Soft Serve Won't Fix Soft Sales at Krispy Kreme

This was done for Gerson Lehrman Group News and Posted on October 10th - Ron

Original Article: Krispy Kreme hopes ice cream heats up sales www.msnbc.msn.com (article)


Soft Serve Won't Fix Soft Sales at Krispy Kreme


Implications:
1) The namesake product is out of synch with consumer trends
2) Soft Serve Ice Cream adds a daypart, not a full profit center
3) Quality as criteria in site selecton and Distribution key to success

Analysis:
Krispy Kreme essentially imploded during 2004-05, as the reported sales volumes turned out to be inflated. Consulting for a Convenience Store chain in 2003, I watched first hand as locations who paid a delivery driver cash daily for Krispy Kreme product would receive an invoice for the same goods at the end of the month. It would always be called into the office and pointed out as an error, and the paperwork would disappear.

Krispy Kreme overestimated their sales potential in a given market; the C-Stores carrying the product were saddled with minimum purchases that resulted in a lot of product being wasted, at the retailers expense. We shopped, over a 6 week period, a full Krispy Kreme location w/Factory on a high-value corner for a competing client (location now closed)in 2006, and they added a frozen custard operation to punch up the lack of walk-in traffic in the afternoon/evening period. It did not seem to work at this site, and so I'm not sure if the product has been adjusted to a more saleable concept or not. The product is good, but is running against current consumer QSR trends. In theory, it adds a daypart, but you need to market it apart from the core doughnut business.

Krispy Kreme has shown very little discretion in siting locations and adding distribution partners, and overall, the brand suffered. At least in the area serviced by our master franchisee, they never seemed to get over the image, cleanliness, training and personnel issues that McDonalds(NYS:MCD) and BK solved, for the most part, years ago with a much, much greater restaurant count. To rely on adding a product line as a solution, unless (and I don't have firsthand knowledge) they've addressed the daily operational and quality control (product, service and customer experience) of the operation won't make a long term difference in the firms viability.
Posted: 10/10/2008 12:57 AM