For one-time Wall Street darling Krispy Kreme Doughnuts Inc., the dough may yet rise again. The board of directors for the North Carolina-based donut maker, which had been making headlines for its sinking stock price and accounting errors rather than its yeast-raised claim to fame, made several key leadership changes in January. Among them was the "retirement" of its chief executive, Scott Livengood. Incoming CEO Stephen F. Cooper promises to work closely with franchisees, vendors and other business partners to strengthen a brand whose power, some suggest, has been diluted by undisciplined expansion.
As the company restructures, the convenience store industry ponders its place in the Krispy Kreme hierarchy and whether the management changes will have an impact on field operations. The early word from Krispy Kreme is that management plans to retain convenience stores as an integral part of its distribution network.
"The new management team has been in place for only [a short time], so to speculate how things might change is unfair," says Amy Hughes, communications director for Krispy Kreme. "The convenience store channel has been and will continue to be a part of our wholesale business."
Fas Mart Convenience Stores Inc. (Mechanicsville, VA) offers Krispy Kreme donuts in 63 of its 160-plus stores. Phill Oliver, foodservice category manager for the chain, says that number will most likely change this year.
"We continue to receive the same high level of service we have always experienced with them," says Oliver. " Saleswise, we were down slightly in 2004 from 2003, but that’s probably because of the low-carb explosion that hit in the first quarter. Right now sales are right where they were the year before, and we’re pushing forward with Krispy Kreme by adding more units this year."
Oliver expects to add Krispy Kreme in five to 10 more stores by year’s end. Despite the donut maker’s financial troubles, the brand still has "a lot of equity" by his estimation. Consumers would shun the brand, he says, only if the donuts began showing a decline in quality.
"I don’t think customers pay particular attention to what’s going on with Krispy Kreme from a business sense; they’re more concerned with getting good donuts as opposed to peaks or valleys in the stock price," he says. "Even with their financial issues, the biggest thing that would affect Krispy Kreme would be issues with the product itself, and we haven’t seen that at all."
‘Just a donut’
Monica Schmidt-Musich, president of VALDAK Corp., which operates seven Valley Dairy Stores in North Dakota and Minnesota, paints a different picture. She says Krispy Kreme performed well in her stores out of the gate, but she’s watched sales falter as the donuts became more readily available in her market.
"[Krispy Kreme donuts] just don’t sell as well now as when we first had them," she says. "In the beginning some of our stores were ordering 75 dozen to 100 dozen donuts at a time, and we’d sell them. Now we’re ordering maybe 12 dozen to 14 dozen, and they don’t all sell. That drop has come over a two-year period."
Unlike Oliver, Schmidt-Musich says she’s not sure if Krispy Kreme has been able to retain a high level of brand equity. She attributes this to the company’s "too much too soon" market build-up. VALDAK represents Krispy Kreme’s lone local account in the region; five Valley Dairy stores sell the donuts. Retailers with national contracts—like Target Corp.— also carry the brand. All that said, she says her stores are still probably among Krispy Kreme’s better-performing retailers in the greater Grand Forks market.
"When they originally came into our market, the donuts were a novelty—they were something special," she says. "But now they are everywhere and you can get a Krispy Kreme anytime anywhere, so where’s the novelty? A Krispy Kreme used to be a cult, but now it’s just a donut."
Krispy Kreme remains a viable option for convenience retailers looking to offer sweet treats to customers, but there are plenty of other "branded" options.