Krispy Kreme

Krispy Kreme Doughnuts, Inc. is an American doughnut company and coffeehouse chain owned by JAB Holding Company.

For the rapper formerly known as Krispy Kreme, see Froggy Fresh.

Krispy Kreme Doughnuts, Inc.
Subsidiary
ISINUS5010141043 
IndustryRestaurant
FoundedApril 13, 1937 (1937-04-13)
FounderVernon Rudolph
HeadquartersWinston-Salem, North Carolina,
United States[1]
Number of locations
1,005[2]
Area served
Worldwide
ProductsBaked goods, Soft drinks, Hot beverages, Frozen beverages, Iced beverages
Revenue US$ 518.714 million (2016)[3]
US$ 52.098 million (2016)[3]
US$ 32.398 million (2016)[3]
Total assets US$ 342.875 million (2016)[3]
Total equity US$ 256.140 million (2016)[3]
Number of employees
5,200 (2016)[3]
ParentJAB Holding Company
(2016–present)
Websitekrispykreme.com

Krispy Kreme was founded by Vernon Rudolph, who bought a yeast-raised recipe from a New Orleans chef, rented a building in 1937 in what is now historic Old Salem in Winston-Salem, North Carolina, and began selling to local grocery stores.[4] Steady growth preceded an ambitious expansion as a public company in the period 2000 to 2016, which ultimately proved unprofitable. In 2016, the company returned to private ownership under JAB Holding Company, a private Luxembourg-based firm.

History
The original logo of Krispy Kreme Doughnuts. It still uses alternatively.
Plaque in Winston-Salem, North Carolina, that commemorates the first Krispy Kreme
Krispy Kreme corporate offices
Krispy Kreme delivery truck, circa 1939
Krispy Kreme doughnuts

In 1933, eighteen-year-old Vernon Rudolph, along with his brother Lewis Rudolph, began working for his uncle, Ishmael Armstrong, who owned a small general store in Paducah, Kentucky, that sold a wide variety of goods, including its very popular doughnuts.[5] While the exact origin of the doughnut recipe remains partially a mystery, it is believed that Ishmael Armstrong was inspired by an Ohio River barge cook named Joseph LeBeouf who was famous for his light and fluffy doughnuts.[5]

The store struggled during the Great Depression. In 1934, Vernon and Ishmael decided to move to the larger city of Nashville, Tennessee, where they hoped business would be better. The uncle and nephew focused solely on selling their doughnuts and opened "The Krispy Kreme Doughnut Company" in a rented store on Gallatin Road.[5] The shop did so well that Vernon's father, Plumie, also left Kentucky and moved to Nashville to help sell doughnuts.

In 1937, Rudolph opened his own store, deciding on Winston-Salem, North Carolina for the location when he learned that his favorite cigarette company, Camel Cigarettes, was headquartered in the small North Carolina city.[5] Rudolph primarily sold to convenience stores; however, he also sold hot doughnuts to individual customers who came during production time between midnight and 4 a.m.[5] 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. The first Krispy Kreme bakery outside the South opened in Akron, Ohio, in 1939.

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.

In May 2016, JAB Beech, a German investment firm, announced it made an offer to purchase the company for $1.35 billion over the following two months that would make the company privately owned.[6] The transaction closed on July 27, 2016. In December 2017, Krispy Kreme moved corporate operations to Charlotte, North Carolina; while Winston-Salem will remain the World Headquarters and maintain the Krispy Kreme Support Center.[1]

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

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.[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 it carried until its private acquisition. The stock reached what would be its all-time high of $50 on the New York Stock Exchange in August 2003, a gain of 135 percent from its IPO price. For the fiscal year ending 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] By 2005, the company's stock had lost 75-80% of its value, 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 4, 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

A turnaround plan in December 2005 aimed to close unprofitable stores in order to avoid bankruptcy.[9][14]

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.[15]

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!".[16]

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.[17] The doughnuts proved so popular that the Salisbury, North Carolina, Krispy Kreme location (the town where Cheerwine is made) sold them as well.[18] After July 31, this was the only place to get them.[19] The Cheerwine Kreme doughnut returned for July 2011 and made its debut in Tennessee and Roanoke, Virginia.[20]

Also in 2010, Krispy Kreme Express, a delivery service for businesses, began testing at the Battleground Avenue location in Greensboro, North Carolina.[21]

In 2014, Krispy Kreme released a $1,685 donut as part of fundraising efforts for The Children's Trust. It was covered with 24-k gold and was decorated with edible diamonds. The inside was made from Dom Perignon champagne jelly.[22]

In the early 2010s, the company began developing shops with tunnel ovens, which allow for an all-day "Hot Now" hot doughnut experience. On February 24, 2015, Krispy Kreme opened its 1,000th shop, in Kansas City, Kansas.[23]

On May 25, 2017, Krispy Kreme donut-flavored Jelly Belly jelly beans were announced.

