Krispy Kreme Stumbles Recounted

Krispy Kreme managed to stumble into most of the pitfalls in the franchise model, according to the cover story of the June, 2005 issue of CFO Magazine. It focused on growing revenues and profits at the parent-company level, while its franchises struggled. Raw materials and equipment were sold to franchisors at exceptionally high profit margins. The brand lost its mystique, as Krispy Kreme dougnuts went on sale for the first time at grocery stores, gas stations, and kiosks. In 2004, the SEC launched a formal investigation into the company’s buybacks of several franchises, while franchisors alleged “channel stuffing.” Krispy Kreme stock has dropped from it $50 mid-2003 high to $6 in early May of 2005.