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12 Krispy Kreme Doughnuts

(KKD) — 2009

John Burbridge

Coleman Rich
Elon University

KKD

www.krispykreme.com
In early 2009, Yahoo Finance published a list of 15 firms that have a high probability of
going bankrupt during the year. Krispy Kreme was on the list. KKD’s fiscal 2009 year
ended on February 1, 2009. On June 5, 2009, KKD reported a 53 percent drop in its first-
quarter 2010 earnings to $1.9 million, down from $4 million the prior year. KKD’s revenue
decreased 9.9 percent to $93.4 million. KKD’s sales for that first quarter, however, were up
2.1 percent at KKD company-owned stores as opposed to franchised stores. Krispy Kreme
needs a clear strategic plan to survive through 2011 and beyond while competing against
Dunkin’ Donuts, Starbucks, and even McDonald’s.
History
Although Krispy Kreme (KKD) is perceived as a North Carolina institution, its origins are in
Louisiana and Kentucky. The founder of Krispy Kreme, Vernon Randolph, worked at his
uncle’s shop in Paducah, Kentucky, when the uncle purchased a secret recipe for making
doughnuts from someone in Lake Charles, Louisiana. After working for his uncle, Vernon
took the recipe to Nashville, Tennessee, to be part of a startup operation. After a relatively
short time, Vernon sold his interest in the Nashville store and opened the first Krispy Kreme
operation in Winston-Salem, North Carolina, in 1937. Initially, the company sold its dough-
nuts to local grocery stores. However, Vernon quickly realized that a direct market existed and
began selling his hot glazed doughnuts to customers coming to the Winston-Salem location.
As a result of the initial success in North Carolina, Krispy Kreme began expanding
throughout the Southeast. With expansion in the 1950s, the process of making doughnuts
was transformed to an entirely mechanized process with the introduction of an automatic
dough cutter. A further change was introduced in 1962 when an extrusion process replacing
cutting.
In 1976, KKD became a wholly owned subsidiary of Beatrice Foods. However,
in 1982, a group of franchisees dissatisfied with Krispy Kreme being part of a large
organization purchased the business back from Beatrice. Krispy Kreme spent the
rest of the 1980s expanding and strengthening its position in the southeastern
United States.
As the stock market soared in the late 1990s, the idea of going public intrigued the
Krispy Kreme management. In 2000, Krispy Kreme was very successful in raising signifi-
cant capital with its initial public offering. At first, the shares of stock were traded on the
NASDAQ using the ticker symbol KREM. Since May 17, 2001, Krispy Kreme has been
listed on the New York Stock exchange under the current symbol, KKD.
After going public, Krispy Kreme went through a period of rapid expansion both
domestically and, to some degree, internationally. The stock price quadrupled and oppor-
tunities appeared to prove endless. The hot sugar-glazed Krispy Kreme doughnut had a
mystique associated with it. Krispy Kreme became a hot brand. Investors pursued exclu-
sive franchising rights to open stores in various parts of the country. A franchise producing