Krispy Kreme

History

In 1933, eighteen-year-old Vernon Rudolph began working for his uncle, Ishmael Armstrong, who owned a small general store in Paducah, Kentucky that sold a wide variety of goods, including its very popular doughnuts. While the exact origin of the doughnut recipe remains partially a mystery, it is believed that Ishmael Armstrong was inspired by an Ohio River barge cook named Joseph LeBeouf who was famous for his light and fluffy doughnuts.

The store struggled during the Great Depression, so in 1934, Vernon and Ishmael decided to move to the larger city of Nashville, Tennessee where they hoped business would be better. The uncle and nephew focused solely on selling their doughnuts and opened "The Krispy Kreme Doughnut Company" in a rented store on Gallatin Road. The shop did so well that Vernon's father, Plumie, also left Kentucky and moved to Nashville to help sell doughnuts.

In 1937, Vernon Rudolph opened his own store, deciding on Winston-Salem, North Carolina for the location when he learned that his favorite cigarette company, Camel Cigarettes, was headquartered in the small North Carolina city. Rudolph primarily sold to convenience stores; however, he also sold hot doughnuts to individual customers who came during production time between midnight and 4 am. The first store in North Carolina was located in a rented building on South Main Street in Winston-Salem in what is now called historic Old Salem. The Krispy Kreme logo was designed by Benny Dinkins, a local architect. The first Krispy Kreme bakery outside the South opened in Akron, Ohio, in 1939.

Expansion occurred in the 1950s, including an early store in Savannah, Georgia. By the 1960s, Krispy Kreme was known throughout the Southeast, and it began to expand into other areas. In 1976, Krispy Kreme Doughnut Corporation became a wholly owned subsidiary of Beatrice Foods of Chicago, Illinois. The headquarters for Krispy Kreme remained in Winston-Salem.

A group of franchisees purchased the corporation back from Beatrice Foods in 1982.

In May 2016, JAB Beech, a German investment firm, announced it made an offer to purchase the company for $1.35 billion over the following two months that would make the company privately owned. The transaction closed on July 27, 2016.

Growth

Krispy Kreme began another phase of rapid expansion in the 1990s, opening stores outside the southeastern United States where most of their stores were located. Then, in December 2001, Krispy Kreme opened its first store outside the U.S. in Mississauga, Ontario, Canada, just outside Toronto.

IPO and accounting scandals

On April 5, 2000, the corporation went public on the NASDAQ at $21 using the ticker symbol KREM. On May 17, 2001, Krispy Kreme switched to the New York Stock Exchange, with the ticker symbol KKD, which it carried until its private acquisition. The stock reached what would be its all-time high of $50 on the New York Stock Exchange in August 2003, a gain of 235 percent from its IPO price. For the fiscal year ending in February 2004, the company reported sales of $665.6 million and operating profits of $94.7 million from almost 400 stores (including international locations). The market initially considered the company as having "solid fundamentals, adding stores at a rapid clip and showing steadily increasing sales and earnings." Since then, it had lost 75-80% of its value by 2005, amid earnings declines, as well as an SEC investigation over the company's alleged improper accounting practices.

In May 2004, the company missed quarterly estimates for the first time and suffered its first loss as a public company. Chairman and CEO Scott Livengood attributed the poor results to the low-carbohydrate diet craze. This explanation was viewed with skepticism by analysts, as "blaming the Atkins diet for disappointing earnings carried a whiff of desperation", and as rival donut chain, Dunkin' Donuts has not suffered from the low-carb trend over the same compared period.

Analysts suggested that Livengood had expanded the chain too rapidly after the IPO, which concentrated certain markets with too many stores. While this approach initially grew revenues and profits at the parent-company level, due to royalty payments from new franchisees, which also increased sales, this reduced the profitability of individual franchisees in the long run as they were forced to compete with one another. For the 2003-04 fiscal year, while the parent enjoyed a 15 percent increase in second-quarter revenues, same-store sales increased only a tenth of a percent during that time. By contrast, McDonald's focused on profitability at the franchise level. Krispy Kreme also had supermarkets and gas stations carry their donuts, which soon contributed up to half of the chain's sales, creating further market saturation as well as increasing competition to its franchisees. All this expansion devalued Krispy Kreme brand's novelty, by making the once-specialty donuts ubiquitous, particularly as the newer sales outlets required pre-made donuts as opposed to the ones made fresh in factory stores, which alienated brand devotees.

