Entrepreneur

The first place this plays out is with financing. Franchisors may
need more money to scale up, and franchisees may need it to open
new locations. But some investors—particularly private equity
firms and some equity investors—may expect immediate results.
“That’s antithetical to what a franchisee wants to do, which is look
to the long term,” says Robert Purvin, of the American Association
of Franchisees and Dealers. “An operator has a 10-, 15-, 20-year horizon,
based on the usual terms of a franchise agreement,” says Joyce
Mazero, co-chair of the global supply network group at the law firm
of Gardere Wynne Sewell in Dallas, and an editorial adviser to the
book Franchising for Dummies. “And the investor has a five-year
horizon.” Public companies can come under similar pressure from
shareholders.
Haste like this can lead to bad decisions, such as expanding too
quickly or oversaturating a market. Franchisors, forced to raise
quick cash, may be tempted to get it through unfriendly deals with
their franchisees—such as leasing or selling them overpriced equipment
and ingredients.
Experts say the key is to seek out capital partners who have
patient and realistic plans over achievable timelines—value investors
and mutual fund managers, for example, who are happy to wait
for their returns to play out. Not only are they out there; mutual
fund managers with the most patient investment strategies actually
tend to outperform their benchmarks, according to research at Rutgers
and the University of Notre Dame.
HOT DOUGHNUTS/Now and Forever
Krispy Kreme hatched a turnaround plan in 2005, under a revamped
board of directors and a new CEO, Stephen Cooper (who had previously
led embattled Enron out of bankruptcy). The company began raising
cash to repay its creditors, stabilizing the business and keeping it going.
In May of last year came word that the chain would be acquired for
$1.35 billion, or $21 per share, by JAB Holding Company, the Luxembourg
firm that owns Keurig, Einstein Bros. Bagels, Caribou Coffee, and
Peet’s Coffee & Tea. In other words: a company that knows food service.
The deal was completed in July 2016, making Krispy Kreme a private
company again, built for the long haul.
After its long and tortured journey, its peaks and its valleys, Krispy
Kreme is growing again—but wiser and more judiciously this time, careful
to not repeat the mistakes of the past. Which isn’t to say things are boring.
Indeed, there may be still some fun ahead. Among other places, the
reinvigorated company is eyeing seven new locations in New England.
That was the site of its ugly defeat at the hands of Dunkin’ Donuts, back
in Krispy Kreme’s days of heedless expansion. These places still run on
Dunkin’—that brand is based in the Boston suburbs and is beloved across
the region—but with the right strategy in place, the addictive smell of
Krispy Kreme could signal heated competition soon enough.
Jon Marcus has written for Time, The Atlantic, the Washington Post,
the Boston Globe, and others. He lives in Boston.
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