Krispy Kreme's History

Throughout Krispy Kreme's history, the overriding engine for organization and growth has been franchising. Through its franchises, the company has managed to expand across the U.S. in a controlled manner while maintaining the entrepreneurial spirit of a small business. Krispy Kreme franchisees are entrepreneurs in their own right: people who want to run their own business and have a real shot at financial success beyond what they might achieve behind a desk as part of a large corporation. These business owners are willing to take risks to achieve their goals and are optimistic about their chances for success. Eric Sigurdson, president of Sweet Traditions, one of the largest franchisees of Krispy Kreme stores, who currently has the exclusive rights to own and operate Krispy Kreme stores in Illinois and Missouri, left a lucrative job at a large company to start his franchise business. He expects his company's annual revenues to top $100 million in the next couple of years.

Franchisees played a crucial role in one of Krispy Kreme's most important transformations. In 1976, food giant Beatrice Foods Co. acquired Krispy Kreme to its own corporate culture and strategy, including product offerings - such as deli sandwiches - in Krispy Kreme shops. But in 1982, a group fo Krispy Kreme franchisees led by Joseph A. McAleer, Sr., bought back the company from Beatrice. Krispy Kreme was an independent company up until it had its initial public offering on the NASDAQ in April 2000 but has continued to focus on its signature product - great doughnuts. Krispy Kreme has been able to expand through franchises because franchisees share many of the costs in exchange for support from the franchisor. Franchisees pay an average fee of $40,000 per store, in addition to 4.5 percent of revenues per year. That's pennies compared with the $1 million required to build the store and purchase doughnut-making equipment and mix from Krispy Kreme. A potential franchisee must demonstrate a minimum net worth of 5 million, and Krispy Kreme does not offer financing to franchisees. But Krispy Kreme franchisees can expect huge returns - typically , a 100 percent return on investment within the first year of business, compared with an average 25 percent for most good restaurants.

Krispy Kreme has also managed to expand its organization through acquisition. In 2001, it acquired Digital Java, a small Chicago-based coffee company. This way, Krispy Kreme could not only broaden its beverage offerings but also control their quality. Revenues from coffee and other drinks hover between 12 and 15 percent at various Krispy Kreme shops, and the company is boldly challenging Dunkin' Donuts's claim to the coffee turf. Krispy Kreme offers fewer coffee varieties - at higher prices - than Dunkin' does, but the current No. 2 doughnut maker is no longer content to ride only on its doughnut wave. "At our core, and in our heart, we're a doughnut