State of ‘da Nile’

by Dan Malovany
At times, unfortunate things happen to good companies, and faced with a difficult situation, people say something that even stupid me thinks, “I dunno. That’s doesn’t sound right.”
Take the good folks at Krispy Kreme Doughnuts. A few months ago, the executives there blamed a slowdown in donuts sales on the low-carb craze. Initially, I bought into it. Heck, the carb craze was hurting everybody, now even the mighty Krispy Kreme?
Then I gave it a second whiff. “Uuuu-eee,” I said. “That’s not right.”
Sure, the low-carb craze could have had an impact in slowing KKD’s skyrocketing off-premise sales, but in the sweet goods category, indulgence rules. Put a hot, glazed donut in front of a dieter and even the most ardent South Beachers dive in. “Well, I shouldn’t,” they say. “Okay, just one.” Snarf, snarf, snarf.
In Krispy Kreme’s case, straying from the “Hot Doughnuts Now” concept was the real issue. I knew this because, well, the company told me so back in February 2002 when we named its chief, Scott Livengood, our executive of the year.
In 2000, he recalled, Krispy Kreme explored having its factory stores supply donuts several times a day to mini-stores or kiosks, much like it does to C-stores, in-store bakeries and other off-premise accounts.
The problem, Livengood added, was that the mini-stores had no way to produce hot donuts on-premise, which he described as the essence, or “magic,” of the Krispy Kreme brand. To resolve this issue, management explored making donuts ahead of time at the factory stores, then refreshing and hot-glazing them on a prototype, mini-production line that could go almost anywhere. I’m not sure where that concept went, but it sounded pretty good to me.
Since then, I’ve been surprised that KKD pushed into the retail channel in such a big way. Yes, I understood they were filling up their factories and making money hand over fist.
Sure, its donuts sold in the supermarket tasted mighty good, but they “lacked the magic” of the hot, glazed ones fresh from the fryer. The competitive edge wasn’t there due to the simple laws of physics. After a couple hours sitting in the supermarket, Krispy Kreme’s products lost one of its major points of differentiation from competitors’ products. Moreover, the novelty began to wear off as KKD penetrated the retail channel and consumers could buy them almost anywhere.
Now, to Krispy Kreme’s credit, it is refocusing on its core competency. KKD still is penetrating the retail channels, but it also is planning to build smaller stores with more compact production lines to spread the “magic.”
“Our primary focus over the last six years was on growth,” Livengood told analysts in August. “Building stores and our brand overshadowed building profit. … Now, our first priority will be to make our stores as profitable as they can be.” I may be goofy, but that sounds like a dang good idea.
On the other hand, maybe Atkins Nutritionals needs a reality check as well. The carb-bashing company is laying off employees, stating that the layoffs are the result of its plan to “outsource some of its sales.”
Sure, I’m a lunkhead, but didn’t the carb craze peak in January or February? What about those low-carb food stores going out of business? Why has Atkins hired a crisis management firm, which has worked with the likes of Parmalat?
As the saying goes, “da Nile” ain’t only a river in Egypt.