Krispy Kreme Doughnut Corporation

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Krispy Kreme Doughnut Corporation

P.O. Box 83
Winston-Salem, North Carolina 27102
U.S.A.
(910) 725-2981
Fax: (910) 733-3791
Web site: http://www.krispykreme.com

Private Company
Incorporated: 1937
Employees: 2,000
Sales: $200 million (1996 est.)
SICs: 5812 Eating Places; 2051 Bread, Cake & Related Products; 2053 Frozen Bakery Products Except Bread; 3556 Food Products Machinery

Krispy Kreme Doughnut Corporation makes what some would argue are one of the highlights of life on this planet: yeast-raised doughnuts. Sweet and impossibly fluffy, the Original Glazed earned a zealous following throughout the southern United States. While its geographic influence expanded, Krispy Kreme added a variety of related snacks to its retail and wholesale product lines. More than a half century after its creation, the company leapt into the new century by opening a string of new shops north of the Mason-Dixon line.

Sweet Success in the 1930s

Sometime before the Great Depression, a French chef in New Orleans named Joe LeBeau developed the recipe for yeast-raised doughnuts—possibly the first of its kind in the United States—that would later form the basis of the Krispy Kreme empire. Eventually LeBeau established a doughnut shop in Paducah, Kentucky, which he sold in 1933, along with the secret recipe (speculated to contain vanilla and potato flour) and the Krispy Kreme name.

Vernon Rudolph and his uncle were the buyers. They moved the operation to Nashville, Tennessee in 1935 and, through other family members, opened stores in Charleston, West Virginia and Atlanta, Georgia. These stores sold their products wholesale to grocery stores.

Rudolph decided to strike out on his own. He brought with him two men, some equipment, and the secret recipe and eventually settled on booming Winston-Salem, North Carolina as a location (some say a pack of Camel cigarettes sold him on the town). He lacked capital, but was able to rent a building and obtain ingredients on credit. The first doughnuts from this new shop were made on July 13, 1937. Such was their success that eager customers soon began requesting hot doughnuts directly from the doughnut shop, initiating the company’s retail trade. Five cents bought two doughnuts, and a dozen cost a quarter. The company established its national headquarters in Winston-Salem in 1941.

Cold War Standardization

Krispy Kreme initiated an expansion program in 1946 that included producing the mix at a central plant in Winston-Salem to ensure consistency. In 1948 it opened the plant, which also produced equipment for the stores, and relocated its headquarters to the site (Ivy Avenue). A decade later, 29 Krispy Kreme shops in 12 states each had the capacity to produce 500 dozen doughnuts per hour with their specialized doughnut-making machines.

The distinctive Krispy Kreme decor was standardized in 1960. The shops (which by then populated 12 states) were sheltered by a green roof and red-glazed brick exterior. Inside, a large viewing window revealed doughnuts in production on an overhead conveyor belt. About this time, the company began to use air pressure to form the almost perfectly symmetrical holes in the doughnuts. In 1962, Krispy Kreme opened two new factories in Charlotte, North Carolina and one in Richmond, Virginia.

Company founder Vernon Rudolph died in 1973. In 1974, the chain had 94 stores and 25 franchisees. Beatrice Foods Co. bought Krispy Kreme two years later. Beatrice, according to one Krispy Kreme official, valued short-term profits at the expense of quality, even changing the traditional formula. To maximize sales, some stores began selling sandwiches. Development capital disappeared, stifling the company’s long-term plans, and the company stopped selling franchises. Nevertheless, the company grew to 116 stores by 1980.

After Krispy Kreme was bought back from Beatrice, that growth disappeared to help repay debts of approximately five times the company’s equity. Joseph A. McAleer, Sr. led the group of investors who bought the company for $20 million in 1982. McAleer had been one of the chain’s most successful franchisees. After grooming his son, Mac, for the CEO position, Joseph McAleer, Sr. retired in 1988. Another son, Jack, served as vice-president of sales and marketing. Scott Livengood, who had joined the company during the Beatrice years, served as president.

Soon afterward, market research convinced the company to focus on the retail market, particularly hot doughnuts. The company reintroduced glowing red “Hot Doughnuts Now” signs, lit when new doughnuts were ready (which was most hours of the day), and guaranteeing a virtually Pavlovian response. The company tried expanding with drive-through only “Express” stores, which were less expensive to build than traditional stores (which cost about $1 million to open), but found customers missed the seating areas. The compact stores also lacked space for wholesale operations.

