Article

Krispy Kreme plans to step up customer engagement efforts

The brand plans to develop more relationships with licensing partners to extend the experience outside its shops.

June 3, 2014 by Alicia Kelso — Editor, QSRWeb.com

Krispy Kreme reported financial results for its Q1 of 2015 on Monday, including a systemwide domestic same-store sales increase of 2.3 percent. Store count is up 3.3 percent, to 855 company and franchise shops worldwide

Executives said the company got off to a slow start in the beginning of the year because of inclement weather that significantly impacted Valentine’s week, its biggest sales week of the year. Still, executive chairman and former CEO Jim Morgan said on an earnings call that the quarter was the company’s highest in more than 10 years on a pretax basis.

“On an adjusted basis net income rose to $15.8 million and adjusted earnings per share was $0.23, up $0.15 on top of a 43-percent increase in first quarter last year,” he said. “Our two-year stock comp of 10.7 percent is pretty impressive and demonstrates the strength and health of our domestic business.”

To achieve organic and consistent same-store sales growth, Krispy Kreme is focused on providing “an outstanding product and experience” with every visit.

Engagement efforts

To step up its customer experience and engagement focus, Krispy Kreme named VML as its new global digital agency in May.

“Encouraging more everyday occasions requires that we keep customers constantly engaged with our brand. We are therefore growing our digital presence as a key component in facilitating that everyday connection,” Morgan said. “To assist us, we’re now working with a global marketing agency with a demonstrated ability to successfully execute unique campaigns.”

New and existing digital, social and interactive media channels are “crucial” moving forward, he said, to keep Krispy Kreme top of mind. The brand will also look for ways to drive more occasions through its doughnuts, coffees/beverages and offerings beyond the shops' four walls.

“A key to building long-term, top-of-mind consumer awareness is by building greater connectivity and making our products more convenient and available outside of our shops,” Morgan said.

Krispy Kreme recently began offering bottled and bagged coffee, and developed a K-Cup relationship with Green Mountain earlier this year. Executives hope this extended brand presence translates into higher beverage sales in-store.

“We believe there are many opportunities to expand and capitalize on our Krispy Kreme brand awareness and reputation through thoughtful arrangements with first class licensing partners. We’re planning additional such arrangements in the coming quarters and years,” Morgan said.

Store development

Also during the quarter, 27 new Krispy Kremes opened, and the system is on track to grow by 10 percent this year. Domestic expansion is focused on the small factory footprint, which is being adopted by more franchisees.

“During the quarter, the first franchisee of a small factory opened in Dallas, and we expect several more small factory shop openings by domestic franchisees before the end of the year,” Morgan said.  

CFO Doug Muir said there are now 10 small freestanding shops opened, including two new shops from Q1. Aside from two underperforming units, the company is pleased with the results from the relatively new prototype. Krispy Kreme reported its first 12-month metric, “after the honeymoon phase,” from its first Greenville, S.C., small factory shop, which opened in January 2013. It averages sales of about $31,000 a week, Muir said.

“That’s about the same level of sales we saw for that shop in the July, October and January quarters. So it seems to have settled in the $30s in weekly sales, which is a very profitable level. We really like where we are right now,” he said.

Thompson’s first day

Monday’s earnings call marked new-CEO Tony Thompson’s first day on the job. Thompson previously served as president and COO of Papa John’s.

“In Tony, we have found someone that has both the skill set and the passion to guide Krispy Kreme to even greater successes in the years ahead. His career accomplishments, his professionalism and his personal qualities represent the perfect complement to the culture, mission and values at Krispy Kreme,” Morgan said.

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