Krispy Kreme

Krispy Kreme
Type	Public (NYSE: KKD)
Founded	1937
Headquarters	Winston-Salem, North Carolina, USA
Industry	Restaurant
Products	Doughnuts, Soft drinks, Hot Drinks
Revenue	510.21 million USD (2006)
Net income	88.45 million USD (2006)
Employees	4250
Website	http://www.krispykreme.com/

Krispy Kreme is a chain of doughnut stores. Its parent company is Krispy Kreme Doughnuts, Inc. (NYSE: KKD), based in Winston-Salem, North Carolina, United States. Krispy Kreme sells a variety of doughnuts, but it is most famous for its traditional glazed doughnut, often served warm. Select varieties of Krispy Kreme doughnuts are 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 now many Tesco supermarkets and Tesco Extra hypermarkets in the United Kingdom. The company's growth was steady prior to its initial public offering but profits have decreased in recent quarters.^[1] Most free-standing Krispy Kreme stores are constructed with a long window between the customer area and the kitchen allowing patrons to watch the operation of the doughnut making machines. The machines produce rings of dough, yeast raise, bake, deep-fry, flip, and glaze the doughnuts. These stores have a neon sign that, when lit (usually morning and evening), tells customers that hot, fresh doughnuts are coming off the line at that moment. Some smaller locations, however, bring in their doughnuts from other locations rather than producing them on-site. Krispy Kreme's competitors within the United States include Dunkin' Donuts, Starbucks and Tim Hortons.^[2]

History

Krispy Kreme delivery truck, circa 1939

An assortment of doughnuts on display in a shop in Washington, D.C..

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, Kentucky, from Joseph LeBeouf of Lake Charles, LA . 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 to groceries and then directly to individual 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 country. 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 the corporation back from Beatrice Foods in 1982.

A location in Eden Prairie, MN

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. On June 3, 2005, National Doughnut Day in the US, participating franchises gave away free 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 twenty kilocalories (83,736 J) fewer than the original glazed (180 vs. 200 kcal) and contains more fiber (2 grams vs. 0.5 grams).

Growth

Krispy Kreme doughnuts being made at a restaurant in Sydney, Australia

Krispy Kreme began another phase of rapid expansion in the 1990s, opening stores outside the 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. Since 2004, Krispy Kreme has rapidly expanded its international operations. 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. 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 ^[3]

Problems

A Krispy Kreme employee wearing the typical uniform with the signature campaign cap.

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. Three stores in Toronto (on Yonge Street in Richmond Hill, on Wilson Avenue east of Dufferin Street and near the Scarborough Town Centre in Scarborough) closed. KremeKo is attempting to re-structure to remain in business in Canada. Less than two years after Krispy Kreme opened in London, Ontario, it was closed due to bankruptcy in addition to a store in Windsor, Ontario. Besides the Mississauga, Ontario, store, Krispy Kreme still has stores in Delta, British Columbia; Montreal, Quebec; Laval, Quebec; Quebec City, Quebec and Calgary, Alberta. All six Canadian stores are now controlled directly from the United States. Krispy Kreme doughnuts are still available in Wal-Mart, select Petro-Canada, Shell and Loblaws locations in Canada. In regions without a nearby Krispy Kreme store, prepackaged doughnuts are available from time-to-time at local grocery stores or gas stations, usually coming from stores in the US.

New York

Dynamic Doughnuts out of Buffalo, who operates all New York State locations outside of New York City, has, within the past year, closed many of its owned locations. These include: Hicksville (now a Chipotle Mexican), East Meadow (becoming an Arby's Franchise), Riverhead, Melville, Albany,Syracuse, Amherst, Gates, Rochester, and Middletown. For now, the locations in Cheektowaga are still open, as well as the locations in New York City. In Western New York, the chain has significant competition from Tim Hortons, which has very large regional identification. On September 13, 2007, the Henrietta location closed.

Chicago

After devastating accounting problems and too-rapid growth, Krispy Kreme was forced to close 17 of its Chicago locations leaving only one in the city itself. There remain nine additional locations in the Chicago area and outlying suburbs.

Arizona and New Mexico

On August 11, 2006, all 11 Krispy Kreme stores in Arizona and New Mexico closed without warning when the Rigel Corporation, the franchisee responsible for all Krispy Kreme stores in the two states filed for chapter 11 bankruptcy. The store at 6626 E. Superstition Springs Boulevard in Mesa, Arizona, was slated to reopen May 6, 2007,^[4] but as of June 11, 2007, has not.

California

In January 2006, Krispy Kreme terminated the franchise license of Great Circle Family Foods LLC, alleging non-payment of required fees. At the time, they were one of the largest franchisees, operating 28 stores in Southern California. Preceding this action was a financial dispute by Great Circle, culminating in their September lawsuit filed against Krispy Kreme. The lawsuit was settled in July 2006 and led to the reinstatement of Great Circle's license. On August 22, 2007 Great Circle Family Foods and some of its wholly owned subsidiaries filed for Chapter 11 Bankruptcy.^[5]

New England

After most stores in New England had already closed, the final remaining store in Cranston, Rhode Island, closed on July 12, 2006. The only remaining stores in the region are in Milford, Connecticut, and at the Mohegan Sun casino. A company spokesperson was quoted in a Providence newspaper blaming the failure on the inability of the stores to keep up with producing for the wholesale market and the entrenchment of the Dunkin' Donuts chain in the region. Also the franchise just out of Boston recently closed.

International operations

A Krispy Kreme store at Times Square, Hong Kong.

Main article: Krispy Kreme operations

Besides the stores that Krispy Kreme operate in the United States and Canada, there are also franchise owned stores in the United Kingdom, Australia, Kuwait, Mexico, South Korea, Hong Kong, Indonesia, The Philippines, Japan, the United Arab Emirates and Saudi Arabia. The first Krispy Kreme store to open outside North America was in Sydney, Australia^[6].

Controversies

Accounting

Krispy Kreme has been criticized for its 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 Jim 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 US$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.

References

Other references

• I Remember Paducah When by Barron White-ISBN-0-9113338 72 4]
• Winston-Salem Journal, "Krispy Kreme Lawsuit Filed." December 31, 2004.
• Krispy Kreme Corporation Investor FAQ
• Krispy Kreme Press Kit
• Krispy Fills Kreme-Filled Hole in the Market
• Forbes Krispy Kreme Doughnuts Corp. Page

External links

• Official Krispy Kreme web site
• Official Australia Krispy Kreme web site
• Yahoo! - Krispy Kreme Doughnuts, Inc. Company Profile
• Feelin' Foodie: Krispy Kreme Westfield Fountain Gate
• The Age: Horde of the Rings
• How Stuff Works: Krispy Kreme

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