Krispy Kreme aiming to become beverage destination

by Monica Watrous
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Adding seasonal beverages and licensed products at retail are ways in which Krispy Kreme is working to ditch its image as only a donut destination.

 

WINSTON-SALEM, N.C. — Krispy Kreme Doughnuts doesn’t want to be boxed in as a donut destination. The chain is angling to become known as a beverage company, too.

Krispy Kreme is expanding its beverage platform so coffee and other specialty drinks play a larger role in the total sales mix. The company is testing frozen lattes and earlier this year began offering packaged ground coffee and ready-to-drink iced coffees in the grocery channel. During the second quarter, Krispy Kreme added branded K-Cups in retailers and its donut shops.

“Although it is early in our launch into the single-serve category, we’re pleased with the results we’re seeing so far,” said Tony Thompson, president and chief executive officer, during a Sept. 9 call with financial analysts to discuss second-quarter earnings. “We view these three initiatives, bagged, ready-to-drink and K-Cups, as part of a long-term opportunity to capitalize on the large number of consumers who already brew coffee at home and at work and want a convenient way to enjoy Krispy Kreme coffee. We have only scratched the surface in capitalizing on our budget for beverage opportunities both inside and outside of our shops and we intend to invest in additional resources dedicated to this important part of our business.”

For now, Krispy Kreme is focused on beverage attachment, with a longer-term goal of becoming a top-of-mind stop for coffee and specialty drinks.

“We know (customers are) coming for donuts, but we want them to make that decision also to purchase a beverage, so that’s our near-term focus,” Mr. Thompson said. “Longer term as our footprint continues to grow, we will become more accessible as a destination and a more frequent beverage user.”

Building awareness of the beverage menu in donut shops is part of the strategy behind Krispy Kreme’s licensed coffee program at retail.

“Consumers are coming to Krispy Kreme focused on donuts and we’re excited about that,” Mr. Thompson said. “Right now research would say they don’t think of Krispy Kreme and coffee and beverage from a top-of-mind awareness standpoint, which is actually one of the key strategies in our licensing program with our bagged coffee, our ready-to-drink coffee at Sam’s and our K-Cup, is to create that awareness out in the retail space and even the single-use coffee category, people thinking of Krispy Kreme as more than just donuts.”

Limited-time offers are a top driver in broadening the beverage platform. For the fall season, Krispy Kreme is offering a pumpkin spice latte, in addition to its core lineup of flavored iced, frozen and hot beverages. The chain launched frozen lemonades in mango and strawberry flavors during the summer.

Limited-time donut varieties, including carrot cake and banana pudding, helped lift traffic during the company's second quarter.

L.T.O.s lift traffic

Strategic promotional offers and other marketing efforts lifted traffic and top-line growth at Krispy Kreme during the company’s second quarter.

For the second quarter ended Aug. 3, the company had net income of $5,752,000, equal to 9c per share on the common stock, up from $4,717,000, or 7c per share, in the comparable period.

Revenues totaled $120,516,000, up 7% from $112,729,000 the year before.

Limited-time donut varieties, including brownie batter, banana pudding and carrot cake, contributed to a 2.8% increase in system-wide domestic same-store sales, reflecting a 1.1% gain at company-owned shops and a 3.8% gain at franchise stores.

“Our marketing operating and culinary teams worked tirelessly to drive donut use occasions to social media and related marketing limited-time offers and fun activities,” Mr. Thompson said. “These efforts help us to engage and connect with critically important millennials as well as Krispy Kreme fans that have enjoyed our donuts for generations.”

The company’s marketing initiatives include its first digital loyalty program and related consumer-facing technology, which will be tested in a small number of shops by the end of the year.

“We’ve got a lot of great things planned for the balance of the year from a marketing standpoint, and new products that are going to certainly be exciting and I think add to the bottom line and certainly help us on the margins,” Mr. Thompson said.
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