Merchant Innovation

Krispy Kreme, Coffee And The Digital Donut

“Donuts. Is there anything they can’t do?” — Matt Groening, creator of “The Simpsons”

Were a competition held, the donut should, at least, be a contender for the most American food.

A simple strip of dough, shaped into a ring, deep-fried in lard, glazed with hot sugar, frosted, stuffed with jelly or cream and then served for breakfast. It may not be possible for food to be more American than that.

Almost as iconic, perhaps, is Krispy Kreme, an international donutselling powerhouse that traces its origins to the back of a general store in Paducah, Kentucky, in 1933. A full 16 years older than Dunkin Donuts and 37 years older than Starbucks, the first Krispy Kreme donut shop officially opened in Nashville in 1934. The company’s flagship was opened in Winston-Salem, North Carolina, in 1937, where the brand remains headquartered to this day.

The secret to all that longevity?

“People love donuts, and the two Ks are just inherently attractive. The in-joke at the company is that the Kardashians stole their best marketing idea from us,” a Krispy Kreme spokesman told PYMNTS in an email discussion.

And Krispy Kreme has spent 80 years making the best imaginable donut. There aren’t people who don’t like hot Krispy Kremes.

And while that might be something of an exaggeration, the hot Krispy Kreme donut is one of the world’s more delicious sweets. Though it alone has not been enough to keep Krispy Kreme entirely out of hot water (or hot glaze) over the last decade and a half.

The late 90s and early 2000s were marked by periods of rapid brand expansion, followed by dropping sales, supply chain disasters and an accounting scandal that left the iconic brand teetering on the edge of ruin.

And while the brand has long since pulled back from the brink of bankruptcy, sailing has not exactly been wholly smooth.

Krispy Kreme missed analyst projections for the seventh time in eight quarters. Revenue grew — up 5.6 percent year to year to around $127 million — as did net earnings, which were up 2.9 percent to $5.92 million. But it wasn’t as much of a gain as analysts were looking for. As a result, Krispy Kreme’s stock price has been slowly eroding since early fall of 2015.

It’s a tough situation for a new CEO to face, which is what is facing President and CEO Tony Thompson, who’s officially been at the helm of Krispy Kreme for less than six months.

But Thompson and the Krispy Kreme team are focused on forward motion and reassuring wary investors that their plan to expand — from a smidge fewer than 300 domestic stores today to 400 by the end of fiscal year 2017 (plus, an additional 150 new international locations as well) — is going to work much better than the flubbed expansion attempts of 15 years ago.

“Krispy Kreme, like any long-term established brand, has two things always ahead of it. The first is making the donuts, which always need to be exactly the same and delicious. Eighty years is enough time to actually perfect a donut recipe,” Krispy Kreme’s spokesman noted.

But the other half of the job is making its “exceptional product” relevant and accessible for customers in a way that aligns with consumers’ changing tastes. 

And those changes of late have been coming rapidly to Krispy Kreme.

An Updated Look And Offering

The clearest — and biggest — series of changes are on display at the chain’s newly opened Clemmons, North Carolina location. Featuring wood floors and furniture and vintage decorations, donuts move from front and center to display cases on the side of a coffeecentric counter in the center.

It looks — if not exactly like a Starbucks — certainly more like a coffee shop, with a cool barista waiting to smilingly take your offer.

And the smell of delicious, hot donuts wafting in the air.

“We’ve kind of lost ground on coffee over time,” Thompson acknowledged in an interview with Bloomberg. “It’s kind of passed us up.”

His goal is to see coffee comprise 10 percent of Krispy Kreme’s U.S. sales.

[Consumers] are coming in for donuts, but all of a sudden, they see: Wow, they’re pretty serious about coffee, too,’” Thompson added.

But they’re still coming for donuts — a fact that Krispy Kreme acknowledges with its inclusion of its trademark “window,” where consumers can watch donuts being made from raw dough ring all the way through the glazing in the “glaze waterfall.”

“It’s an inspiring site, and it wouldn’t be Krispy Kreme without it.”

Not all retail locations will be getting the full Clemmons location redesign, but some of the changes will be going chain-wide (and are as you are reading this), including the relocated center counters, baristas and coffee/espresso drinks.

And free Wi-Fi for customers.

Upgrading The Digital Experience

Apart from the physical changes to Krispy Kreme, the team is also working hard on the technical backend to enhance the experience, particularly for customers who come in for donuts with their mobile devices.

“We are no longer in the period where customers are just filling their phone with every app they can download. So, we have to create a compelling reason for a customer — who probably already has a Starbucks app — to give us phone space as well.”

Making that mobile experience sticky has entailed shifting part of the traditional Krispy Kreme experience onto mobile.

“We used our recent Day of the Dozens promotion, where we give customers a free dozen donuts for buying a dozen donuts, as an incentive to download the app … We’ve seen a big boost in our downloads from that one day,” their spokesman noted.

But one day does not a committed mobile apps user make, and so the trick is making that experience continually relevant.

Krispy Kreme is trying to walk a tough tightrope. It is to trying to change a lot, while still keeping central the delicious hot donut that has been motivating its customer base for almost a century. It remains to be seen if offering a really solid cup of coffee along with it, in a pretty place that is inviting enough to encourage someone to sit down and hang out and the possibility of a better digital experience will be enough to break into a market already divided between power players Dunkins and Starbucks.

Another one to watch in 2016 — with coffee and hot donut in hand.

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