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Krispy Kreme Predicts A "Sweet" Future

July 12, 2012 | Keri Brown

Krispy Kreme Doughnuts is celebrating its 75 birthday this weekend. The Winston-Salem based company has had its share of challenges in recent years, but Krispy Kreme has learned from its past mistakes and is looking toward a “sweet” future.

Krispy Kreme is a company with a long and rich history in Winston-Salem. Since its inception in 1937, the nostalgia surrounding its hot doughnuts has generated a loyal fan base in the South. Jerry Elligood of Walkertown practically grew up on these sweet treats.

“I just like the flavor of the glazed doughnuts and the other doughnuts. They are great. I’ve been eating them all my life. I’m just a couple of years older than Krispy Kreme,”  said Elligood.

After establishing its brand throughout the South, the company expanded Southeast. Then in the 1990’s Krispy Kreme underwent rapid expansion across the country. The company opened its first store in New York in 1996 and three years later, the first West coast Krispy Kreme opened in California.

“Krispy Kreme was starting to explode,” said  Brad Wall, Senior Vice President of Supply Chain & Off-premises Operations at Krispy Kreme.

“ I was part of the opening crew that opened the first NY store in Chelsea and that was an experience in itself and that was when the Rosie O’Donnell show took place and we actually brought Winston-Salem on the map to be the home of the doughnut,” said Wall.

Today, Krispy Kreme doughnuts can be found at nearly 700 shops in 21 countries, and they’re distributed by approximately 10,000 mass merchants and grocery stores in the U.S.

Justin Catanoso is the Journalism Program Director at Wake Forest University, and a contributing writer for the Business Journal. He’s been following the company’s growth over the years.

Catanoso says Krispy Kreme became part of the national business landscape when it went public in 12 years ago in order to expand.

“In 2000 is when the tech bubble was starting to bust and all of the sudden there was this old established, nostalgic doughnut maker everybody understood doughnuts, and they put their shares out there first on the NASDAQ and then later on the New York Stock Exchange," said Catanoso.

"It just went crazy. Within the a few months, Krispy Kreme stocks were trading at over $100 per share and there seemed there would be no end to the company’s success,” said Catanoso.

Rapid growth, over expansion and increased competition from larger chains like Dunkin Donuts and McDonalds’s proved to be a recipe for disaster. Those trends, combined with the low carb diets popular at that time, and ongoing lawsuits by franchisees over supplies and other issues, eventually led to plummeting Krispy Kreme stock prices.

One 2005 lawsuit accused former management of hiding evidence of dropping sales and profits.

“Suing us I know we could get over, not liking us I knew that we could overcome, but not trusting us was critical and so I spent a lot of time meeting with them on their turf listening. We started to change the mindset here,” said James “Jim” Morgan, CEO of Krispy Kreme.

Morgan has been working to clean up the financial mess at Krispy Kreme since he became CEO in 2008.

He says at one point, the company faced more than $100-million in debt, which led to major downsizing. According to securities filings, more than 240 U.S. stores closed between 2004 and 2009.

But Morgan said one bright spot throughout the hard times has been the success of the company’s stores abroad.

“We have since increased our infrastructure support for the international team to make sure that we don’t make the same mistakes. As you know, we have announced agreements in both Moscow, Russia and Southern India," said Morgan.

Morgan aded, "We could have 450 stores in India or China alone, so there are years and years of potential growth as long as we are patient and manage it appropriately."

Krispy Kreme’s original glazed doughnut will be the same world-wide. That’s because their secret recipe doughnut mix is made in Winston-Salem and shipped overseas. But to meet the tastes and pallets of its international customers, the company is introducing flavors like guava filled doughnuts.

Morgan said they’ve had 14 consecutive quarters of same stores sales increases. Last quarter, the company reported a net income of more than $6 million dollars.

He sees growth happening closer to home as well.

“Charlotte, N.C is the largest nearby city and technically we don’t have a shop in Charlotte, so in the next year we will have three stores in the Charlotte area. I think in the next year, we will add 5 to 10 stores in the Carolina region," said Morgan.

Krispy Kreme is investing in its hometown of Winston-Salem as well. Its corporate headquarters on Knollwood Street is undergoing $1.2 million in renovations.

The company is also diversifying its product line, so it’s not just dependent on doughnuts.

“In August of last year, we re-launched our Krispy Kreme with three new coffee blends, we have the house blend the dark roast and the decaf made with 100 percent Arabica beans and the whole premise behind this launch is that we needed a product worthy of our doughnuts,” said Lafeea Watson, Media and Public Relations Manager for Krispy Kreme.

Over the years, Krispy Kreme has built its brand upon word of mouth advertising and marketing. And today, the message is shared through social media, with more than 4.3 million Facebook fans and more than 20,000 Twitter followers.

The company’s mission statement is to touch and enhance lives through the joy of Krispy Kreme. On Friday, July 13 Krispy Kreme will celebrate its 75 birthday.

“I believe with all my heart this is just the first 75 years in a long, long road for  Krispy Kreme and there isn’t a doubt in mind that there is another 75 years in front of it,” said Morgan.


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