolph began selling the yeast doughnuts in Paducah and delivered them on his bicycle. The operation was moved to Nashville, Tennessee and other family members joined to meet the customer demand. Rudolph sold his interest in the Nashville store in 1937 and opened a doughnut shop in Winston-Salem, North Carolina selling to grocery stores and then directly to individual customers. The first store in North Carolina was located in a rented building on South Main Street in Winston-Salem in what is now called historic Old Salem. The Krispy Kreme logo was designed by Benny Dinkins, a local architect.

Expansion occurred in the 1950s, including an early store in Savannah, Georgia. By the 1960s, Krispy Kreme was known throughout the Southeast, and it began to expand into other areas. In 1976, Krispy Kreme Doughnut Corporation became a wholly owned subsidiary of Beatrice Foods of Chicago, Illinois. The headquarters for Krispy Kreme remained in Winston-Salem.

A group of franchisees purchased the corporation back from Beatrice Foods in 1982.

An assortment of doughnuts on display in a shop in Washington, D.C.

Krispy Kreme in Santo Domingo, Dominican Republic, next to a Cinnabon store

Growth

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Krispy Kreme began another phase of rapid expansion in the 1990s, opening stores outside the southeastern United States where most of their stores were located. Then, in December 2001, Krispy Kreme opened its first store outside the U.S. in Mississauga, Ontario, Canada, just outside Toronto.^[5] Since 2004, Krispy Kreme has rapidly expanded its international operations, now including almost 100 stores in Mexico alone.^[6]

In September 25, 2013, Krispy Kreme announced their expansion into Colombia, the first South American country that Krispy Kreme will have presence at.^[7]

IPO and accounting scandals

On April 5, 2000, the corporation went public on the NASDAQ at $21 using the ticker symbol KREM.^[8] On May 17, 2001, Krispy Kreme switched to the New York Stock Exchange, with the ticker symbol KKD, which is its current symbol. The stock reached what would be its all-time high of $50 on the New York Stock Exchange in August 2003, a gain of 235 percent from its IPO price. For the fiscal year ended in February 2004, the company reported sales of $665.6 million and operating profits of $94.7 million from almost 400 stores (including international locations). The market initially considered the company as having "solid fundamentals, adding stores at a rapid clip and showing steadily increasing sales and earnings." ^[9] Since then it had lost 75-80% of its value by 2005, amid earnings declines, as well as an SEC investigation over the company's alleged improper accounting practices.^[10]

In May 2004, the company missed quarterly estimates for the first time and suffered its first loss as a public company. Chairman and CEO Scott Livengood attributed the poor results to the low-carbohydrate diet craze. This explanation was viewed with skepticism by analysts, as "blaming the Atkins diet for disappointing earnings carried a whiff of desperation",^[9] and as rival donut chain Dunkin' Donuts has not suffered from the low-carb trend over the same compared period.^[11]

Analysts suggested that Livengood had expanded the chain too rapidly after the IPO, which concentrated certain markets with too many stores.^[11] While this approach initially grew revenues and profits at the parent-company level, due to royalty payments from new franchisees, which also increased sales, this reduced the profitability of individual franchisees in the long run as they were forced to compete with one another. For the 2003-04 fiscal year, while the parent enjoyed a 15 percent increase in second-quarter revenues, same-store sales increased only a tenth of a percent during that time. By contrast, McDonald's focused on profitability at the franchise level. Krispy Kreme also had supermarkets and gas stations carry their donuts, which soon contributed up to half of the chain's sales, creating further market saturation as well as increasing competition to its franchisees. All this expansion devalued Krispy Kreme brand's novelty, by making the once-specialty donuts ubiquitous, particularly as the newer sales outlets required pre-made donuts as opposed to the ones made fresh in factory stores, which alienated brand devotees.^[9]

Besides royalty payments from new stores, the parent company also enjoyed significant profits by requiring franchisees to purchase mix and doughnut-making equipment from the parent's Krispy Kreme Manufacturing and Distribution (KKM&D) division. KKM&D earned $152.7 million in 2003, which made up 31 percent of sales, with a reported operating margin of 20 percent or higher, but these mark-ups were largely at the expense of its franchisees. By comparison, rival chain Dunkin' Donuts generally avoids selling equipment or materials to its franchisees which "keeps company and franchisee interests aligned", as well as having a royalty stream based on same-store sales.^[9]

Krispy Kreme has been accused of channel stuffing by franchisees, whose stores reportedly "received twice their regular shipments in the final weeks of a quarter so that headquarters could make its numbers".^[9] The company was also dogged by questionable transactions and self-dealing accusations over the buybacks of franchisees, including those operated by company insiders.^[11] A report released in August 2005 singled out then-CEO Scott Livengood and then-COO John W. Tate to blame for the accounting scandals although it did not find that the executives committed intentional fraud.^[12]