Besides royalty payments from new stores, the parent company also enjoyed significant profits by requiring franchisees to purchase mix and doughnut-making equipment from the parent's Krispy Kreme Manufacturing and Distribution (KKM&D) division. KKM&D earned $152.7 million in 2003, which made up 31 percent of sales, with a reported operating margin of 20 percent or higher, but these mark-ups were largely at the expense of its franchisees. By comparison, rival chain Dunkin' Donuts generally avoids selling equipment or materials to its franchisees which "keeps company and franchisee interests aligned", as well as having a royalty stream based on same-store sales.

Krispy Kreme has been accused of channel stuffing by franchisees, whose stores reportedly "received twice their regular shipments in the final weeks of a quarter so that headquarters could make its numbers". The company was also dogged by questionable transactions and self-dealing accusations over the buybacks of franchisees, including those operated by company insiders. A report released in August 2005 singled out then-CEO Scott Livengood and then-COO John W. Tate to blame for the accounting scandals although it did not find that the executives committed intentional fraud.

On March 4, 2009, the SEC issued a cease and desist order against Krispy Kreme for its actions inflating their revenues and engaging in illicit activities regarding the purchasing of its own stores to prop up revenues and setting up mechanisms to guarantee it beat earnings estimates by $0.01 which eventually resulted in Krispy Kreme reducing net income over 2 years of over $10.5 million. In it, it proposed remedial actions for Krispy Kreme to take.

Management shuffle

On January 18, 2005, Krispy Kreme announced Stephen Cooper, chairman of financial consulting group Kroll Zolfo Cooper LLC, as interim CEO, succeeding Scott Livengood who retired as chairman, president, CEO, and a director. The company also named Steven Panagos, a managing director of Kroll Zolfo, as president and COO.

A turnaround plan in December 2005 aimed to close unprofitable stores in order to avoid bankruptcy.

New offerings and changes

In 2003, a pilot project in Mountain View, California, to sell doughnuts through car windows and sunroofs at a busy intersection (with wireless payment) failed.

Although based on informal advertising such as word-of-mouth, in 2006, Krispy Kreme moved into television and radio advertisements, beginning with its "Share the Love" campaign with heart-shaped doughnuts.

On February 19, 2007, Krispy Kreme began selling the Whole Wheat Glazed doughnut in an attempt to appeal to the health conscious. The doughnut has 84 kJ (20 kilocalories in most countries, or 20 Calories in the US) fewer than the original glazed (754 kJ vs. 837 kJ) and contains more fiber (2 grams vs. 0.5 grams). As of January 2008, the trans fat content of all Krispy Kreme doughnuts was reduced to 0.5 of a gram or less. The U.S. Food and Drug Administration, in its guidelines, allows companies to round down to 0 g in its nutrition facts label even if the food contains as much as 0.5 of a gram per serving. Krispy Kreme benefited from this regulatory rule in its subsequent advertising campaign, touting its doughnuts as "trans fat-free" and having "0 grams trans fat!".

On July 1, 2010, Krispy Kreme introduced a doughnut that included the soft drink Cheerwine, which was to be sold in grocery stores in North and South Carolina during July. The doughnuts proved so popular, the Salisbury, North Carolina Krispy Kreme location (the town where Cheerwine is made), sold them as well. After July 31, this was the only place to get them. The Cheerwine Kreme doughnut returned for July 2011 and made its debut in Tennessee and Roanoke, Virginia.

Also in 2010, Krispy Kreme Express, a delivery service for businesses, began testing at the Battleground Avenue location in Greensboro, North Carolina.

In the early 2010s, the company began developing shops with tunnel ovens, which allow for an all-day "Hot Now" hot donut experience.

On February 24, 2015, Krispy Kreme opened its 1,000th shop, in Kansas City, Kansas. The first customer received one free dozen of donuts per week, for a year.

