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Uncontrolled overexposure burned the donut

22 Nov 2004 by Jason Fried

Looks like the darling of just a couple of years ago is experiencing a reversal of fortune. Krispy Kreme, the company and stock everyone thought was a sure bet (I mean, come on, this is fat America and we love our donuts), is turning out to be a dud.

Atkins definitely hurt, but I think it’s more than that. The article suggests:

Some investors have also said company expanded too quickly and that its doughnuts lost some of their cache once they were sold in places like supermarkets and convenience stores.

I think that’s a big part of it. By putting their prepackaged donuts in supermarkets, airports, and convenience stores, they’ve really hurt their brand. They’re unable to control the experience anymore. Anyone who’s been to a KK store knows the magic is in the hot donut. But, when they are prepackaged and left to sit on a supermarket display they just lose their luster. And that definitely hurts their brand. The “DAMN these are good donuts” response turns to “Umm, I remember these being better.” And that’s not the response you want.

I sure hope they can stage a comeback, cause their “concept” is genius (hot tasty donuts you can watch being made on a fascinating machine — how American is that?!), but as a corporation they definitely need to go on a diet before they’re back in shape.

29 comments so far (Post a Comment)

22 Nov 2004 | Benjy said...

Even more so than KK's on grocery and convenience store shelves, I think simply the georgraphic expansion is was hurt the brand. They used to be a regional delicacy, but not their ubiquity has deminished that specialness.

When I went off to school in Atlanta, it was a ritual for us "yankees" to be indoctrinated into Krispy Kreme by local students and/or upperclassmen. Once I introduced my parents to them during their first Parents' Weekend visit, my mom was hooked! I was required to pick up a dozen on the way to the airport when I'd come home for visits so that when they met me at O'Hare, they'd still be slightly warm. When they'd come to Atlanta, we'd stop on the way from the airport.

But then KK came into the Chicago market, and and they no longer became a special treat since they could be had anytime one was wanted. I'm sure this is similar to others throughout the country.

I forsaw this way back when they first went public...

22 Nov 2004 | donut don said...

I once found what I thought was a thumbnail in my donut. Could have been a toenail...

22 Nov 2004 | kingbenny said...

I remember questioning this quite awhile ago too... the KK donuts in the supermarkets and convenience stores can actually taste pretty nasty if they've been there a whole day. Honestly, I'm not sure what they were thinking, seems like almost everybody can see they've damaged their brand, they had to see that...

22 Nov 2004 | lisa said...

They have always put their product in supermarkets and convenience stores and they re-stock daily...or, here in North Carolina (where they are based) this has been the case.

22 Nov 2004 | brian said...

As Lisa says, they've always had their product in convenience and grocery stores. They also have closed a large number of Krispy Kreme stores in the south over the last decade. You think they would have realized the correlation and not repeat the same mistake.

22 Nov 2004 | Brad Hurley said...

Here in Montreal we have just two Krispy Kreme stores in the whole city, and I've never seen their products in convenience or grocery stores. Krispy Kreme definitely still has cachet here, people practically bow their heads and talk in hushed tones when referring to it. Whenever I drive by the store nearest me, there's a long line at the driveup window and the parking lot is full....it's the carbohydrated equivalent of Ikea.

22 Nov 2004 | One of several Steves said...

It's amazing after a bajillion stories of once-high-flying companies crashing to earth because of overexpansion or too-rapid expansion that so many companies still make the same mistake over and over again. It's like Sisyphus and Icarus have morphed into the same being. One would think companies would learn that lesson from looking at the wreckage of companies that thought unfettered growth was the ticket, but I guess just like in our personal lives we think it can never happen to us, the same holds true in business.

While too-quick expansion and the inability to manage it is probably the biggest source of KK's downfall, I think Benjy hit on a key point. When it was regional, their doughnuts had the same appeal as the taboo. Once they spread, the allure of getting something hard-to-obtain was gone.

Plus, people were more easily able to discover that KK doughnuts aren't very good. I've never understood the hype. Even the ones from the KK stores taste like glazed air to me. There's no there there. Any number of my local no-name doughnut shops make ones that are infinitely better.

