Do you know that Krispy Kreme Franchise, one of the world’s largest doughnut stores was started by three young men who had twenty five US dollars between them and poverty? The founder of the company, Vernon Carver Rudolph started by buying a small shop in Paducah, Kentucky which was formerly owned by a chef from France though there is unverified information that he won the company’s rights in the game of poker (Krispy Kreme, 2007).
Vernon received the rights to the yeast –raised doughnut recipe secret, all the assets and the goodwill……
Vernon and two other youths arrived in Winston -Salem in United States with only twenty five dollars, some equipment to make dough and the secret recipe.
They rented a building and borrowed ingredients from a nearby grocer, promising to repay the money after selling the first doughnuts. Luckily, there was much demand for the doughnuts and this prompted them to open a shop. They sold the doughnuts to their customers directly from a hole cut on the wall (Krispy Kreme, 2007). Today, Krispy Kreme has stores in most continents of the world, with Australia being the first expansion from North America.
Other outlets are in United Kingdom, Mexico, Hong Kong, Japan and Philippines (Krispy Kreme, 2007). Krispy Kreme operates as a restaurant, selling freshly prepared doughnuts and different kinds of beverages. They prepare over twenty types of doughnuts and also make their own special brands of coffee. According to the company’s official website, more than two billion doughnuts are produced per year, which translates to about seven million doughnuts per day.
Every time a fresh batch of doughnuts is ready, a neon light that is placed outside every store lights up (Rich et al, 2009).
By 2005, the company had over three hundred and ninety stores worldwide with two manufacturing facilities plus three facilities for the distribution. Nevertheless, the company is on the verge of being declared bankrupt. This research paper seeks to address the reasons why Krispy Kreme Doughnut Franchise is going bankrupt. Reasons for the company’s failure In the year 2007, Krispy Kreme Doughnuts Inc. posted a loss of 4. 6 million US dollars which was equivalent to 7 cents a share (Loss Angeles Times, 2007).
It is important to note that in the previous year, the company had registered a loss of 14. 9 million, equivalent to 24 cents a share. For the second quarter that ended on July 30, 2007, the revenue had gone down from 139. 8 million to 112. 5 million US dollars. In the third quarter ending 29th October, Krispy Kreme lost US dollars 7. 2 million that is equivalent to 12 cents per share with the revenue going down from $128. 8 million to 117. 1 million. At the same period the previous year, the company had lost US $ 29. 7 million (Loss Angeles Times, 2007).
One person termed Krispy Kreme as a victim of its own success. After its La Habra store was closed in August 2006, the company had not previously opened any store north of Mason-Dixon Line from 1937 until 1990s when they expanded to Chicago, New York and Omaha among other places (Luna, 2007). There was great success wherever a new store was opened; with very many customers waiting to buy and this meant big sales. In April 2002, when the company went public, the stock moved up by 76% on the first day in the stock exchange and by the August of 2003, it had reached $ 49. 37.
This success is what stirred the franchisees to borrow money so as to expand rapidly. Unfortunately, the system could not be sustained with the brand of the doughnuts becoming overexposed. The sales fell, forcing the franchisees to retrench their workers, closed some of their stores and even applied for bankruptcy protection. This took place from one place to another; for example, the Rigel Corp that operates the stores in New Mexico and Arizona closed its ten Krispy Kreme stores in those states (Luna, 2007).