Krispy Kreme coffee platform drives sales lift

On Monday, Krispy Kreme Doughnuts Inc. reported financial results for its third quarter 2014, including a same-store sales increase of 3.7 percent at company-owned locations. This marked the brand's 20th consecutive quarterly increase.

"This is an incredible feat irrespective of underlying macro conditions, but even more impressive considering the state of our industry and the economy over the last five years," CEO James Morgan said on the company's earnings call.

Same-store sales drivers were price and a modest gain in traffic. Krispy Kreme's focus on marketing occasions — such as Talk Like a Pirate Day — lifted traffic.

Beverage sales given coffee boost

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Beverage sales are also up 4.2 percent, led by the brand's fledgling coffee line, which was up 15 percent compared to the same period last year. The coffee line, which was launched in late 2011, is especially benefitting from espresso-based options.

"We believe our opportunities for further coffee penetration in our stores are considerable and will be aided by branding opportunities outside of our four walls," Morgan said.

For example, Krispy Kreme recently introduced a packaged ground coffee test in about 100 Sam's Club locations throughout the Southeast. The program is manufactured by a third party and includes a licensing agreement that provides the company with an additional royalty stream.

"The idea of having coffee in different forms — we have much broader thoughts and aspirations on that," Morgan added.

Franchising and growth

In addition to product and marketing initiatives, Krispy Kreme also announced its plans to expand in Alaska and, this week, Houston. The company will focus on its smaller models, of which seven now exist.

Morgan reiterated Krispy Kreme's goal of reaching 400 domestic shops by January 2017. During Q3, franchised same-store sales were up 10.7 percent.

"We believe domestic expansion in the next three years will have three components: company stores, new franchisees and long-time franchisees. We estimate the majority will be franchise," Morgan said. "We are moving the brand forward on each of the strategic fronts we've been discussing for the past five years."

Read more about operations management.

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User Comments – Give us your opinion!
  • John Cohen
    Funny how certain things boost sales, like your participation in a fun, silly holiday. Also, having the support of espresso would make sense. ___________________ Marcey Coffeevines
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