On March 4th 2009 the SEC issued a cease and desist order against Krispy Kreme for its actions inflating their revenues and engaging in illicit activities regarding the purchasing of its own stores to prop up revenues and setting up mechanisms to guarantee it beat earnings estimates by $0.01 which eventually resulted in Krispy Kreme reducing net income over 2 years of over $10.5 million. In it, it proposed remedial actions for Krispy Kreme to take.^[13]

Management shuffle

On January 18, 2005, Krispy Kreme announced Stephen Cooper, chairman of financial consulting group Kroll Zolfo Cooper LLC, as interim CEO, succeeding Scott Livengood who retired as chairman, president, CEO and a director. The company also named Steven Panagos, a managing director of Kroll Zolfo, as president and COO.^[14]

A turnaround plan in December 2005 aimed to close unprofitable stores in order to avoid bankruptcy.^[9][15]

New offerings and changes

In 2003, a pilot project in Mountain View, California, to sell doughnuts through car windows and sunroofs at a busy intersection (with wireless payment) failed.

Although based on informal advertising such as word-of-mouth, in 2006, Krispy Kreme moved into television and radio advertisements, beginning with its "Share the Love" campaign with heart-shaped doughnuts.^[16]

On February 19, 2007, Krispy Kreme began selling the Whole Wheat Glazed doughnut in an attempt to appeal to the health conscious. The doughnut has 84 kJ (20 kilocalories in most countries, or 20 Calories in the US) fewer than the original glazed (754 kJ vs. 837 kJ) and contains more fiber (2 grams vs. 0.5 grams). As of January 2008, the trans fat content of all Krispy Kreme doughnuts was reduced to 0.5 of a gram or less. The U.S. Food and Drug Administration, in its guidelines, allows companies to round down to 0 g in its nutrition facts label even if the food contains as much as 0.5 of a gram per serving. Krispy Kreme benefited from this regulatory rule in its subsequent advertising campaign, touting its doughnuts as "trans fat free" and having "0 grams trans fat!".^[17]

On July 1, 2010, Krispy Kreme introduced a doughnut that included the soft drink Cheerwine, which was to be sold in grocery stores in North and South Carolina during July.^[18] The doughnuts proved so popular the Salisbury, North Carolina Krispy Kreme location, in the town where Cheerwine is made, sold them as well,^[19] and after July 31, this was the only place to get them.^[20] The Cheerwine Kreme doughnut returned for July 2011 and made its debut in Tennessee and Roanoke, Virginia.^[21]

Also in 2010, Krispy Kreme Express, a delivery service for businesses, began testing at the Battleground Avenue location in Greensboro, North Carolina.^[22]

International operations

Krispy Kreme store in Portsmouth, England

The first Krispy Kreme store to open outside North America was in Penrith, Australia, in Sydney.^[23] At first the operation was successful, opening 53 other stores around the country.^[24] However as of November 1, 2010 the entire Australian division went into voluntary administration, with media reports attributing this to poor sales.^[25] They have since come out of administration as of December 2010, and continued trading, with fewer stores.^{[citation needed]} Since 2012, Krispy Kreme doughnuts have been available through all 7-Eleven stores in the eastern states of Australia after announcing partnership with Krispy Kreme Australia in late 2011.^[26] Besides the stores that Krispy Kreme operate in the United States and Canada, there are also locations in the United Kingdom, Australia, Lebanon, Turkey, Dominican Republic, Kuwait, Mexico, Puerto Rico, Taiwan, South Korea, Malaysia, Thailand, Indonesia, the Philippines, Japan, China, the United Arab Emirates, Qatar, Saudi Arabia, Bahrain^[27] Hong Kong (2006–2008), and Ethiopia.^{[citation needed]}

In August 2011, Krispy Kreme's Japan operation planned to increase the number of stores from 21 to 94, and its Mexico operation announced the number of stores would increase from 58 to 128 in five years. In the United Kingdom, Krispy Kreme continues its expansion and has plans and funding in place to open further stores in 2012.

Krispy Kreme, through franchisee Citymax Hotels India Ltd., opened its first store in India on 19 January 2013 in Bangalore, Karnataka.^{[28][29][30][31]} So far, there are 5 stores opened in Bangalore, 2 more coming up.

On September 25, 2013, Krispy Kreme announced the opening of 25 stores, all within 5 years, in Colombia. This marks the first South American country for the company.^[7]

On December 12, 2013, Krispy Kreme opened it's first store in Taipei, Taiwan.

References

External links

Wikimedia Commons has media related to Krispy Kreme.

• Official website
• Official twitter|http://twitter.com/krispykremekr
• Yahoo! - Krispy Kreme Doughnuts, Inc. Company Profile
• How Stuff Works: Krispy Kreme