On August 5, 2019, Krispy Kreme released two new Reese's-branded "chocolate lovers" and "peanut butter lovers" doughnuts to the public.[24]

In summer 2019, Krispy Kreme announced its return to both downtown Chicago in The Loop and Times Square in New York City with plans to open the locations by end of year.[25][26]

International operations
Main article: Krispy Kreme operations by country
Krispy Kreme store in Portsmouth, England

The first Krispy Kreme store to open outside North America was in Penrith, Australia, in Sydney.[27] At first, the operation was successful, opening 53 other stores around the country.[28] However, as of November 1, 2010, the entire Australian division went into voluntary administration, with media reports attributing this to poor sales.[29] They have since come out of administration as of December 2010, and continued trading, with fewer stores. 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.[30] The second Krispy Kreme store that was opened internationally was in the United Kingdom and was in Harrods department store London. It closed in June 2011. As of 2018 there are over 100 stand alone Krispy Kreme stores in the UK, with a further 500 within Tesco stores.[31] Besides the stores that Krispy Kreme operate in the United States and Canada, there are also locations in the United Kingdom, Australia, New Zealand, South Africa, Lebanon, Turkey, India, Dominican Republic, Iceland, Ireland, Kuwait, Mexico, Panama, Russia, Taiwan, South Korea, Malaysia, Thailand, Indonesia, Philippines, Japan, Singapore, China, United Arab Emirates, Qatar, Saudi Arabia, Bahrain[32] Hong Kong (2006–2008), Nigeria, Ethiopia and Bangladesh.

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 had plans and funding in place to open further stores in 2012. In South Korea, their first store opened on December 16, 2004, and celebrated their 100th store opening exactly ten years later, on December 16, 2014. As of September 2016, they hold the most stores in the Asia-Pacific region with 129 stores. Krispy Kreme opened its first store in India on January 19, 2013, in Bangalore, Karnataka. The stores are operated by Citymax Hotels India under a franchise arrangement.[33] So far, there are 5 stores opened in Bangalore, with two more in development. On July 23, 2014, Krispy Kreme has launched its first shop in Chennai, India at Express Avenue mall.[34]

On September 25, 2013, Krispy Kreme announced the opening of 25 stores, all within 5 years, in Colombia.[35] This marks the first South American country for the company. In October 2014, Krispy Kreme opened another store at Colombia in Bogotá and Chía, Cundinamarca.[35] On December 12, 2013, Krispy Kreme opened its first store in Taipei, Taiwan. On October 10, 2014, Krispy Kreme opened another store at HSR Layout in Bangalore, Karnataka, India. On November 26, 2014, Krispy Kreme opened their first store in Western Australia with a new store opening in Whitfords, Western Australia. On May 18, 2015, Krispy Kreme announced it has signed a development agreement with KK Doughnuts SA (Pty) Ltd., to open 31 Krispy Kreme shops in South Africa over the next five years. This marked the company's first venture into Africa.[36] On September 10, 2015, Krispy Kreme signed a development agreement with Agape Coral, SAC to open 24 shops over the next five years in Peru.[37] On November 25, 2015, Krispy Kreme opened its first store in Rosebank, Johannesburg, South Africa. On December 2, 2015, Krispy Kreme opened its largest store in the United Kingdom in Glasgow, Scotland. On May 5, 2016, Krispy Kreme opened their first store in Bangladesh at Banani in Dhaka. On July 27, 2016, Krispy Kreme was acquired by JAB Beech. Under the terms of the transaction, company shareholders received $21 per share in cash for each share they own. As a result of the completion of the acquisition, Krispy Kreme's common stock ceased trading on the New York Stock Exchange. On November 5, 2016, Krispy Kreme opened its first store in Kópavogur, Iceland. On January 12, 2017, Krispy Kreme opened its first store in Panama City, Panama. On January 27, 2018, Krispy Kreme opened its first store in Guatemala City, Guatemala. On February 28, 2018, Krispy Kreme opened its first store in Manukau, Auckland, New Zealand.[38] On March 10, 2018, Krispy Kreme opened its first store in Ikeja City Mall, Lagos, Nigeria. On September 26, 2018, Krispy Kreme opened its first store in Dublin, Ireland, which has since become the most profitable store worldwide.[39]

