WSJ -- Krispy Kreme: Research Backs Revival Of Satellite Shops.
May 12, 2003
Krispy Kreme: Research Backs Revival Of Satellite Shops
By MARY ELLEN LLOYD
Of DOW JONES NEWSWIRES
CHARLOTTE -- I don't care if it's not a hot one; just get me a Krispy Kreme.
That's the thrust of recent consumer research that has led Krispy Kreme Doughnuts Inc. (KKD) to resume opening small shops that sell fresh - but room temperature - doughnuts. Krispy Kreme halted the opening of such shops nearly three years ago amid concerns customers would be confused or disappointed when they didn't find the chain's signature hot glazed doughnuts.
But now the Winston-Salem, N.C., company is experimenting with a new generation of the shops, called satellite stores, Chief Operating Officer John Tate said in an interview Monday.
In the late 1990s, Krispy Kreme opened about 10 such stores, in places such as New York City's Penn Station and Charlotte-Douglas International Airport in Charlotte. But company Chief Executive Scott Livengood halted the openings in mid-2000. At the time, the chain was developing equipment that allowed it to produce hot doughnuts in smaller spaces, so Livengood considered opening only stores that sold products made on site.
Customer research over the last 12 to 18 months has led Krispy Kreme to believe there's room for both types of small-format stores, Tate said.
"I hear people say all the time, 'I would eat a lot more if I could get them,' " he said. "One of the things customers are saying is they want access to hot doughnuts once in awhile ... but they also tell us they really want us to be accessible."
Krispy Kreme currently produces doughnuts at about 280 facilities, most of which combine a retail storefront and a bakery. Twice a day, customers can buy doughnuts hot off the production line. The store also makes the brand's products sold in grocery stores, convenience stores and other third-party outlets.
Tate said the company continues to believe North America can support around 750 of those so-called factory stores.
The chain also has three of the smaller stores, dubbed "doughnut and coffee shops," where partially cooked doughnuts are finished and sold hot. Those shops are typically a couple of thousand square feet.
The new-generation satellite stores will range from 200 square feet to 1,000 square feet and will sell doughnuts delivered once or twice daily from a factory store, Tate said. The shops will also sell the chain's full line of hot and cold drinks as well as Krispy Kreme T-shirts, mugs and other paraphernalia.
Krispy Kreme expects to open 10 of the smaller stores - a combination of satellite and doughnut/coffee shops - this year. Beyond that, Tate said, the company hasn't decided how many it will open. But it's clearly a lot.
"Is that 1,000 or 2,000? We don't know yet," Tate said.
Krispy Kreme's long-range goal is for per-capita sales of around $20, compared with about $2.50 today. Having up to 2,000 smaller stores, 750 factory stores, and a growing business with grocers and other third-party retailers could help Krispy Kreme reach that goal in the next 10 years or so, Tate said.
A chronic concern among Wall Street analysts is that the quantity and the quality of Krispy Kreme products sold outside its factory stores will eventually weaken the brand. Tate said the company recognizes its products must be presented well, so it monitors each of its 10,000 total points of distribution and terminated contracts at 500 outlets last year.
"But the research is so clear," he said. "None of our customers feel that it demeans the brand to be able to have the convenience to purchase it in a convenience store or a grocery store."
And Krispy Kreme has "pretty consistently" found that new distribution outlets don't cannibalize sales from existing outlets - even when a factory store in on one corner, a convenience store selling Krispy Kremes is on another, and a grocery store customer is nearby, Tate said.
Tate said he doesn't expect sales from the smaller stores to drag down comparable-store sales at factory stores.
Krispy Kreme has said it expects systemwide comparable-store sales to rise 10% this year, with growth rates possibly varying from quarter to quarter. Krispy Kreme reports first-quarter results May 28.
Corporate Web site: krispykreme.com
-By Mary Ellen Lloyd, Dow Jones Newswires; 704-371-4033; maryellen.lloyd@dowjones.com
Updated May 12, 2003 3:35 p.m.
Copyright © 2003 Dow Jones & Company, Inc. All Rights Reserved. |
