A brand name rises

by Jeff Gelski
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While private label sales rose in 2010, the success of a well-known brand name in the donut category was not to be glazed over. Krispy Kreme Doughnuts, Inc., Winston-Salem, N.C., introduced new packaging for retail products and joined a trend of offering seasonal varieties in food service.

The price of Krispy Kreme on the New York Stock Exchange closed at $6.85 per share on Jan. 4, 2011, which marked a surge from a 52-week low of $2.56 per share set in the summer of 2010. Net income for Krispy Kreme’s third quarter ended Oct. 31, 2010, was $2.4 million, which compared with a net loss of $2.4 million in the previous year’s third quarter.

At the retail level in 2010 Krispy Kreme launched new branded packaging in convenience, mass merchant and grocery stores. The packaging involved enhanced graphics, improved graphical consistency across multiple product lines and enhanced structural integrity to help ensure product quality. A new line of products introduced in the upgraded packaging included dipped chocolate cake donut holes, dipped cake donuts in snack bags and Krispy Juniors (dipped cake donuts).

“We are committed to the packaged goods component of our business,” said Jim Morgan, president and chief executive officer of Krispy Kreme. “Exciting new products and improved marketing efforts, like the packaging upgrades we announced today, are expected to help us increase sales in this important distribution channel.”

At the retail level, Krispy Kreme donut sales reached $121,456,300 for the 52-week period ended Nov. 28, 2010, which marked a 9% increase from the previous 52-week period, according to SymphonyIRI Group, Chicago. The sales covered U.S. supermarkets, drug stores, and mass merchandise outlets, excluding Wal-Mart Stores, Inc., Bentonville, Ark.

Bimbo Bakeries USA, Horsham, Pa., led the category with sales of $193,695,600. Bimbo now owns the Entenmann’s brand after the 2009 acquisition of the U.S. fresh bakery business of Weston Foods, Inc. Second-place Hostess Brands Inc., Irving, Texas, saw sales rise 5% to $165,060,400. Sales of private label donuts soared 14% to $121,456,300 for the 52-week period ended Nov. 28, 2010, according to SymphonyIRI Group.

Sales figures from The Nielsen Co., New York, also showed the strength of private label donuts as they accounted for 26.4% of sales in the fresh donut category for the 52 weeks ended Nov. 27, 2010, which was up from 25.7% in the previous 52 weeks and up from 24.3% for the 52 weeks ended Nov. 29, 2008. Private label sales of $243,687,462 for the 52 weeks ended Nov. 27, 2010, marked a 3.2% increase from the previous 52-week period. Sales covered U.S. food, drug and mass merchandiser stores, including Wal-Mart Stores, Inc.

‘Tis the season for donuts

In food service, brand name chains offered seasonal varieties with Krispy Kreme leading the way. There were 649 Krispy Kreme stores on Oct. 31, 2010, which was up from 563 on Nov. 1, 2009. The company offered a lemon cake donut in the summer. October saw a limited-time variety jack o’ lantern donut, which was a pumpkin-shaped yeast donut with a creamy orange icing and a jack o’ lantern face.

In December of 2010, Krispy Kreme launched a chocolate peppermint bark donut with Hershey’s cocoa. The chain started 2011 by making a dark chocolate donut available through Feb. 14.

According to Mintel, seasonal specials are becoming popular in many categories. In 2009, food and beverage menu items featuring familiar fall ingredients and flavors, such as pumpkin, squash, apple, cinnamon, caramel and hazelnut, increased by 13% from the summer to fall season, according to Mintel. The use of pumpkin as an ingredient in menu items increased by 161% from summer to fall in 2009.

“It’s not uncommon for restaurant operators to update their menus to reflect fresh ingredients of each season,” said Kathy Hayden, food service analyst at Mintel. “The falling temperatures signal to restaurant-goers that it’s time for a change to their palates. Words like ‘harvest’ and ‘spiced’ are other menu cues that convey fall and winter flavors.”

Dunkin’ Donuts, Canton, Mass., in October offered a Boston Scream donut decorated with orange icing drizzle and Fall Munchins donut hole treats. From January to August in 2010 Dunkin’ Donuts opened 338 net new locations globally, which included 75 in the United States.

Tim Hortons, Inc., Oakville, Ont., offered a seasonal candy cane chocolate donut, but the company in 2010 announced plans to close 36 restaurants, 34 of which are in the Providence, R.I., and Hartford, Conn., markets. The company will focus on and reinvest in the core growth U.S. markets in the Northeast and Midwest.

High sugar prices

Donut companies in 2011 will have to contend with high costs for sugar and other commodities, which may lead to increasing the price of their donuts.

“Accordingly, we are working to reduce the consumption of certain key ingredients and are evaluating the timing and scope of price increases needed to offset higher input costs,” Krispy Kreme’s Mr. Morgan said when third-quarter results were given Dec. 1, 2010.

Doug Muir, executive vice-president and chief financial officer of Krispy Kreme, said in a Dec. 1 earnings conference call, “Our current sugar contract expires right around June or July of next year. So, we are going to see higher costs in the second half next year.”

Don Schroeder, president and c.e.o. of Tim Horton’s, addressed rising commodity prices in a Nov. 11, 2010, earnings conference call.

“There’s no question that the volatile commodity prices is an issue facing us and everyone else in our sector,” he said. “Our goal is to buy out as far as we can.”

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