International operations

The first Krispy Kreme store to open outside North America was in Penrith, Australia, in Sydney. At first, the operation was successful, opening 53 other stores around the country. However, as of November 1, 2010, the entire Australian division went into voluntary administration, with media reports attributing this to poor sales. They have since come out of administration as of December 2010, and continued trading, with fewer stores. Since 2012, Krispy Kreme doughnuts have been available through all 7-Eleven stores in the eastern states of Australia after announcing partnership with Krispy Kreme Australia in late 2011. The second Krispy Kreme store that was opened internationally was in the United Kingdom and was in Harrods department store London. It closed in June 2011. As of 2017 there are 35 Krispy Kreme stores in the UK. Besides the stores that Krispy Kreme operate in the United States and Canada, there are also locations in the United Kingdom, Australia, Lebanon, Turkey, India, Dominican Republic, Iceland, Kuwait, Mexico, Panama, Puerto Rico, Taiwan, South Korea, Malaysia, Thailand, Indonesia, the Philippines, Japan, China, the United Arab Emirates, Qatar, Saudi Arabia, Bahrain Hong Kong (2006–2008), and Ethiopia.

In August 2011, Krispy Kreme's Japan operation planned to increase the number of stores from 21 to 94, and its Mexico operation announced the number of stores would increase from 58 to 128 in five years. In the United Kingdom, Krispy Kreme continues its expansion and had plans and funding in place to open further stores in 2012. In South Korea, their first store opened on December 16, 2004, and celebrated their 100th store opening exactly ten years later, on December 16, 2014. As of September 2016, they hold the most stores in the Asia-Pacific region with 129 stores.

Krispy Kreme opened its first store in India on January 19, 2013, in Bangalore, Karnataka. The stores are operated by Citymax Hotels India under a franchise arrangement. So far, there are 5 stores opened in Bangalore, with two more in development.

On July 23, 2014, Krispy Kreme has launched its first shop in Chennai, India at Express Avenue mall.

On September 25, 2013, Krispy Kreme announced the opening of 25 stores, all within 5 years, in Colombia. This marks the first South American country for the company. In October 2014, Krispy Kreme opened another store at Colombia in Bogota and Chía, Cundinamarca.

On December 12, 2013, Krispy Kreme opened its first store in Taipei, Taiwan.

On October 10, 2014, Krispy Kreme opened another store at HSR Layout in Bangalore, Karnataka, India.

On November 26, 2014, Krispy Kreme opened their first store in Western Australia with a new store opening in Whitfords, Perth.

On May 18, 2015, Krispy Kreme announced it has signed a development agreement with KK Doughnuts SA (Pty) Ltd., to open 31 Krispy Kreme shops in South Africa over the next five years. This marks the company’s first venture into Africa.

On September 10, 2015, Krispy Kreme signs development agreement with Agape Coral, SAC to open 24 shops over the next five years in Peru.

On November 25, 2015, Krispy Kreme opened its first store in Rosebank, South Africa.

On December 2, 2015, Krispy Kreme opened its largest store in The United Kingdom in Glasgow, Scotland.

On May 5, 2016, Krispy Kreme opened their first store in Bangladesh at Banani in Dhaka.

On July 27, 2016, Krispy Kreme was acquired by JAB Beech. Under the terms of the transaction, company shareholders received $21 per share in cash for each share they own. As a result of the completion of the acquisition, Krispy Kreme’s common stock ceased trading on the New York Stock Exchange.

On November 5, 2016, Krispy Kreme opened its first store in Kópavogur, Iceland.

On January 12, 2017, Krispy Kreme opened its first store in Panama City, Panama.

Retail availability

In the United States, the company's products are sold in Krispy Kreme stores, as well as through grocery stores, convenience stores, Walmart, Target, and Shaw's stores. Internationally, doughnuts are sold in Loblaws supermarkets, Petro-Canada gas stations, and as freestanding stores in Canada, along with BP Service Stations and Travel Centres and 7-Eleven stores in Australia. In the United Kingdom, Tesco supermarkets, Tesco Extra, and most Tesco service stations carry Krispy Kreme products. Service stations Moto, Welcome Break & Road Chef also carry self-service cabinets.

Environmental and ethical record

Currently, Krispy Kreme uses palm oil from suppliers that may be cutting down rainforests. However, in September 2014 the company pledged to source all its palm oil from suppliers who do not destroy rainforests by the end of 2016.

Eggs for Krispy Kreme donuts currently come from caged hens. Krispy Kreme have pledged to use 100% free-range eggs in the United Kingdom by the end of 2018.