Krispy Kreme Cancels Wal-Mart Test
By George Anderson
It never issued a formal grade, but Krispy Kreme’s announcement it was closing six test factory stores in Wal-Marts indicates the doughnut chain was not giving itself any gold stars for the exercise.
Company spokesperson, Amy Hughes, said, “We’ve made a decision right now that the concept is not viable, but we’re going to continue our great relationship with Wal-Mart with our wholesale business.”
Krispy Kreme’s factory stores with their “Hot Doughnuts Now” signs make doughnuts on premises while wholesale stores have product brought in fresh daily. Krispy Kreme distributes its product on a wholesale basis in more than 500 Wal-Mart stores.
At the time Krispy Kreme opened its first factory store in a Wal-Mart, reports The Associated Press, the company said it was generating $20,000 in weekly sales at the unit. The typical factory store averages just under $70,000 a week. The Wal-Mart location, however, was still said to be profitable based on lower operating costs.
Ms. Hughes dismissed any notion that the decision to end the factory store test in Wal-Mart was related to Krispy Kreme’s financial problems.
Moderator’s Comment: Why did Krispy Kreme’s factory store test in Wal-Mart fail? Considering its current problems, what does Krispy Kreme need to do
to turn its business around? –
George Anderson – Moderator
I wonder how Wal-Mart feels about this? I mean, if I were working in one of the stores, I’d sure rather have a store that smelled like doughnuts and coffee than one that smells like McDonald’s…
I suppose Wal-Mart collects the same rent from whatever tenant is in the space and, at the end of the day, it doesn’t matter much.
Scanner said, “Good business people make good decisions. This is one. It takes great courage to discontinue rather than continue.” I was thinking about this statement and it struck me as funny. It seems to me that before they decided to test the concept of a Wal-Mart based Krispy Kreme, that it would have been prudent to see if the expensive hot Krispy Kreme products were of interest to the typical Wal-Mart customer?
And profitable or not, what effect does associating Wal-Mart’s value proposition with the Krispy Kreme brand have? They seem like an odd couple to me.
In my opinion, KK appeals more to the motoring public than to the shopping public. There is (an intangible) something about stopping for coffee (even though I prefer the coffee at DD) and “hot” ones – while driving – that is appealing and fits. Doing the same thing while at a Wal-Mart does not.
Again, in my opinion, the very best thing about KK is that they are offered hot. This should become more of a factor across more of their items. How about hot muffins, hot bagels, hot danish, etc.?
Not to have tried to be in a Wal-Mart would have been more of an interesting decision. For all the problems it seems from the outside that Krispy Kreme is having, I give them credit for trying and then seeing quickly it was not a good decision.
Been to a Wal-Mart lately? Krispy Kreme: trendy and high priced, Wal-Mart — I don’t think so. Besides, why should KK be bullied into giving WM lower costs like the rest of the manufacturer’s are when they are doing perfectly well on their own?
Coming from Canada where there is a doughnut outlet on almost every corner (Canadians genuflect at the mention of Tim Hortons) almost all of which are financially viable, I don’t think the Krispy Kreme shrinkage is due to competition. Maybe its a matter of taste, but I think it’s the product. They have what amounts to a solitary, boring, far too sweet type of doughnut. It isn’t kripsy and it doesn’t involve kreme. Sure they have some variety, but they’ve staked their ‘factory’ image on literally one kind of the things. Watching a mound of dough boil in oil and then go through a waterfall of liquid sugar is actually rather disgusting. At best it’s fascinating for about 30 seconds and then you start feeling queasy. My advice, like they’d ever ask, is bring out some freshly baked scones from an authentic brick oven and I’ll take a dozen – or two.
Wrong product – too high priced; wrong place, Wal-Mart shoppers prefer 10 to 25 cent donuts; wrong time – the uniqueness of KK flew the coupe. No surprise here.
Why buy a couple of KK’s when at Wal-Mart you can buy a whole box of doughnuts for the same price? Wal-Mart shoppers are value driven. I’m not surprised this experiment failed.
Good business people make good decisions. This is one. It takes great courage to discontinue rather than continue. If others took this approach, they would find themselves being more successful. So, in that light, what does KK need to do? They need to continue to make good and sound decisions just like this one.
The fact that it had to do with Wal-Mart is irrelevant if they made the decision based on business principles. The fact that Wal-Mart was involved and they are pulling out indicates that they did just that.
Either KK failed to fully examine the fit between their target customer and the Wal-Mart customer or perhaps they were simply willing to take a risk and try something that might not work given the high upside potential. Not surprising that this did not work well.