Photo: Krispy Kreme
Could Starbucksization mean a Krispy Kreme comeback?
Krispy Kreme, a company that has long kept coffee on its back burner, is trying to up its game in the space where Starbucks dominates. Known primarily for its doughnuts, Krispy Kreme is testing out changes that will make its stores more like Starbucks in both product and experience.
According to an article in Triad Business Journal, the company is testing a few Starbucks-esque features at a Krispy Kreme in Clemmons, NC. There, coffee is fresh-ground, drinks such as espresso and lattes are available on the menu, and counter help are calling themselves “baristas.” The location also includes free Wi-Fi, showing a move away from a quick-fix environment towards the “third-place” appeal of a coffee shop.
While Krispy Kreme may not be the biggest name in the mid-2010s, the company spent some time at the top of the foodservice world. In mid-August 2003, Krispy Kreme’s stock was trading at $48.90, but collapsed to 9.85 by December 2004. At the time, the company attributed its fall from grace to the then-new low-carb trend, which demonized the doughnut even as a casual indulgence. Problems with the SEC and accounting scandals may have also affected stock performance.
In the subsequent decade, the stock bounced from a low of $1.15 to around $9 in 2012. In 2013 it saw a turnaround due to international sales alongside the erstwhile “cronut” trend. The stock now trades around $15, far above its all-time low but nowhere near its heyday.
Krispy Kreme has been slowly waking up to the importance of coffee to its business model. In 2011, the company rolled out a line of CPG coffees and added a few more contemporary coffee drinks to its in-store menu.
As Krispy Kreme tries to become more like Starbucks, it has competition on all sides. Big-name doughnut chains like Dunkin’ Donuts and Tim Hortons and bagel chains like Einstein Bros. are established go-to spots for in-and-out coffee traffic. Medium-sized coffee shop chains and local independents often fill the role of a “third place” outside of Starbucks, especially for those seeking a less “corporate” coffee-drinking environment.
- Krispy Kreme looks to boost coffee sales using Starbucks approach – Triad Business Journal
- Krispy Kreme: Diets hurt doughnuts – CNN
- Krispy Kreme Re-evaluate Their Coffee Game – World Coffee Press
- Krispy Kreme Doughnuts (KKD) Stock History – Google
- Three Former Krispy Kreme Execs Settle with SEC – Law360
- Behind the Krispy Kreme Turnaround – Fortune
BrainTrust
Dr. Stephen Needel
Managing Partner, Advanced Simulations
Dave Wendland
Vice President, Strategic RelationsHamacher Resource Group
Mohamed Amer, PhD
Independent Board Member, Investor and Startup Advisor
Discussion Questions
Does Krispy Kreme have a chance at establishing itself as a viable alternative to Starbucks? What additional changes are needed in branding and approach to make the new, improved Krispy Kreme successful?
KK had the absolute best marketing ever and capitalized on scarcity. Then, as they said in “The Right Stuff,” “they screwed the pooch” and destroyed all they had created. The donuts showed up in supermarkets and gas stations, cold and average. While I wish them well, it will be a long slog to make them successful — it was never about sitting around and conversing over coffee.
Admitting to being a Dunkin’ Donuts fan (can’t resist a jelly), and living in the south where Krispy Kreme is abundant, there is no cult status here — you go to get Krispy Kreme because it’s midnight and you’ve had too much to drink or you want a cheap dozen for the office. As we like to say, “you can put lipstick on a pig … “
Very hard to change your DNA and consumer perceptions when your branding and signs still proclaim “Doughnuts.”
KFC is doing pretty well at re-positioning their brand worldwide without the “Fried” and just using their initials.
“Starbucks-like” sounds great, but it’s very hard to create a new “third place” when Starbucks already owns that space in the minds of consumers. While free Wi-Fi is a good start, a “third place” requires a substantial makeover and space where consumers can “hang.”
Krispy Kreme was built upon a very unique experience with “hot and fresh” doughnuts. In order to transform they have to create a unique customer experience and/or products not offered by Micky Ds, Dunkin’ and all the rest who now offer some pretty good coffee for less than $5 a cup.
