Gene One Benchmarking
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Gene One Benchmarking: Krispy Kreme and Kraft Foods
What cause the demised of Krispy Kreme Doughnut Inc. in its transition from a private to a public company? Krispy Kreme, is well known for their sweet tasting donuts went public in April 2000. Sandra Abrams wrote in a 2005 Investment Dealers Digest article that, the once private company, based out of Winston-Salem, N.C., raised $72.5 million and closed its first day of trading at $37 a share. Stakeholder and Wall Street had high expectations of the company progress. However, five years later in an endlessly decline, Krispy Kreme stock was trading at $7.45 a share (Investment Dealers Digest, 2005).
Before Krispy Kreme when public the sweet tasting donuts could only be bought from one of the few local Krispy Kreme shops. After the company went public, it seem like you could buy the sweet tasting donuts at any grocery or convenient store. The once difficult to get to donut was now easily found just about anywhere. Consumers no longer had travel across town to get them hot sweet glazed donuts or do the quick u-turn traffic when they see the Krispy Kreme “Hot Donut” light on. In a 2005 interview with Roger Lipton, president of New York-based Lipton Financial Services (Chain Leader, 2005), explain his reason to Krispy Kreme demised, “Its biggest single flaw was building big stores–3,000 square feet–that required wholesale distribution to be economically viable (2005).” Krispy Kreme built large donut coffee shops and distributed their products to numerous suppliers without evaluating or testing the concept. In other words the small chain franchise went too far too fast without proving that concept of wide distribution and access would work.
Build-A-Bear Workshop, a toy retailer, learned valuable lessons from Krispy Kreme mistakes when it went public in 2004. The company operated 165 domestic retail stores and eight franchised stores outside of the United States. Mary Jo Feldstein, wrote in a newspaper article, that the first day on the New York Stock Exchange, Build-A-Bear Workshop stocks were priced at $20, peaked at $27.15 and closed at $25.05 a share. The initial price of $20 was at the high end of the companys expected range and even surprised several analysts. The company worked at keeping their stock from inflating or growing at a fast rate to allow a steady growth in profitability. High spike in share prices is not good for long-term profitability because the company must maintain that high to prevent investors for selling the companys stock off and in turn dropping the value of the company. Krispy Kreme had to invest significant amount of money and bought back their stock to slow down the decline of their share price.
Another contributing factor to Krispy Kreme demised, was expanding its operations and building too many large stores. The once secluded small donut shops were now being built all across the country. Krispy Kreme was shelling out more profit then they were getting on their returns. Investors and analysts was concern that Build-A-Bear would go down that same path when it announce plans to expand its brand with new offerings, such as its Friends 2B Made dolls and build-it-yourself stuffed-animal kits available at Target stores (Feldstein, 2004). Growth is important, but Build-A-Bear avoided the Krispy Kreme scenario, building and building until it busts, by not expanding beyond its growth and strategic planning. Every company in the free market from time to time faces an increase in their market share and profit margins. There are numerous