Krispy Kreme:157 More U.S. Stores by 2017

Between one-half and one-quarter of Krispy Kreme’s revenue comes out of sales from supermarkets and convenience stores- donuts bought cold in a box. However, the company is looking to change that, and the first plan of action is to open up 157 more stores in the U.S. by 2017, an increase from the current number of 243.

But these stores will not all be the same as the current stores. Currently, all of the companies’ stores sell donuts both retail and wholesale. Many of the new stores will be smaller, cheaper to build and operate, and only sell retail.

Krispy Kreme was founded in 1937 by Vernon Rudolph. After four years selling and delivering donuts from a donut shop in Kentucky, Rudolph eventually made his way to Winston-Salem, North Carolina where he opened the first Krispy Kreme store in a rented building on South Main Street.

Expansion began in the 1950s, and by the 1960s, Krispy Kreme was widely known throughout the southeast. A rapid expansion began in the 1990s, when Krispy Kreme started opening stores outside the southeastern U.S. where most of their stores had been located. In December 2001, the company opened its first store outside the U.S. in Ontario, Canada, and since 2004, has been expanding its international operations.

Krispy Kreme has traditionally been a wholesaler, which required big spaces ranging from 4,000 to 6,000 square feet, including a retail area, a manufacturing area, and a loading dock. Their retail business began developing in the 1990s, yet even the smaller factories were around 2,800 square feet. The design for the new retail-exclusive buildings is about 2,300 square feet. The stores will be able to produce 65-110 dozen donuts per hour. Traditional factories make 150-600 dozen donuts per hour.

One reason for the change is that wholesale is less profitable for Krispy Kreme. The company’s popular yeast-raised donuts spoil in about two days. They account for 80 percent of its wholesale profits, which in turn requires frequently shipping out to supermarkets to keep fresh products on shelves. It also means common product returns from stockers, of which the product costs are all absorbed by the company.

Their filing states, “Over time, we expect our wholesale product line to become increasingly differentiated from the products offered in our shops in order to improve the economics of this distribution channel.” This could mean fewer glazed donuts in supermarkets. The company is marketing longer shelf-life products to grocers as it attempts to improve the shelf-life of the yeast-raised donuts.

 On the retail side, there are “higher selling prices, much lower waste, higher quality and freshness, and lower cost since there’s no truck to deliver, diesel, etc. Much better margins overall,” explained by research analyst Will Slabaugh. Smaller stores will make it easier for franchise partners to open new locations. The brand will ultimately be more accessible to customers.