In this FDD Talk 2015 post, you’ll learn the following:
- Section I – Background information on the Krispy Kreme franchise opportunity, including relevant news updates
- Section II – Estimated initial investment for a Krispy Kreme franchise, based on Item 7 of the company’s 2015 FDD
- Section III – Presentation and analysis of Krispy Kreme’s financial performance representations, based on Item 19 of the company’s 2015 FDD, including information on the:
- 2014 average net on-premises revenue by tier for 164 Factory Stores that were in operation for 18 months or greater, consisting of 99 franchised Stores and 65 company-owned Stores
- 2014 average net on-premises revenue by tier for 11 Factory Stores with less than 3,000 square footage and containing a smaller line of production equipment that were in operation for 18 months or greater, consisting of 1 franchised Store and 10 company-owned Stores
- 2014 average net on-premises revenue by tier for 41 Hot Shop Stores that were in operation for 18 months or greater, consisting of 26 franchised Stores and 15 company-owned Stores
- 2014 average net on-premises revenue by tier for 12 Fresh Shop/Kiosk Stores that were in operation for 18 months or greater, consisting of 11 franchised Stores and 1 company-owned Store
- 2014 average revenues; food, packaging, and freight cost; labor; benefits; gross profit; operating expenses; other expenses; royalties; marketing; and franchise EBITDAR by quintile for 34 company-owned Retail Factory Stores (i.e. Factory Stores without off-premises routes) that were in operation for 18 months or greater
- 2014 average revenues; food, packaging, and freight cost; labor; benefits; gross profit; operating expenses; other expenses; royalties; marketing; and franchise EBITDAR by quintile for 15 company-owned Hot Shop Stores that were in operation for 18 months or greater
Section I – Background Information
Krispy Kreme Returning to Chicago
Krispy Kreme, which closed its Chicago shops during the Great Recession, is returning to the Windy City.
The company announced in June 2015 that it had signed a development agreement with Chicago Restaurants, which will open eight Krispy Kreme stores in Chicago and suburban Cook County within the next few years.
The only area store still in operation is in Elk Grove Village, which is near Chicago and partly within Cook County. Local grocery stores still sell Krispy Kreme donuts.
Krispy Kreme also signed development agreements in 2015 to bring the chain into Africa, with 31 locations planned; enter Guatemala, with 12 shops planned; and to add 11 shops to Arkansas, Illinois, Kentucky and Montana.
1,000th Store Opens
Krispy Kreme Doughnuts opened its 1,000th store in February 2015 in Kansas City, Kansas. Customers filled the store as the doors opened at 6 a.m.
Meat and Sweet
Krispy Kreme Doughnuts partnered with the Wilmington Blue Rocks, a single-A minor-league affiliate of the Kansas City Royals in March 2015 to create a strange new culinary treat that was named in a fan contest.
The bacon donut hot dog, which includes a Krispy Kreme donut and raspberry jam, picked up the name Sweenie Donut Dog as it debuted in April. The name honors former player Mike Sweeney, who moved up to the majors to play for the Royals as well as the Seattle Mariners and the Philadelphia Phillies.
It wasn’t the first time a Krispy Kreme donut was paired with meat. The donut chain delved into decadence in June 2014 with a triple-decker cheeseburger sandwiched in between a “bun” of two glazed donuts.
One of Krispy Kreme’s Founders Dies
William Lewis Rudolph, who helped build the Krispy Kreme Doughnut Corp., died in December 2014 at the age of 95.
Rudolph, who went by his middle name of Lewis, quit high school to work at the first Krispy Kreme shop with his father Plumie, brother Vernon, a sister and another brother in the mid-1930s. He later became vice president of the company. Rudolph retired from the doughnut business in 1985, his family told The Tennessean.
Krispy Kreme Doughnuts got its start in Winston-Salem, North Carolina, where the company is still headquartered. Vernon Rudolph had previously worked for his uncle, Ishmael Armstrong, who owned a general store in Paducah, Kentucky, that sold light, fluffy donuts that were quite popular.
The two moved to Nashville, Tennessee, in 1934, focusing only on donuts in a small shop called “The Krispy Kreme Doughnut Company,” and did so well that Vernon Rudolph’s father, Plumie, joined.
Vernon Rudolph opened his own store in 1937, choosing Winston-Salem as the destination because Camel Cigarettes, his favorite cigarette company, was headquartered there.
Krispy Kreme expanded within the south through the 1960s, later expanding to other areas. The first store outside the U.S. opened in December 2001 in Mississauga, Ontario, near Toronto. The chain started expanding international operations in 2004.
The company became a wholly-owned subsidiary of Beatrice Foods of Chicago in 1976, and in 1982 a group of franchisees bought the corporation back from Beatrice Foods.
New CEO, CFO Named
Anthony N. Thompson joined Krispy Kreme as president and CEO, effective June 1, 2015. Thompson, most recently president and chief operating officer of Papa John’s International, succeeded James H. Morgan, 66.
Krispy Kreme announced in January 2015 that Price Cooper had become chief financial officer. Cooper resigned his position as CFO at Texas Roadhouse to accept the position.
He replaces Douglas Muir, who held the position since June 2007. Muir announced his retirement in 2014.
Krispy Kreme Eyes Beverages
Krispy Kreme Doughnuts began expanding its beverage selections in September 2014 with the goal of giving coffee and specialty drinks a larger role in the chain’s sales.
Among the initial changes were testing frozen lattes, introducing packaged ground coffee and bottled iced coffees in grocery stores, as well as branded K-cups in both Krispy Kreme shops and retail stores.
Krispy Kreme brought back Pumpkin Spice Cake and Pumpkin Cheesecake donut flavors in September 2014 for the fall season, as well as its Pumpkin Spice Latte.
Also in September, the donut franchise collaborated with Sony Pictures to create “Ghostbusters” donuts. The decorated marshmallow-filled donuts celebrated the Blu-Ray release of the 30th anniversary edition of the iconic movie. Two donuts were designed; one featured the Ghostbusters logo and the other was a close-up of the Stay Puft Marshmallow Man’s face.
Palm Oil Sourcing
Krispy Kreme in September 2014 announced a policy under which it would ensure full traceability of the palm oil it uses back to the plantations where it was produced. The plantations will have to adhere to several principles that are in line with Krispy Kreme’s policy, which focuses on eliminating deforestation with its supply chains for palm oil.
Section II – Estimated Costs
- Please click here for detailed estimates of Krispy Kreme franchise costs, based on Item 7 of the company’s 2015 FDD (updated).