Krispy Kreme Doughnuts, Inc.: A Hot Brand in America

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As the millennium began, the future for Krispy Kreme Doughnuts, Inc., smelled sweet. Not only could the company boast iconic status and a nearly cultlike follow­ing, it had quickly become a darling of Wall Street. Less than a year after its initial public offering, in April 2000, Krispy Kreme shares were selling for 62 times earn­ings and, by 2003, Fortune magazine had dubbed the company "the hottest brand in America." With ambitious plans to open 500 doughnut shops over the first half of the decade, the company's distinctive green-and-red vintage logo and unmistakable "Hot Doughnuts Now" neon sign had become ubiquitous.
At the end of 2004, however, the sweet story had begun to sour as the company made
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In addition, the com­pany planned to grow internationally, with 32 locations proposed for Canada and more for the United Kingdom, Mexico, and Australia. Exhibit 3 provides an overview of the company's store openings.
Krispy Kreme Doughnuts generated revenues through four primary sources: on-premises retail sales at company-owned stores (accounting for 27 percent of revenues); off-premises sales to grocery and convenience stores (40 percent); man­ufacturing and distribution of product mix and machinery (29 percent); and fran­chisee royalties and fees (4 percent). In addition to the traditional domestic retail locations, the company sought growth through smaller "satellite concepts," which relied on factory stores to provide doughnuts for reheating, as well as the devel­opment of the international market.
On-premises sales: Each factory store allowed consumers to see the production of doughnuts; Krispy Kreme's custom machinery and doughnut-viewing areas cre­ated what the company called a "doughnut theater." In that way, Krispy Kreme at­tempted to differentiate itself from its competition by offering customers an experience rather than simply a product. Each factory store could produce be­tween 4,000-dozen and 10,000-dozen doughnuts a day, which were sold both on-and off-premises.

Off-premises sales: About 60 percent of off-premises sales were to grocery stores, both

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