On the other hand, to try nothing is a recipe for disaster. It’s just as important to learn what doesn’t work as part of the incremental process of improvement. Krispy Kreme definitely needs to ramp up the testing process.
I don’t think taking on Starbucks is the point here. The real issue is whether Krispy Kreme can follow the lead of McDonald’s or Dunkin’ Donuts — both of whom have built a strong brand identity around coffee recently. Why not try to make coffee more of a top-of-mind purchase when it complements the rest of your menu perfectly?
Krispy Kreme is trying to upgrade its image, and they are nothing like Starbucks. Starbucks has a totally different clientele and a pretty large cult following, which is very hard to duplicate. Krispy Kreme at one time had it as well, and as Bob Phibbs pointed out correctly, they screwed it up. In my opinion they should get leaner and eliminate some of their small unprofitable accounts, which I’m sure they have, and focus harder on making their stores super fresh and inviting. It is difficult to recreate yourself, but it can be done, and perhaps some new really funky doughnuts could be added to their lineup, which it certainly could use. I watch the doughnut challenge on the cooking channel, and there is room for some awesome new products if they want to add some signature new products for sure. Good luck to them.
I think it’s too little too late and a makeover will not perk up sales at Krispy Kreme. They rode a wave of curiosity, enlarged their market presence (and many waistlines) and now they are hoping to gain new traction. There has to be a more prudent path forward for them (if there is any path at all) … and I don’t think taking on Starbucks is their cup of tea.
Why compare Krispy Kreme to Starbucks? It’s more like Dunkin’ Donuts. Whoever you compare them to, they are too late to the game. Adding coffee and calling their staff baristas may make sense, but the marketplace is saturated with similar establishments, from mom and pops to McDonald’s to Starbucks.
Using Starbucks-esque features in an attempt to become like Starbucks or to compete with Starbucks is folly. That is not a strategy for the doughnut company to claim its space or to establish its brand.
With coffee a strong category the strategy makes sense. It may not bring them back to their heyday or to the level of anywhere near Starbucks, but it can only improve business.
In reality, they are much more in competition with Dunkin’ Donuts than Starbucks, and that is a race I think they could win despite their late entry in this arena.
The core product and identity of Krispy Kreme is the high-carb doughnut and not the coffee or the experience. The former is an occasional indulgence, the latter is becoming table stakes to compete in a crowded format.
So if the draw continues to be the doughnut, then the concept is doomed from the start. If the draw turns on the coffee and the experience, then it has a chance. However, such branding goes against what Krispy Kreme has stood for to-date.
Krispy Kreme is right in making such a trial despite the extremely long odds against its success. No pain, no gain.
Over the holidays we went to a shop in Bucktown (Chicago) called Stan’s Donuts — amazing product assortment, great customer service, funky employees, good prices and very cool atmosphere. Oh and by the way, they had coffee too.
Now that Krispy Kreme realizes that over-expansion is not the answer, they should look to Stan’s (and others like them) to get back to the blocking and tackling that made them famous in the first place. Coffee’s an OK idea, but see the list above for the their real “fix” issues.
They have a cobranded Coffee Bean and Tea Leaf with Krispy Kreme (building was built for Krispy Kreme) in Orange, CA that is busy day and night. They should partner with a good coffee brand and expand this idea. Otherwise this will not work. Krispy Kreme has failed to make itself a coffee destination for far too long under its own brand.
I love a Krispy Kreme doughnut. I don’t go to a Krispy Kreme store to sit around and socialize or conduct business. Yes, coffee is important. There is another major brand in the doughnut space that recognizes just how important coffee is: Dunkin’ Donuts. Recognizing how important coffee is to the business model is one thing. But to compete as an alternative to Starbucks is something completely different. To do that, they have to crate a Starbucks-like experience.
Coffee is great. A sitting area is great. Free WiFi is great. Going head-to-head with Starbucks … may not be so great. Starbucks created the experience from early in their development as a successful enterprise. They didn’t switch into it. Krispy Kreme has a great customer base. I understand why they want to expand it. (Any business wants growth and success.) They are in a great lane. I can see widening the lane a bit, but switching to a different lane could be a mistake.
