Journalists will always have a soft spot for Krispy Kreme donuts. Back in 2003, when the company was launching and doing a very good job of building the buzz around its brand, the company’s flacks used to flood newsrooms with donuts, which never seemed to last long, but did seem to help contribute to a little Krispy Kreme mania for a while there.
Anyone who travelled on a plane around that time will remember it well. Travellers flying out of Sydney airport would collect big rectangular boxes of 12 or 24 donuts, and then take them back to loved ones in other cities.
It was as if an overpriced and rather unhealthy donut had become an exotic delicacy.
The hype probably reached its peak when queues at the first store launched in suburban Melbourne stretched for hours. Australia had gone crazy for donuts.
Except that, of course, this looked, felt and tasted like a big fad. In today’s health-conscious society, donuts such as Krispy Kreme’s were never going to become part of anyone’s regular diet, at least not in the way donuts are loved in the US.
When Krispy Kreme rapidly expanded to 50 stores to capitalise on the hype, the chain almost immediately went from novelty to normality, at least from a branding perspective. From an operational perspective, it sounds as if the efforts to capitalise on the fad were not well executed.
Yesterday, chief executive John McGuigan blamed “several factors, including location, sales declines, high rents and high distribution costs” for the decision to put the business into administration — which in retail is a bit like saying “we stuffed pretty much everything up”.
Indeed, you are left with the distinct impression that the company hoped it could ride the hype, and didn’t worry too much about anything else.
What makes this story particularly interesting is the calibre of people who backed the company. I think you can understand why the initial investors — including McGuigan and Rams Home Loans founder John Kinghorn — got involved, but the $16 million investment by the Millner family’s Souls Private Equity in 2006 is the really surprising one.
Although Souls Private Equity did wise up pretty quickly: just two years after putting cash in, they’d written the value of their investment down to zero.
The fad had faded after just five years — although it took another 24 months to finally hit the wall.
*This story was originally published on Crikey sister site Smart Company
McGuigan can blame whatever he likes, the real reason for KK failing is simply their donuts are crap. We have donuts here, they are much nicer, much fresher and much cheaper than KK, they always have been. It’s taken us 5 years to wake up to that fact and overcome all that ‘if it’s American it must be better’ brainwashing.
Stale lumps of over-sweet dough tasting of stale grease are not all that appealing. Most of us worked out pretty quickly that a fresh donut from the local baker was much nicer (and much cheaper) than a mass-produced product full of preservatives made days before and trucked in from God knows where. Once the customer works out that they are paying too much for an inferior product they’ll go somewhere else for a better deal. You can fool most of the people for a short time, but fads don’t last.
@Leone
Don’t let the facts get in the way of a good rant: many KK outlets bake their product on the spot, so they’re a lot fresher than the dessicated specimens you’ll find in the window at the local baker (or in the display case at the local shopping centre coffee shop). And do you have any evidence that KK’s product contains any more preservatives than any other doughtnut?
I’ve never eaten a KK doughnut which tasted of stale grease. In fact, KK was a welcome break from the bog-standard doughnuts which we grew up with.
For what it’s worth, I think that the downfall of KK was, in part, due to price. The KK retail pricing was based on purchases of at least one dozen. That’s too many doughnuts to get through at one sitting.
“the downfall of KK was, in part, due to price”
Yes. No ‘in part’ about it, end of story. Well, that and the likes of Donut King already occupying the same space.
Thanks for finally explaining to me why these things got such blanket media coverage.
It seems the business model was initially reliant on the flooding of newsrooms with donuts.
The company relied on free promotion by bribed media and fell foul of their fickleness.
Totally agree, STIOFAN. The KK donuts always seems WAY fresher, lighter and tastier than the stale greasy stodge-rings I grew up with from the local bakery. They made me understand why donuts are so popular in the US – no way the traditional Aussie donut would ever be so popular.
I suspect the problem is wit their many mall cafe style stores, where the rent is way to high for their limited coffe+donut offering. The Donut Kings are in the low-rent spaces and they offer hot dogs etc. in a more comprehensive menu.
Sorry, Leone – you are definitely living in a strange parallel universe! lol