Entrepreneur

Lessons
Ah, that smell!
Tmemsmellmmfmfemmmemlmmmmmmjmsm-mmm-mf-mme-fmyemmmmmmmmmmsm
mmvememmmmmmmsmmmmymmlmze.mTmemsmellmsmmmmmmmmmmmmemmlmmesm
mfmsmmmle-mmmmemmmevmmeesmmzmmbme-lmkemmmmmmmemmmmlesmlemm
fmmmmmymmmmmmmmmmemmmlymmmmemmmeymmememmllmmemmmmmbmym
mmem—bemmeemmmmmmmmmmmmmmm4maamammmmmmmmmmmmmmmmmmmmmmm
mmem—bemmeemmmmmmmmmmmmmmm4maammmmmmmmmmmmmmmmmmmmmmmmm
mmmmmmmemmmll.mEvemmmmemmmmemmmsmmelmmmmms:mKrispy Kreme.
That’s how the iconic company started, in Winston-Salem, N.C.,
in the 1930s. How it nearly ended, decades later, is a case study in
how franchises can stumble. First there was the sale, in the 1970s,
to an international conglomerate so big it peddled everything from
luggage to bras to window treatments. For the new parent company,
a doughnut chain was a handy way to unload products made by its
other myriad divisions, including soup and ice cream—which it
actually sold at Krispy Kreme outlets. To cut costs, it even committed
the sacrilege of changing the doughnut recipe.
Saviors emerged in 1982, when outraged franchisees banded
together to buy back the company. But 18 years later, when the new
owners took it public, the brand got sidelined again while scrambling
to satisfy Wall Street’s demand for higher earnings, fast. It
responded to this pressure by abandoning its famous neon-clad
promise of “Hot doughnuts now,” making some of its signature
product in central kitchens and trucking it to stores, and by selling
cold doughnuts—cold Krispy Kreme doughnuts!—everywhere from
7-Elevens to gas stations to supermarkets, effectively competing
against its own franchisees.
Meanwhile, the head office kept the balance sheet looking as hot
as the doughnuts had once been. This was done in part by requiring
franchisees to buy equipment and the doughnut mix from corporate’s
own manufacturing and distribution division—which came to
account for nearly a third of the company’s revenues by 2003, all on
the backs of franchisees—and by adding hundreds of new locations
(including many in New England, which were routed by a local religion
known as Dunkin’ Donuts). So while revenues were reported to
be rising, same-store sales remained ominously flat.
The holes in this strategy became apparent as franchisees filed for
bankruptcy protection, stores were shuttered, and Krispy Kreme’s
stock price plummeted from a high of nearly $50 in 2003 to $6 only
two years later.
And yet…Krispy Kreme is still among us. Better than that, the
company is again flourishing, nabbing an impressive 18 spot on
Entrepreneur’s 2017 Franchise 500 list. The story of how Krispy
Kreme and other companies got from peak to valley to peak again is
more than the tale of firms that faltered, recovered, and thrived.
It’s an object lesson in how companies of all sorts can avoid hitting
the skids, how prospective franchisees can avoid companies
that are heading for trouble, and most important, how with the
right leadership and timing, even the most damaged brands can
be revived and made stronger and more profitable.
72 / ENTREPRENEUR.COM / September 2017