Coffee has little to no carbs and support the wellness/lifestyle/yoga pants movement we seen over the past few years.
I cannot see how a super-sugary carbs donut can compete in this yoga pants era.
I’m cautiously optimistic for Krispy Kreme as it ventures down this path of reinvention. Clearly its melt-in-your-mouth donuts are not enough on their own to keep the business relevant. Very good coffee drinks are a natural fit and a reason to increase visits and average tickets. Remodeling shops to be more inviting places to stay a while is an essential adjunct.
There’s also a lot of soul-searching needed with regard to branding and positioning, however. Menu and ambiance are both tied closely to this, of course. It’s time to ask the painful question, “What business are we really in?” and learn to live with the conclusion.
My thinking on this set of strategic decisions is influenced greatly by a recent visit to a Krispy Kreme shop in Shibuya in central Tokyo. It was located a couple of hundred feet from a Starbucks, along a very busy pedestrian corridor close to our hotel.
We visited both locations during our few days’ stay. The Starbucks was precisely true to the formula we are used to here in the U.S. The Krispy Kreme store was open late and it seemed to attract mostly students and young office workers. It was nice to find a place that could offer a quick cuppa and a familiar sweet treat after a night on the town.
There was ample seating inside and outdoors — steel and laminate furnishings that weren’t comfy enough to invite a leisurely stay. More troubling were un-emptied waste baskets and piles of trays that the team seemed too harried to notice. Very unusual for Japan, where neatness usually counts more than here in the U.S.
The good news is the place was packed despite its shortcomings. The donuts are the primary draw, but I think there’s room for more menu choices, and more-comfy seating.
I believe Krispy Kreme could have a chance at becoming a “third place” but they need to expand their thinking beyond Starbucks.
When I was a little girl, we used to go to Krispy Kreme after my dance recitals. Of course we had to pick up the doughnuts and take them home. Just think if there were a nice place for the family to sit. Each person could pick out their fav doughnut and get hot chocolate, or maybe coffee for the adults, to drink. Not a whole dozen necessarily, and not to-go. Hmmm….
Starbucks has the professional vibe, Krispy Kreme could have more of a family feel with more family pricing. Moms on the go could stop there with kids in tow and meet friends without being sneered at by the working professionals.
Just my 2 cents.
No. The business model and core customers diverge entirely. KKD is a manufacturer, wholesaler and retailer in that order, SBUX is a multi channeled best of class retailer.
For the very few occasions I’ve been in a Krispy Kreme (hey all the local ones went bust and I never went back), seemed to me that the business was based on people carrying out boxes of donuts, not one or two at a time (except the freebies). So how do you reconcile a stand in line, pick up several big boxes and get out (with a decent average price point per sale) model with one or two donuts and a coffee model? Nothing in the layout of the store or the business model would seem to support that. Besides how do you carry out a hot cup of coffee and 3 dozen donuts at the same time without spilling.
Alternative to Starbucks? Not in the least.
In a word….no way.
KK is at the bottom of the food chain in quality coffee and accompanying food. They would be better served looking for a low-middle niche, above McDonald’s, but below the Hortons of the world. Great value should be their goal!
No, the service is so slow and the major part of the staff is from the era of 1900’s.
Third place ought never be a goal. Find a void. Reinvent. Think differently. Be first at something! For example, serve Juan Valdez, a great coffee that is superior and attractive to Latin Americans. Or maybe partner with and brew Starbucks. Do what everyone else thinks is impossible or couldn’t otherwise imagine.
I think the main differentiator between Starbucks and Krispy Kreme is the store environment. As discussed in the article, Starbucks has established themselves as a location for meet-ups, studying and even satellite office.
Krispy Kreme must give customers a reason to visit their store for doughnuts, the challenge will be keeping buyers in store — to enjoy the environment and potentially buy more. This change will also depend on the location of Krispy Kreme stores — the hardest aspect of a retail location to change.