Krispy Kreme: Operations and marketing spark growth

During a presentation this morning at the 15th annual ICR Xchange Conference in Miami, Krispy Kreme CEO Jim Morgan said the company has spent the past four years building its foundation. Now it has the right operations team and marketing team in place.

"Those teams have come together and worked hand in hand and it's put us in a position to grow," he said.

Namely, the marketing team has driven more traffic in recent years, and the operations team has figured out how to execute that increase in traffic. The result has been 16 consecutive quarters of same-store sales growth.

And, after conducting extensive consumer research recently to find out what is influencing visits, Morgan said the company is poised for "impressive and sustainable" growth.

"In the past five years, we've transitioned from a turnaround story to a company at the beginning of growth. This isn't a story of how far we've come or where we are, but of the vast opportunities that lie ahead," he said.

What lies ahead

The plan moving forward includes an ambitious expansion in international markets. Krispy Kreme announced this week that it is set to open its first franchise location in India on Jan. 19 in the city of Bangalore, the country's third largest city. Bangalore is a hub for India's growing IT sector and home to many universities and research institutes.

In June 2012, the company announced a new partnership with Citymax Hotels Pvt. Ltd. for the development of 80 franchise Krispy Kreme retail locations throughout five years in the South and West regions of India. Citymax Hotels Pvt. Ltd. is part of the Dubai-based Landmark Group.

"Our new partnership with Citymax Hotels Pvt. Ltd. represents the extraordinary growth opportunity we believe exists for the Krispy Kreme brand in India," said Jeff Welch, Krispy Kreme president, International. "Working with Citymax Hotels, we are delighted to introduce the Indian consumer to the Krispy Kreme experience, including our one-of-a-kind Doughnut Theatre."

The brand's debut in India is part of its strategy to double its international footprint by the end of 2017.

"We aspire to be the worldwide leader for delicious taste and joy. Our goal is to double our international shops to 900 by the end of 2017. We currently have commitments for almost 400. In addition to Brazil, Russia and India, we're working on Europe and Central and South America. These are our new markets," he said.

Currently, Krispy Kreme is located in 22 countries, including the U.S.

Domestic growth accelerated by smaller shop model

Domestic growth is also part of Krispy Kreme's plan, and the company plans to accelerate openings through its new smaller store model.

"In the next three years, we'll focus on new, small shops that are less costly than our traditional doughnut factory. These will be retail only; they will not participate in distribution. They're simpler and, at 2,300 square feet, are about half the size of our traditional shops," Morgan said.

The new model features a smaller investment and lower operating/labor costs, new equipment and an operational change in the doughnut-making line.

The first small shop model is set to open Jan. 22 in Greenville, S.C. A grand opening celebration will be held beginning at 6 a.m. when the first 100 guests will receive free doughnuts for a year, t-shirts and other prizes.

The approximately 2,300-square-foot location includes a drive-thru.

Consumer perception helps drive domestic growth

Krispy Kreme's domestic expansion picked up in 2011 for the first time in "many years," according to Morgan. The company expects to continue growing into 2014 and accelerate it in 2015 and beyond.

"Our goal is to have over 400 shops by January 2017," Morgan said. "We currently expect to open five to 10 company shops annually, primarily in the Southeast, but we may accelerate that pace. Outside of the Southeast region, we plan to grow through franchising."

Krispy Kreme will leverage its recent consumer research to build the brand as it grows its footprint. According to Morgan, that research showed that consumers do not think of Krispy KReme as just an early morning and late evening destination.

"Consumers said they want to eat more doughnuts more of the time if we provide them with a reason to do so," he said. "Our strong traffic growth suggests that this is true. We have the opportunity to drive new occasions during the day by leveraging everyday events like office parties, after-school events, etc. People simply want more of what Krispy Kreme already delivers."

To achieve its goals, Krispy Kreme will continue to focus on differentiation by:

  • Increasing top-of-mind awareness through social media and other non-traditional marketing;
  • Expanding doughnut use occasions throughout the day and night;
  • Leveraging volume to maximize sales;
  • Focusing on doughnuts and drinks; and
  • Enhancing the sensory and interactive experiences for guests.

"We now have two things that companies spend a lifetime trying to achieve: a best-in-class product and brand that consumers love worldwide. We intend to build on those gifts," Morgan said.

Read more about operations management.

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