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See also

References
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  2. "Krispy Kreme – Corporate Fact Sheet". Krispy Kreme. Archived from the original on April 7, 2018. Retrieved May 13, 2015.
  3. "KRISPY KREME DOUGHNUTS INC 2016 Q4 Quarterly Report Form (10-K)". United States Securities and Exchange Commission. January 31, 2016.
  4. "Krispy Kreme – About Us".
  5. Carlitz, Ruth. "Hot Doughnuts Now: The Krispy Kreme Story." The Duke Chronicle. N.p., October 21, 2003. Web. October 20, 2014. Archived July 8, 2015, at the Wayback Machine
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  7. "Krispy Kreme Canada Trial Tests Private-Equity Disclosure Rules". Bloomberg. April 13, 2009.
  8. Archived September 15, 2010, at the Wayback Machine
  9. O'Sullivan, Kate (June 1, 2005). "Kremed!". CFO Mag. Archived from the original on January 15, 2013. Retrieved August 9, 2012 – via CFO.com.
  10. "The Holes in a Krispy Kreme Rally". Businessweek. Retrieved August 9, 2012.
  11. "Scott Livengood". Businessweek. January 9, 2005. Retrieved August 9, 2012.
  12. Warner, Melanie (August 11, 2005). "Report Details Some Failures That Hurt Krispy Kreme". The New York Times.
  13. "SEC Accounting and Auditing Enforcement" (PDF).
  14. Tosczak, Mark (January 2, 2006). "Slim down or melt down? Issues loom at Krispy Kreme".
  15. "Krispy Kreme using TV, radio to sell treats". MSN.
  16. "Krispy Kreme's Entire Menu: Zero Grams Trans Fat". Reuters. January 7, 2008. Archived from the original on January 12, 2008.
  17. Smith, Shelley (July 1, 2010). "Cheerwine filled doughnuts are a hit". Salisbury Post. Archived from the original on July 4, 2010. Retrieved July 17, 2010.
  18. Smith, Shelley (July 2, 2010). "Cheerwine doughnuts now at Krispy Kreme". Salisbury Post. Archived from the original on July 5, 2010. Retrieved July 17, 2010.
  19. Jenkins, Scott (July 31, 2010). "Cheerwine doughnut now only in Salisbury". Salisbury Post. Archived from the original on August 2, 2010. Retrieved July 31, 2010.
  20. "Cheerwine Krispy Kremes return". Salisbury Post. June 30, 2011. Archived from the original on September 9, 2012. Retrieved July 1, 2011.
  21. Craver, Richard (November 22, 2010). "Krispy Kreme tests doughnut-delivery service". Winston-Salem Journal. Archived from the original on January 26, 2013. Retrieved November 23, 2010.
  22. admin (July 8, 2019). "10 Most Expensive Ice Creams In The World". TheHumbleRich. Retrieved October 29, 2019.
  23. Stewart, Matt. "Krispy Kreme opens 1000th store in KCK". fox4kc.com. Retrieved September 22, 2015.
  24. Molina, Brett. "Krispy Kreme is rolling out Reese's filled doughnuts". USA TODAY. Retrieved August 6, 2019.
  25. Gerzina, Daniel (August 5, 2019). "Krispy Kreme to Soon Open First Downtown Chicago Shop in 14 Years". Eater Chicago.
  26. Dai, Serena (June 10, 2019). "A Big New Krispy Kreme Is Bringing Hot Doughnuts to Times Square". Eater NY. Retrieved August 13, 2019.
  27. American Krispy Kreme says PR is way to Australian stomachs B&T online March 7, 2007. Archived June 15, 2010, at the Wayback Machine
  28. Krispy Kreme Australia placed into administration Archived December 3, 2013, at the Wayback Machine Dynamic Business November 1, 2010.
  29. Zappone, Chris (November 1, 2010). "D'ough! Krispy Kreme going bust". Melbourne: The Age newspaper.
  30. "7-Eleven announces partnership with Krispy Kreme". December 20, 2011.
  31. Ltd, Insider Media. "Krispy Kreme to open 100th UK store". Insider Media Ltd. Retrieved December 18, 2018.
  32. "Krispy Kreme announces international expansion plans". News & Record. Associated Press. October 18, 2011. Retrieved October 18, 2011.
  33. "US doughnut major Krispy Kreme forays into India". Hindustan Times. January 16, 2013. Archived from the original on January 22, 2013. Retrieved March 3, 2013.
  34. "Krispy Kreme chennai". Retrieved July 23, 2014.
  35. "Krispy Kreme Doughnut Corporation Signs First South American Development Agreement". Krispy Kreme Press Release. September 25, 2013.
  36. "Krispy Kreme to Expand its Presence to Africa By Opening 31 Shops in South Africa Over the Next Five Years". May 18, 2015. Retrieved May 22, 2015.
  37. "Krispy Kreme to Open Stores in Peru". 2015.
  38. aimee.shaw@nzherald.co.nz @AceeyShaw, Aimee Shaw Aimee Shaw is a business reporter focusing on retail, small business (January 27, 2018). "Drive-through doughnuts! Krispy Kreme gears up to open its first New Zealand store" – via www.nzherald.co.nz.
  39. "Behind the scenes at Krispy Kreme Dublin, the firm's most profitable shop worldwide". The Irish Times. The Irish Times Ltd. Retrieved October 6, 2019.

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