NEW YORK — After stabilizing the business and strengthening the balance sheet in recent years, Winston-Salem, N.C.-based Krispy Kreme Doughnuts, Inc. now is focused on improving its understanding of what consumers want and using that information to accelerate growth, achieve sustainable profitability and build shareholder value for the long term, said Jim Morgan, chairman, president and chief executive officer of Krispy Kreme. Mr. Morgan spoke June 5 at the Stephens Spring Investment Conference in New York.
“Through our ongoing consumer research and engagement, we now better understand both the physical needs of our customers and their emotional desires,” Mr. Morgan said. “Over the past three years, our shop development work has been largely operational and very tangible. We have honed how we make and deliver Krispy Kreme products to our customers by focusing on the ‘how’ of meeting their needs.”
Acknowledging Krispy Kreme is not as profitable as it can or should be, Mr. Morgan said Krispy Kreme is taking steps to enhance profitability. Those steps include driving increases in same-store sales of donuts and complementary products through greater visit frequency, as well as a sharper focus on beverages.
Additionally, Krispy Kreme is trying to improve shop economics by lowering the cost associated with its shops. Krispy Kreme has satellite shops that are supplied fresh donuts twice daily from a nearby factory store, and development efforts the past two years have focused on these shops. Looking ahead to 2013 and 2014, though, Mr. Morgan said Krispy Kreme will concentrate on developing small factory stores.
“These shops have all the donut-making capabilities of our traditional shops, but they are smaller and less costly, because they are designed solely to serve retail consumers,” he said. “These small factories will not participate in distribution of our products to the wholesale customers.”
Mr. Morgan said most of the small factory shops built over the next two years will be freestanding units While these shops may be more expensive to build, the company expects higher average unit volume to more than offset the extra cost.
A new machine was created to accommodate the spacing needs of the small factory stores. Krispy Kreme installed the first one at its Gastonia, N.C., store on May 9, Mr. Morgan said. The machine is 13 feet shorter than the old production line.