22 Nov 2004 | Dr_God said...

First, (as Benjy hints at) I think that KK donuts were just a hot fad a couple years ago. When a local KK store opened up, people flocked to it. As Christopher Walken would put it, the "wowy zowy" factor has worn off. The stores are everywhere and everyone has had them.

Second, they keep giving out free donuts! Every time I go in to get a donut, they hand me a free one. I don't know a single friend of mine (including myself) that doesn't accept the free one, eat it, and then consider themselves satiated. So people coming in who may have planned on buying two or three donuts are leaving after only buying one. Hey KK, you no longer have to give donuts away for free! We all know who you are now!

Damn, I'm hungry for donuts now...

22 Nov 2004 | sloan said...

The over expansion is a problem finance-wise, especially in light of people going Atkins crazy these days. But KK has been in Florida for 50 years and always did well and probably always will. It is a quality product for what it is, but selling to grocery and convenience stores takes away their ability to control the quality and experience.

The pressure of stock holders and greed is always difficult for a company to resist... you are not allowed to keep large stashes of cash because it is seen as wasting away instead of being invested in some way. Going public is a very sharp double-edged sword because you get all of this money, but then you have an obligation to all of these people that have nothing to do with your company other than making money from it. It takes a really strong company to go public and NOT go mad I think. Seriously, do you want people to be able to sue you if you don't do what will make them money instead of what is best for the company? The hardest thing is to NOT spend the money you raise, I'm afraid google is branching out too much too fast. It is so hard to find quality people, it is near impossible to find enough to grow and expand that quickly.

23 Nov 2004 | A. White said...

I just got tired of the lack of variety: after one "ok, hot glazed is good..." I wanted my Dunkin' fave, Cinnamon Sugar. Back to D&D...

23 Nov 2004 | Sara said...

Personally, I just don't see what's so great with Krispy Kreme. It could be that as a Canadian I'm just spoiled with Tim Horton's and their amazing doughnuts, but I didn't think that a KK doughnut was anything special even when it was freshly made and steaming hot, so they must be absolutely gross when they've been sitting around in a store for a day.

23 Nov 2004 | the dungeonmaster said...

Back to D&D...

OK...

You move forward through the crystal cavern. Suddenly your elvish ears pick up the distinct whistle of an goblin arrow. It's an goblin ambush!

Roll D20...

If you are wearing a goblin breasplate, roll D6 for added armor bonus.

23 Nov 2004 | Don Schenck said...

We only support our local donut shops, Maple Donuts. Doesn't hurt that the family is a personal friend.

If you're ever in York, Pennsylvania, stop at a Maple Donuts shop and treat yourself.

23 Nov 2004 | Don Schenck said...

P.S. The headline for this thread reminded me of Engrish.

23 Nov 2004 | Michelle said...

"One of several Steves" said, "It's amazing after a bajillion stories of once-high-flying companies crashing to earth because of overexpansion or too-rapid expansion that so many companies still make the same mistake over and over again."

But I wonder how much of this is part and parcel of being The Hot New Stock? I can only imagine what happens inside a company when they realize that everyone wants a piece, but surely they have bow-tied MBA types telling them that in order to a) justify the craze and b) keep it rolling for as long as possible, they've got to grow grow grow. Right? I'm thinking that maybe a company loses a certain amount of autonomy or flexibility once every business journal in the country has identified them as the next big thing. There may be folks at KK who are in the doughnut business because they just love a good doughnut, but I bet there are also accountants and financial advisors who haven't sampled a hot-glazed since they were new at the office looking to score co-worker points...

I lived in the South for years and loved Krispy Kremes way before they were a "market phenomenon." While part of me was pleased to hear the early rumbles of the KK bubble, because let's face it, those are some damn good doughnuts (though, yes, cold supermarket versions are useless), another part of me never really understood how this was going to be the next Pets.com. At its root, the pre-national-fad Krispy Kreme existed to sell sugary snacks to folks who a) like sugary snacks more than the rest of the country in general but b) have less money than the rest of the country in general. Since all fads eventually lose their luster---how that formula translates into "economic powerhouse" I don't know.

