Krispy Kreme Doughnut Company Background and History

I. INTRODUCTION

Krispy Kreme is an international chain of doughnut stores. It was founded by Vernon Rodulph who purchased a special doughnut recipe from a French chef in New Orleans. Vernon established his new business and expanded it by opening a single doughnut shop which is the first official Krispy Kreme store. Krispy Kreme store started making and selling doughnuts wholesale to supermarkets in Winston-Salem, North Carolina, in 1937.Within a short span of time, Krispy Kreme became popular. The demand for the product was so great that Rodulph Vernon opened the shop for retail business by cutting a hole in the wall and selling doughnuts directly to customers. It is after then that Krispy Kreme Doughnuts have seen the many stages of financial gain and loss. Through the 1930's and 1940's the company saw regional growth and by the late 1950's Krispy Kreme had opened 29 shops in 12 states, many of which were operated by franchisees.

After the death of the Krispy Kreme's founder, Vernon Rodulph in 1973, the company was sold and bought by Beatrice Foods two years later. Shortly after, Beatrice Foods expanded the company to more than 100 locations. It also tried to make some changes to the brand image and doughnut recipe. It introduced another product line such as sandwiches and soups aside from doughnut. Beatrice Foods also cut the costs by changing the appearance of the stores and substituting cheaper ingredients in the doughnut mixture. But, the marketing strategy introduced by Beatrice Foods give a negative effect on the sales. The business languished and by the early 1980's, Beatrice Foods put the company up for sale.

In 1982, a group of franchisees led by Joseph McAleer, who had been the first Krispy Kreme franchisee, purchased the corporation back from Beatrice Foods in 1982 by a complete leveraged buyout of the company for $24 million. McAleer brought back the original doughnut formula and the Krispy Kreme Doughnut's traditional logo. They also introduced a "Hot Doughnuts Now" neon sign, which told the customers when fresh doughnuts were coming off the line. The company struggled for a while, but by 1989 the condition of Krispy Kreme shows an adverse result. Krispy Kreme had become debt-free and had slowly begun to expand. The company focused on its signature doughnuts and added branded coffee in 1996. In April 2000, Scott Livengood, who became Chief Executive Officer in 1998 and chair in the following year, took the company public and was one of the largest initial public offerings in recent years. One day after the offering, Krispy Kreme's share price amounted to $40.63that gave the firm a market capitalization of nearly $ 500 million dollars.

After the company's initial public offering, the future of Krispy Kreme Doughnuts, Inc. smelled sweet. The company was able to boast an iconic status and had quickly become the darling of the Wall Street. Less than a year after Krispy Kreme's largest initial public offering, in April 2000, Krispy Kreme shares were selling 62 times earnings. Because of its great success, Fortune magazine had dubbed the company "the hottest brand in America" in 2003. Trying to impress the Wall Street, Krispy Kreme ambitiously plans to expand its stores from 144 to 500 over the next five years. In addition, the company planned to grow internationally, with 32 locations proposed for Canada and more for the United Kingdom, Mexico, and Australia. With this aggressive plan of expansion over the first