Krispy Kreme bets on smaller model, retail coffee platform

 
March 17, 2014 | by Alicia Kelso

Krispy Kreme turned in a strong fourth quarter, reporting a 6.7-percent jump in company same-store sales, and a 9.9-percent increase in domestic franchised stores.

During Wednesday's earnings call, CEO James Morgan said the company's sales growth is driven by traffic and is among the strongest in the industry. For the fiscal year, Krispy Kreme surpassed the $1 billion milestone in systemwide sales.

To continue this momentum, the brand is focused on the expansion of its small factory shop footprint, a bigger focus on beverages including retail coffee, and continued occasion-based marketing.

Small factory shop

Worldwide, 80 net units were opened and franchisees upped development commitments to a total of 500 stores.

This, Morgan said, brings the company closer to its goal of having 1,300 systemwide stores by 2017. Krispy Kreme opened seven of its new small factory shops in fiscal 2014, and more franchisees are signing up for the store model. And for good reason — the eight stores that have been open since January 2013 have had positive results.

CFO Doug Muir said two of those eight locations have been "home runs," while four others are performing above expectations. These stores are making an average of $30,000 a week, which compares to the $35,000 average of a higher-cost freestanding store.

"We view the smaller store format as critical to our growth opportunity. The early results from the eight stores give us confidence in the model, and we are pleased that franchisees are now making small factory shops a part of their development plans for fiscal 2015," Morgan said.

Beverage platform

Since its coffee launch in the fall of 2011, Krispy Kreme has been ramping up its focus on beverages, and Morgan said he expects coffee and beverages to become an even bigger draw at stores and in retail channels. In October 2013, the company announced that it will start selling packaged ground coffee at Sam's locations, and by this fall it will have a K-Cup grocery presence at big box outlets throughout the U.S., in shops and online.

"We view all of these actions as part of a long-term opportunity to serve what we believe is the large number of consumers who welcome the chance to enjoy Krispy Kreme coffee and beverages even when they aren't in one of our shops," Morgan said.

The company considers the added points of distribution to be a "catalyst" for brand growth. With a 250-unit footprint, Morgan said it is not a convenient choice for coffee drinkers.

"If we can get them accustomed to drinking our coffee at home, we think it will become a bigger part of their life when they visit our stores," he said.

Marketing "occasions"

Finally, Krispy Kreme will remain focused on marketing initiatives, including via social media, eClub, Hot Light smartphone app and local relationships.

"Our improved marketing has helped us guard our top-of-mind awareness," Morgan said. Customers are indicating that they want more opportunities to visit Krispy Kreme for occasions, he added. "And we intend to do just that."

Krispy Kreme also will likely add one or two more promotional days, in addition to its National Doughnut Day or Talk Like A Pirate Day.

"We don't want to become dependent on those; we think they should be the gravy. Therefore, we are also very focused on the everyday occasion," Morgan said. "A blend of those two is probably what you will see during the coming year and years to come."


Topics: Coffee/Bakery/Donut , Food & Beverage , Franchising & Growth , Marketing / Branding / Promotion


Alicia Kelso / Alicia has been a professional journalist for 15 years. Her work with FastCasual.com, QSRweb.com and PizzaMarketplace.com has been featured in publications around the world, including NPR, Good Morning America, Voice of Russia radio, Consumerist.com and Franchise Asia magazine.
View Alicia Kelso's profile on LinkedIn

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