Inside Krispy Kreme's Stealth Comeback
Southern doughnut-chain favorite Krispy Kreme (KKD) exploded onto the national scene in the early 2000s, only to collapse due to overexpansion, a company earnings-restatement scandal, and over-inflated Wall Street expectations. In the past few years, though, Krispy Kreme has quietly rebuilt itself. The company recently returned to profitability and is forecasting full-year profits, seeing growing sales at existing stores even as it grows store-count again.
How'd the company pull off its turnaround? Here are some of the factors that put Krispy Kreme on the comeback trail:
- Store-level innovation. The days of every doughnut shop being a huge factory are over. The company's paying more attention to what type of doughnut shop will work in each locations. Some new stores are so small they'll just receive doughtnut deliveries from other local stores. Others won't have ovens, but will entertain patrons by passing the crullers through the famed curtain of glaze. In other words, store sizes have returned to sanity.
- Cutting the fat. Krispy Kreme closed dog stores opened in the go-go years. They kept sales strong and used the lower overhead to generate more cash and pay down debt. From $123 million, net debt is now $23 million.
- Smart franchising deals. Rather than flinging company stores everywhere and anywhere, company owned stores are now concentrated in the chain's core southern markets. Other territories are being offered to franchisees who have more experience in other regions of the country.
- Gross-out food marketing. Krispy Kreme grabbed some media attention this summer when cheeseburgers were served at many county fairs that used split, toasted Krispy Kremes instead of buns -- and came with chocolate-covered bacon. Not something anybody's going to eat regularly, but it got them talked about, and showed they were tuned in to this summer's hot trend of bizarre, high-calorie fast food.
- Takeover rumors. A rumor last fall that Wendy's Arby's Group (WEN) was thinking about acquiring Krispy Kreme reminded many that the company is still around and publicly traded. Didn't happen, but it probably got many investors to take another look at Krispy Kreme. Its stock has been generally on the rise since February.