What is in this article?:
- Krispy Kreme plans to accelerate unit growth
- Resources for smaller franchisees
The company is targeting expansion from 243 domestic units today to 400 by 2017.
Krispy Kreme Doughnuts Inc. predicts a a smaller prototype will reaccelerate corporate and franchised unit growth after a quarter in which the company grew revenue and domestic same-store sales more than 10 percent.
During the second quarter ended Aug. 4, Krispy Kreme opened units of its 2,400-square-foot prototype in North Carolina and Florida, bringing the number of those freestanding restaurants to five. Four to five more prototype locations are scheduled to open by the end of the year.
The new locations are on their way to achieving Krispy Kreme’s goal of generating a 20-percent cash-on-cash return on a lower sales volume of about $20,000 per week, which compares to the $35,000 per week a traditional freestanding Krispy Kreme averages, executives said.
While Krispy Kreme officials were bullish on the new prototype’s ability to drive renewed corporate and franchise growth, the rate of openings would be prudent. The company is targeting expansion from 243 domestic units today to 400 by 2017.
“With the new model, you’ll see current franchisees who have not expanded in a long time being able to expand,” chief executive James Morgan said during the Winston-Salem, N.C.-based company’s earnings call. “So part of that 400 number is going to come from current franchisees, part of it’s going to come from company stores and our acceleration in those, and then the third part would be from new franchisees.”
The newest franchisee to enter the system is a large multiunit operator in Dallas, Sun Holdings, which bought three refranchised Krispy Kreme locations and agreed to open another 15 units in the market over the next five years.
Krispy Kreme’s pivot toward domestic growth represents another step in the turnaround for the company, which closed units precipitously in the middle of the last decade and endured lawsuits alleging that former management had “managed earnings” and inflated sales numbers reported to securities regulators.
Morgan has been chief executive since January 2008, when he took over for Daryl Brewster, who resigned after two years on the job. Brewster had replaced Scott Livengood, who resigned in 2005 at the height of Krispy Kreme’s legal and financial troubles.
“We cleaned up the balance sheet, paid off the debt and authorized the share repurchase,” Morgan said. “We’re now saying we are committed to this new model, and we think we are now poised, globally, to take this new and more efficient model forward. We’ve begun the new domestic franchise development. … We feel pretty doggone good about it.”
Morgan also indicated that Krispy Kreme was “engaged on more than one front with some potential franchisees, each of whom are multiunit operators that seem to be very attracted to the brand.”