Krispy Kreme moves further from wholesale

by Eric Schroeder
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NEW YORK — Krispy Kreme Doughnuts, Inc., which got its start more than 76 years ago delivering donuts to local grocery stores, slowly has transitioned away from the wholesale business, opening more and more retail stores. But the company, based in Winston-Salem, N.C., does not plan to abandon the wholesale part of the business, even if it does expect to change the way it’s currently doing things, said Jim Morgan, chairman, president and chief executive officer.

In a presentation at the CL King & Associates Inc. Best Ideas Conference held Sept. 11 in New York, Mr. Morgan said Krispy Kreme began as a wholesale business but converted to retail by “knocking a hole in the wall” of a wholesale manufacturer after people walking by commented on the donut smell and began asking for product.

“That is literally how we became a retail operation,” he said.

Today, Krispy Kreme operates 789 shops in 21 countries. Total revenues in the year ended Feb. 3 totaled $269,494,000. Of that total, wholesale sales accounted for $153,576,000, or 51.8%. The percentage makeup of Krispy Kreme’s wholesale business has gradually slipped, falling from 54.7% in 2009 to 53.6% in 2012 to 51.8% in 2013.

“In many ways (wholesale) is a great business to be in, but as you know, it kills the margins,” Mr. Morgan said. “It makes it very difficult for you to look at company stores because it is blended in so many of our company stores that are retail. ... It is not the model that if you could snap your fingers and start over you would do. You would not be doing the wholesale out of the same building that you are doing the retail.”

Mr. Morgan noted Krispy Kreme almost certainly will continue to transition the way the business looks, but it will be in the wholesale business “in one form or another for many years to come.”

He said Krispy Kreme is not awarding wholesale to any of its new franchisees and does not plan to involve any of its new company stores in the wholesale business, either.

“We would love to see a transition to a larger percentage of the sales being longer shelf-life products and products that are less duplicative or replicative of the products sold in the retail stores,” he said. “And that is what I think you can look for.”

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