Some comments on Bill Mann's thoughts :
Re : <<they [Krispy Kreme] still do not have a huge amount of pricing power>>
I personally sold doughnuts (Dunkin Donuts brand) door to door at a boarding school I attended, back in 1974 - 1975.
I was told (but have no way of confirming) (and it seems entirely reasonable to me) that the actual ingredient cost of the doughnuts back then was 11 cents per dozen. (Yes, per DOZEN; not per doughnut).
As anyone who had read my Silicon Investor profile knows -- I have been involved extensively in commodity futures trading for over 20 years.
I can state with absolute certainty that the various ingredients in doughnuts (flour, sugar, vegetable oil, etc.) are now equal or lower in price than they were in 1974.
So, I would guess that the actual ingredient cost of Krispy Kreme doughnuts today is 11 cents a dozen or lower.
When I sold the DUNK doughnuts in 1974-75, the price for a dozen at the Dunkin Donut shop was around $1.69.
KREM now sells a dozen donuts for roughly $5.00.
Without performing any complicated financial analyses (which, in theory, I supposedly know how to do, since I also attended business school ...), I really do NOT think KREM has to worry about things like narrow margins, pricing power etc.
In fact -- to me, KREM seems like the epitome of a company that has more or less inelastic demand for their products (translation : "price is (almost) no object").
Re : <<But this is a food services business. Food services is an asset- and labor-intensive, notoriously thin-margined business to be in. It doesn't scale that well (particularly for Krispy Kreme, which I'll explain), and there are significant up-front investment costs for each new location.>>
I am not an expert on this, but this sounds like an analysis that might apply to a steak house restaurant, not a donut shop.
Jon. |
