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Krispy Kreme CEO focused on brand experience over food trends

Based on early results, the company is now recommending its smaller factory model to franchisees.

January 13, 2014 by Alicia Kelso — Editor, QSRWeb.com

Krispy Kreme is a 77-year-old brand that experienced a rebirth about six years ago, CEO James Morgan said today during a presentation at the 16th annual ICR XChange event in Orlando, Fla. Morgan, joined by CFO Doug Muir, provided attendees with his perspective as to why the brand's stock value and footprint have both grown steadily since facing bankruptcy rumors in 2004-05.

"When I joined in 2008, I didn't realize how iconic the brand was, and now I've grown to deeply appreciate the passion and loyalty of our customers, and the unique factors that have drawn generations to Krispy Kreme," Morgan said.

Although, with about 250 U.S. units, the company has a smaller footprint than many other QSRs, Morgan said consumers' familiarity with the brand is as strong as larger brands, and adds the development runway is "significant." The goal is to have 900 international shops by the end of 2017.

Krispy Kreme also plans to ramp up its domestic expansion behind its smaller shop format. The oldest of these has been opened about a year, but early results have been strong enough to focus on this model for future growth.

Muir said the smaller model reduces the cost of real estate, equipment and fixtures, and has generated higher-than-expected revenues thus far.

"We're very encouraged with initial results. It's still a little early, but there is more than enough evidence to support ongoing construction of smaller factory formats. We're also recommending them to franchisees," Muir said, adding that there are 10 to 15 of these units expected to open domestically in the coming fiscal year.

Hidden driver is emotion

Fueling this unit and same-store sales growth is emotion, Morgan said.

"Consumers' desire for a special treat, an emotional reward, seems to be at the heart of the brand," he said. "Guests tell us they're open to eating doughnuts anywhere, any time. They just need us to give them more reasons."

Armed with that research, Krispy Kreme has honed its marketing strategy to promote special occasions such as holidays and Talk Like a Pirate Day, as well as "everyday occasions," such as birthdays and office parties.

"We continue to see an increase in traffic as we introduce the brand to new guests and give them more reasons to come in more often," Morgan said. "Rather than chasing every food trend, we're focused on giving them a crave-able experience physically and emotionally. This strategy seems to be working."

He expects the trend to continue working in Krispy Kreme's favor because of improved marketing behind its Facebook, eClub, Instagram, Twitter, Hot Now mobile app and website channels, as well as a multiyear focus on improved hospitality.

"This isn't a story about how far we've come or where we are," Morgan said, "but about the opportunities that lie ahead."

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