Expansion in the 1990s

In 1995, Krispy Kreme moved its headquarters and 230 corporate employees to 370 Knollwood Street in Winston-Sa-lem. The headquarters also housed Doughnut University, a training center. New management talent had been drafted in the early 1990s to prepare the chain for its most ambitious expansion yet attempted. Jack and Mac McAleer and Scott Livengood retained the top positions at Krispy Kreme, but other conservative Winston-Salem businessmen were brought in to advise the company. To leverage its growth, Krispy Kreme would rely heavily on franchising: only 100 of 500 new stores would be company owned. Its first venture into northern territory was a shop in Indianapolis. The opening, which stopped traffic for blocks, was a sign of things to come.

The man who would introduce Krispy Kreme to New York, Mel Lev, a garment manufacturer, discovered the doughnuts while visiting friends and relations in Jackson, Mississippi. “Why do we need four dozen doughnuts?” were his reported last words before changing career paths. In June 1996 Lev opened the first store in Manhattan, at 265 West 23rd Street, near the historic Chelsea Hotel. The enterprise was named Harem, not in reference to the decadence of its products, but after the initials of family members. The family planned to open at least 30 stores in New York and New Jersey by 2005.

Reception was superlative. In the style column of The New York Times Magazine, Southern humorist Roy Blount, Jr. said, “When Krispy Kremes are hot, they are to other doughnuts what angels are to people.” He had hurried to the store opening and eaten five Original Glazed. New York being the capital of the publishing industry, many other odes by displaced Southerners were published on the hottest snack in town. Television also caught the buzz: Rosie O’Donnell had her own doughnut machine installed on her talk show, complete with conveyor belt and “Hot Doughnuts Now” sign. Late actress Jessica Tandy had already seen to it that the doughnuts had their moment on the silver screen, in such movies as “Driving Miss Daisy” and “Fried Green Tomatoes.”

The company’s introduction to New York mirrored the sensation caused by the world’s first doughnut-making machine, unveiled by Adolph Levitt in Harlem in 1921. Lev would open the second of the New York stores in Harlem, across from the Apollo Theater. Everyone was not delighted with the new stores, however. Some neighbors complained of fryer fumes, which incurred fines from municipal environmental monitors.

Aside from pleasing transplanted Southerners in the Big Apple, the openings also suited Krispy Kreme’s strategic plans. New York’s only national doughnut chain was Dunkin Doughnuts. Owned by British conglomerate Allied-Lyons pic, Dunkin Doughnuts, with 115 stores in New York City, had led the market for years and had recently bought its closest competition, Mr. Donut, a west coast chain. It also sold a range of sandwiches, soup, and muffins; doughnuts accounted for only half of the chain’s sales. Krispy Kreme’s supporters, though, believed the uniqueness of the yeast-raised products would ensure its success.

Stores in Scranton, Pennsylvania, Wilmington, Delaware, and Indianapolis figured into the company’s assault on the North. The Indianapolis store overcame a mere two percent name recognition factor to set a first day sales record. Louisville, Kentucky had previously had the northernmost store. Five St. Louis stores were slated to be opened toward the end of the decade by Sweet Traditions LLC, a partnership of Canadian expatriate Eric Sigurdson and Chicago native Ken Marino.

Ending the Century with a New Brew

Coffee bars had been a feature of Krispy Kreme stores at least since the 1960s. In 1996, Krispy Kreme introduced its proprietary blend, titled “America’s Cup of Coffee.” One and a half years of extensive research (assisted by 1,200 customers) preceded the introduction. “Americans are drinking more coffee and becoming more knowledgeable about coffee,” explained Jack McAleer. The beans were sold by the bag as well.

Company Perspectives:

Krispy Kreme is one of the world’s leading producers of doughnuts, selling more than three million doughnuts a day and more than one billion a year. In fact, Krispy Kreme is the largest maker of yeast-raised doughnuts in the world—pastries that are distinctively light and full of flavor.

Convenience stores sold a variety of Krispy Kreme pastries, particularly single-serve items such as fruit pies, Krispy Knibbles (doughnut “holes”), and cinnamon rolls. In 1995, the company tested a co-branding concept with Kroger grocery stores, whereby the doughnuts would be shipped fresh daily and placed in the bakery section, rather than the bread shelves. The Krispy Kreme stores themselves offered 15 varieties of doughnut; some stores test marketed bagels. Lowe’s hardware superstores began hosting Krispy Kreme shops in 1996. Reviving a concept tried in the Beatrice days, the outlets also sold sandwiches supplied by an outside source.

Fundraising traditionally accounted for around ten percent of the company’s sales and brought in more than $12 million in 1995. Half of the trade was wholesale. Before the company placed a new emphasis on retail sales in 1989, they had accounted for only a quarter of sales.

The Smithsonian Institution confirmed Krispy Kreme’s place in the American culinary iconography by honoring it on its sixtieth anniversary. The company and its doughnuts seemed hotter than ever.