Krispy Kreme

Krispy Kreme is a popular chain of doughnut stores. Its parent company is Krispy Kreme Doughnuts, Inc. (), based in Winston-Salem, North Carolina.

Overview

While Krispy Kreme serves up a variety of doughnuts, it is most famous for its traditional glazed doughnut, a very light, aromatic doughnut covered in glaze and often served warm. They have a neon sign which, when lit, tells the customers that a complimentary, original glazed doughnut is available. Select varieties are also carried in many grocery stores, convenience stores, and gas stations. Krispy Kreme doughnuts can also be found in some larger Wal-Mart and Target stores in the United States, Wal-Mart, Loblaws supermarkets, and Petro-Canada gas stations in Canada and Tesco Extra hypermarkets in the United Kingdom. Besides stores in the United States, Canada and the United Kingdom , Krispy Kreme operates stores in Mexico, South Korea, Australia, and Indonesia. Although growth of the chain was steady before the company went public, profits have decreased substantially due to over-expansion, bad loans, and increased costs in upper management. Because of over-expansion many Krispy Kreme locations have now shut down due to un-profitability, including most of its outlets in Canada. Though Krispy Kreme has blamed the low-carb diet craze, others more critical point to their relatively high prices for a product which consists mostly of air.

Most stores are constructed with a long window between the customer area and the kitchen allowing the patrons to watch the operation of the doughnut making machines, which automatically produce rings of dough, yeast raise, bake, deep-fry, flip, and glaze the doughnuts. Each store has a neon "HOT" sign to indicate when fresh hot doughnuts are available. Krispy Kreme's competitors include Dunkin' Donuts, Winchell's Donuts, Southern Maid, The Whole Donut, Tim Hortons and, in Canada, Tim Hortons, Coffee Time, Country Style Donuts and Robin's Donuts.

History

The founder, Vernon Rudolph, worked for his uncle, Ishmael Armstrong, who purchased a secret recipe for yeast-raised doughnuts and a shop on Broad Street in Paducah, KY from Joseph LeBeouf of Lake Charles, LA (although company mythology tells a story whereby Rudolph won the recipe from a New Orleans baker in a poker game in Paducah). Rudolph began selling the yeast doughnuts in Paducah and delivered them on his bicycle. The operation was moved to Nashville, TN and other family members joined to meet the customer demand. Rudolph sold his interest in the Nashville store and in 1937 opened a doughnut shop in Winston-Salem, NC and began selling directly to customers. The first Krispy Kreme store was located in a rented building on South Main Street in Winston-Salem in what is now called historic Old Salem.

By the 1960s, Krispy Kreme was well-known throughout the southeastern United States, and it began to expand into other areas of the U.S.

In 1976, Krispy Kreme Doughnut Corporation became a wholly owned subsidiary of Beatrice Foods Company of Chicago, Illinois. The headquarters for Krispy Kreme remained in Winston-Salem.

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

On June 3, 2005, National Doughnut Day in the US, participating franchises gave away free doughnuts. One free doughnut was given to each customer in recognition of the often-ignored holiday.

Growth

Krispy Kreme began another phase of rapid expansion in the 1990s, opening stores outside the southeast 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. As of 2005, Krispy Kreme has further expanded its international doughnut sales throughout Canada and to locations in Mexico, the United Kingdom, Australia, and South Korea.

On April 5, 2000, the corporation went public on the NASDAQ using the ticker symbol KREM. On May 17 2001, Krispy Kreme switched to the New York Stock Exchange, with the ticker symbol KKD, which is its current symbol.

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

The first Krispy Kreme store in Melbourne, Australia opened on the 22nd of June 2006 at 6:30 am .^* and features a 24-hour drive-through service. Though most store locations outside of Australia typically operate with a long schedule, including both early mornings and late nights, the 24-hour operating model is a speciality for Sydney and Melbourne. Currently the store is hugely popular amongst Melburnians who have queued for over two hours for the product in some cases. When the diner closes at 11pm, the drive-through queue is over 500m long and is controlled by hired security guards who direct traffic and calm the customers.

Problems in Canada

On April 15, 2005, KremeKo, the company responsible for bringing Krispy Kreme to Canada, filed for bankruptcy. Seven weeks later, after closing more stores and being charged with violating the Occupational Health and Safety Act, its assets went up for sale. Two stores in Toronto (on Yonge Street in Richmond Hill, and near the Scarborough Town Centre in Scarborough) closed. KremeKo is attempting to re-structure to remain in business in Canada. Besides the Mississauga, Ontario store, Krispy Kreme still has stores in Delta, British Columbia; Montreal, Quebec (2 locations); Laval, Quebec; Quebec City, Quebec and Calgary, Alberta. All seven Canadian stores are now controlled directly from the United States.

Krispy Kreme controversies

Krispy Kreme has been criticized for their accounting methods. Livengood, and former CFO and COO John Tate, as well as current CFO Michael Phalen, and former CFO Randy Casstevens, are currently embroiled in U.S. Securities and Exchange Commission and class action lawsuits about misreporting profits and failing to issue a profit warning as soon as they knew they would fall short of predictions. In addition, the corporation is accused of manipulating earnings through a practice known as "channel stuffing" — delivering more doughnuts to suppliers than ordered at the end of a reporting period, while still booking the increased revenue, then taking the unsold doughnuts back at the beginning of the next reporting period. The company initially blamed the low-carbohydrate diet craze to explain the loss in earnings. (Mad Money host James Cramer, not a fan of the stock, has poked fun at the "channel stuffing" practice on his shows by asking if anyone has discovered "the warehouse full of Krispy Kreme doughnuts that the company took back".)

In July 2005, Krispy Kreme announced the appointment of a new Chief Accounting Officer, Mr. D. Muir, to be paid a salary of States dollar|US$" target="_blank" >^*300,000 per year. He is to assume the accounting responsibilities of Michael Phalen, currently focused on issues related to the many class action suits and the SEC and DOJ investigations.

Each Krispy Kreme original glazed doughnut has 4 grams of trans fat. Some have more, up to 7 grams (Apple fritters).

References

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