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Krispy Kreme looking to grow, debut signature coffee

Krispy Kreme Doughnuts Inc. is embarking on a U.S. growth strategy, after years of focusing abroad, and also will launch three new signature coffees in September, chief executive Jim Morgan told shareholders at an annual meeting this week.

The Winston-Salem, N.C-based company, which operates or franchises 652 locations expects to open more than 65 company-owned small shops and has targeted Southeast markets in Raleigh and Charlotte, N.C.; Louisville, Ky.; Columbia, S.C.; and Virginia Beach, Va.

Morgan said Krispy Kreme also wants to improve relations with its franchise operators, saying he aims to transform what he described as “strained relationships” to “cooperative partnerships.”

The doughnut chain turned its finances around in fiscal year 2011, as company same-store sales increased 4 percent and it added a net 64 stores. The company also plans to open 30 new stores outside the United States.

In fiscal year 2006 revenue fell from $543 million and continued to drop each year, with revenue hitting $347 million in fiscal year 2010, before rebounding to $362 million in 2011.

This year, Krispy Kreme plans to recruit domestic operators, broaden its product line, beef up sales from 11 a.m. to 2 p.m. and extend the shelf life of its products. The new menu options include three new coffees: a house blend, dark roast and house decaf.

“They’ve been extensively tested,” Morgan told shareholders about the coffees. “I have little doubt that we can significantly increase our coffee sales.”

Coffee sales represent 4 percent of company sales, while total beverage sales account for 12 percent of sales, Morgan said.

He also noted that customers buy beverages at a higher frequency than doughnuts.

“We see coffee and beverage as an opportunity,” company spokesman Brian Little said Thursday. “That’s part of the reason [why Krispy Kreme is debuting the new coffees.]”

During a question and answer session, a shareholder told Morgan that, “most people don’t buy into [Krispy Kreme] having great coffee” and asked the chief executive whether it would be wiser to “hitch our wagon to a name brand.”

Morgan acknowledged that only one in 10 Krispy Kreme customers currently buy coffee. But he told the shareholder and the audience, “We believe people will be pleasantly surprised,” by the new coffees and that a marketing campaign including merchandising and social media will promote it well in September.

Krispy Kreme hopes the new coffees will continue to drive sales in 2011 as the company showed its first profit in fiscal year 2011 since 2004 with a net income of $7.6 million.

When he took the company’s top job three years ago, Morgan said he heard reports that the brand was being written off. He wasn’t sure of the brand’s stability himself, he said, but now thinks Krispy Kreme has turned the corner to financial soundness.

“I wasn’t sure what the real potential of this company was,” he said. “[Now] I know this company has real long-term potential.”

Contact Alan Snel at [email protected].
Follow him on Twitter: @AlanSnelNRN

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