23 Nov 2004 | lisa said...

you know, actually the stock price dropped yesterday because an accounting scandal was revealed.

23 Nov 2004 | Darrel said...

I like cold pizza. And I like cold KKs. Call me crazy.

"an accounting scandal was revealed"

haha!

23 Nov 2004 | 40mph_dan said...

The HOT doughnut is key-- The non-hot KK's are like sugar shot Wonder bread--- boring, bland, gets old after one-- I'm unimpressed. Is there any flour in those things? any OTHER donut is better cold, so of course KK is losing.

If you want a local donut in Portland Orygun-- Voodoo Donuts on 3rd and Burnside-- The Magic Is In The Hole... 10pm-10am [sic]

23 Nov 2004 | A. White said...

Ok, har har, I meant Dunkin' Donuts, not the other D&D. How did that slip out? Watched LOTR too many times, I guess...

Nick thought I mean Design & Development, which I guess is also true.

23 Nov 2004 | Noel D. Jackson said...

The explanation is simple: the krispy kremes suck cold. seriously, they suck big time, worse than eating a can of cat food for three meals every day for the rest of your life (plus some mint suace on top).

Krispy Kremes were meant to be served hot. Once they started selling them at places where they could only sell them cold, everyone who hadn't tried one before bought a box of cold ones and thought that the doughnuts always taste like that. Which of course, hot krispy kremes taste like heaven, so there.

23 Nov 2004 | Jerry said...

I live in Alabama... I've been going to the local KK store for 30+ years. I didn't know there WAS another donut chain until a Dunkin' Donuts opened here in the 80's... it didn't last long.

It was funny to watch the rest of the country "discover" the same donuts I'd had for years. Let's face it... the South is generally not seen as a trendsetter. And now pop culture attention has moved on and taken the stock price with it.

That's fine. Just leave my store where it's always been.


23 Nov 2004 | CSC said...

As an eighteen-year resident of the (rarely) proud state of Alabama, I second Jerry's comments. But I'd also like to point out that Krispy Kreme uses the vastly superior "doughnuts" spelling. Donuts are for lazy Yankees who can't be bothered to spell the whole thing out.

Yes, I said Yankees. Bring it, Jason....

24 Nov 2004 | JF said...

Yes, I said Yankees. Bring it, Jason....

You know me better than to think I'd take that bait.

BTW: Us Yankees also prefer the more precise three-dot ellipses instead of your longer, lazier, drawl-inspired four-dot variation.

Yes, I said drawl-inspired. Bring it, counsel.

24 Nov 2004 | One of several Steves said...

I'm a yankee. I spell it doughnut.

I also use the three-dot ellipsis when appropriate, and the four-dot when appropriate (although, technically speaking, there is no such thing as a four-dot ellipsis).

And I still think KK do(ugh)nuts are horribly overrated. Even when hot.

And I'm going to start trying to use the term "drawl-inspired" in my everyday conversation more often.

24 Nov 2004 | CSC said...

Clearly, you have never had to pin-cite a quotation that you've shortened because the end of it is unfavorable to your client. The four-dot ellipsis is used to reflect "substance missing at the end of a sentence." As in...dot-dot-dot-then-a-period.

Just for that, you may never get to hear my drawl in all its glory....

24 Nov 2004 | JF said...

There they go again... Lawyers... Inventing new shit they can bill for. You know, someone has to pay for the time spent on that extra dot. Add up all the extra dots and we're talking thousands of dollars -- maybe trillions. Shame on you people.

24 Nov 2004 | CSC said...

What can I say? It's both an art AND a science.

24 Nov 2004 | asdf said...

*** Totally Off Topic ***

Dangerous breakfast!

27 Nov 2004 | dan said...

I grew up with them in the south and never thought anything special about KK. Then all of a sudden all I hear is people in other parts of the country talking about KK, and not long after they expanded.

I still don't get the hype, and it looks like that's just what it was, hype.

KK should return to the south, get off the hype train, and go back to the success they always were. They should have known expanding north would destroy them.

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