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Krispy Kreme outsources coffee roasting

WINSTON-SALEM N.C. Krispy Kreme Doughnuts Inc., as part of a previously announced strategy to reduce its supply chain costs, has sold some of it coffee-roasting assets to Concord, N.C.-based S&D Coffee Inc. for an undisclosed amount. It also signed an agreement with S&D to continue supplying Krispy Kreme with its signature coffees.

“As is the case with many other restaurant concepts, Krispy Kreme's coffee will now be supplied by an outside vendor,” said Brad Wall, Krispy Kreme’s senior vice president of supply chain. “Identifying opportunities to leverage external expertise is important to the restructuring of our supply chain operations and we are delighted to work with the coffee experts at S&D.”

Krispy Kreme, which has 411 doughnut stores throughout the United States and 12 other countries, has been struggling for the past several years. Two multiunit franchisees, St. Louis-based Sweet Traditions and Fullerton, Calif.-based Great Family Circle Foods LLC, recently filed for Chapter 11 bankruptcy protection.

In addition, the doughnut chain reported a net loss of $27 million for the second quarter ended July 29, compared with a net loss of $4.6 million for the year-earlier quarter. Second-quarter revenues were $104.1 million, down 7.5 percent from the year earlier. Impairment charges and lease termination costs related to the sale of a manufacturing facility in Illinois and the closure or planned closure of underperforming stores totaled $22.1 million for the second quarter. That compares with $382,000 in charges in the year-ago period.

In announcing its second-quarter results, Krispy Kreme said it would take several steps to improve performance, including closing underperforming stores and lowering supply chain costs by selling an under-used manufacturing facility and evaluating other supply strategies.

Krispy Kreme said franchisees closed 13 locations in the first six months of fiscal 2008, and that the closure of a “significant number” of additional franchised units was likely during the rest of the company’s fiscal year, which ends in January 2008.

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