Krispy Kreme Case Study

Company Overview:

Krispy Kreme is a retailer and wholesaler of "high quality doughnuts and packaged sweets" (2010 10-K report) as well as various beverages. Krispy Kreme consists of stores and franchises that include domestic and international franchises, company stores and the KK Supply Chain. Krispy Kreme is also the sole provider to all their stores and franchises of the ingredients and equipment needed for store operations via the KK Supply Chain. Notably, neither equipment nor ingredients can be purchased from any other vendor and thus the franchises/stores are completely dependent upon Krispy Kreme.

Vernon Rudolph acquired the Krispy Kreme recipe from a New Orleans chef and moved to Nashville and opened his own doughnut shop in 1937. Initially selling to grocery stores, he ended up cutting a hole in the building to sell to passersby who inquired about buying hot donuts directly from the bakery. Mr. Rudolph patented Krispy Kreme in 1939. Family members joined the bakery to help Rudolph meet rising demand for his doughnuts. Rudolph invented and built all his donut making equipment. To date, the company still uses only company made equipment. Other stores started popping up around the south in the 1950s and 1960s as the company quickly expanded.

Rudolph died in 1973 and as the company began to flounder, it was sold to Beatrice Foods in 1976. Original franchisees repurchased the company from Beatrice Foods in 1982. The new owners quickly turned the focus back to the "hot doughnut" experience. By the 1990s, KK had expanded to NYC and California making it a national franchise. At the sixtieth anniversary, Krispy Kreme inducted into the Smithsonian Institution National Museum of American History.

In April, 2000, the company went public and the stock was quickly embraced being a known product as opposed to internet companies. The stock did quite well - trading at nearly $50 a share by August 2003. Up until this time, the company had been enjoying rapid growth. However, in 2004-2009, the company saw the closings of 240 stores which in conjunction with questionable accounting practices that cause concerns for investors led to declining revenues and significant losses. This included almost "$300m in impairment charges and lease termination costs" due to the store closings and "goodwill write-offs from franchise acquisitions" (2010 10-K report).

The 2010 Annual Report indicates that currently Krispy Kreme is again enjoying franchise growth both domestically and internationally. They have also concluded all litigations and regulatory inquiries that had been made in the previous years. The hope is to continue to expand, regain popularity with brand awareness and improve profitability. Management plans to accomplish these goals through strategic initiatives that include cutting expenses, development and testing of small shop formats and operations, development of new products, increasing sales to "off-premise" locations, international growth, and improving franchisee support.

Krispy Kreme's Mission, Vision and Values:

Our Mission

 To touch and enhance lives through the joy that is Krispy Kreme.

Our Vision

 To be the worldwide leader in sharing delicious tastes and creating joyful memories

Our Values (With acknowledgement to our founder Vernon Rudolph)

 Consumers are our lifeblood, the center of the doughnut

 There is no substitute for quality in our service to consumers

 Impeccable presentation is critical wherever Krispy Kreme is sold

 We must produce a collaborative team effort that is unexcelled

 We must cast the best possible image in all that we do

 We must never settle for "second best;" we deliver on our commitments

 We must coach our team to ever-better results

Current Management (Key Officers):

James H. Morgan, 62, has been President and CEO since 2008; director for Coca-Cola since 2008; Chairman and Chief Investment Officer for Covenant Capital, LLC (an investment management firm). Previous experience includes Chairman/CEO (April-December 1999) and then consultant for Wachovia Securities (2000-2001); Interstate Johnson/Lane (investment banking firm) in several positions including Chairman/CEO (1990-1999).

Douglas Muir, 56, had been EVP/CFO since 2007 after having served for two years as Chief Accounting Officer; EVP/CFO for Oakwood Homes (1993-2004); seventeen year career at Price Waterhouse including as an audit partner from 1988-1993. Mr. Muir is a certified public accountant.

Kenneth Hudson, 59, SVP of Human Resources and Organizational Development since 2005; VP, Human Resources, Lexington Home Brands (2000-2003); previous assignments include Delta Airlines, Thomas Built Busses, Blessings Corporation, and GE in various HR and operations positions. Hudson gained through these previous assignments extensive experience in new business start-ups, acquisitions and mergers both domestically and internationally.

M. Bradley Wall, 38, SVP, Supply Chain and Off-Premises Operations (2008-present); VP, Manufacturing Operations (2005-2007); VP, Beverage Operations (2004-2005); VP, Business Development (2003-2004); previously held various positions in management since joining Krispy Kreme in 1995.

Jeffrey Welch, 56, SVP and President of International (2008-present); SVP, Global Franchise and Development (2007-2008); SVP, International and Development (2004-2007); previously served as VP of Home Depot (1999-2004); VP, Franchising and Business Development for Europe, Africa and the Middle East.Yum! Brands (1991-1999).

Darryl Marsch, 45, SVP/General Counsel (2008-present); VP/Associate General Counsel (2007-2008); previously employed by RJ Reynolds as senior counsel (1998-2007); and as Jones Day law firm associate (1991-1998).

Cindy Bay, SVP, Company Franchises and Company Stores as of August 2011; has twenty-five years of leadership experience in various capacities at the McDonald's Corporation.

Previous management included Scott Livengood who was CEO during the era of questionable accounting practices. He resigned in the wake of SEC investigations in 2005. Six other executives and the board of directors were subsequently fired due to "undisclosed improper behaviors" (Lessons from Krispy Kreme, J.