Behind the spin: Krispy Kreme

THE DILEMMA

by
Last Updated: 31 Aug 2010

The iconic American creator of such doughnuts as the New York Cheesecake, the Caramel Kreme Crunch or the paradoxically named Doughnut Hole is in a sticky predicament. Founded in 1937 in North Carolina, Krispy Kreme reached a pinnacle of cool when it featured in Sex and the City in the early 2000s. But like the dot.com bubble, the glazed doughnut frenzy imploded. Too rapid geographical expansion (including a concession in Harrods), greedy investors and the US switch to a low-carb diet meant that Krispy Kreme had to issue its first profit warning in 2004. Under former CEO Scott Livengood, Krispy Kreme faced a federal investigation and shareholder lawsuits, while owning up to accounting irregularities.

THE SPIN

Producing 7.5 million doughnuts a day in North America alone, Krispy Kreme is in no danger of collapse, despite the rocky road it's on. New CEO Daryl Brewster, a former Kraft Foods president, is leading the company to recovery. 'Rather than get mired in the past, the focus for us is to really value the future,' he said recently.

THE STRAIGHT TALK

Brewster's optimism doesn't hide the fact that Krispy Kreme has had 12 straight losing quarters in a row. Its stock was trading at the $3 mark in September - compare that to the $50 level it approached in 2002. It's not surprising, then, that investors are now bailing out. The new millennium was meant to bring global expansion along the lines of Starbucks and McDonald's, but Krispy Kreme's plans for world domination came just as the low-carb craze took hold and concern over obesity spiralled. The chain's national expansion into convenience stores also brought problems as it sacrificed tight control over quality. Then there's the problem of Krispy Kreme's successful rival Dunkin' Donuts, which has been going from strength to strength.

THE VERDICT

Krispy Kreme now has new blood at the top of the business, busy restructuring the organisation, closing underperforming stores and making sure that the company's financial integrity is restored. Having worked on a shake-up of its home market, Krispy Kreme is now cautiously looking overseas again for growth. But how well American-style doughnuts translate to this side of the Atlantic will always be a worry - Dunkin' Donuts tried to crack the UK market and failed. But Europe is small fry. Take China, for example, where Krispy Kreme already has a firm foothold. Anyone for a Shanghai Krispy Duck doughnut?

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