Full of Holes? Some Doubt Krispy Kreme's Growth Prospects
The American doughnut was born in 1847, so the lore goes, when a Maine seaman urged his mother to shove a fork through the center of her "fried cakes." That solved the problem of the cakes' soggy middle and created the doughnut's trademark hole.
Today, perhaps the most celebrated of the sweet treats are those fried up by Krispy Kreme Doughnuts Inc., whose hot "original glazed" doughnuts have earned a cult-like following. With virtually no advertising, but an uncanny knack for creating free publicity through the media, the company keeps racking up double-digit gains in sales and profit.
Skeptics keep trying to poke holes in the Krispy Kreme mystique -- questioning whether the company can maintain its remarkable growth. Some analysts believe its growth rates already are beginning to ease. They also contend that the company's stock remains too rich for most tastes.
Their argument appears to hold some water. Krispy Kreme's stock, after skyrocketing at first, trades for less than it did two years ago despite the company's consistent growth record.
But the company is unmoved by the pessimists and has no intention of scaling back its aggressive expansion plans, which include Southern California.
"We may be in the first or second inning of our market penetration opportunities around the world, including the United States," said Scott Livengood, Krispy Kreme's chairman and chief executive.
With 288 stores in 38 states and Canada, Krispy Kreme is starting to expand into smaller U.S. cities and other foreign markets. It sees potential for hundreds of additional stores worldwide.
In Southern California, where the company started with its La Habra store in 1999, it now has 22 locations employing 1,300 people. And more are on the horizon.
"We'd expect to build as many as 50 stores over the next five years" in Southern California, said Richard Reinis, chief executive of Great Circle Family Foods, a Los Angeles company formed to be Krispy Kreme's Southern California franchisee.
Among the target locations: Santa Monica, Newport Beach, Laguna Beach and La Jolla. The company also is thinking of building a West Coast distribution plant, possibly in California, within three years.
Krispy Kreme is a story some have found too good to be true ever since the company went public three years ago. Yet the stalwart reputation of the doughnuts -- abetted by media that pump up every new store opening as a local sensation -- helps maintain the company's prosperity.
