Competition | August 2010 | By Karon Warren
There was a time, not that long ago, when customers lined up in droves to get a hot Krispy Kreme glazed doughnut. People clamored to purchase franchise rights and throw open the doors as quickly as possible. Life at Krispy Kreme was looking up.
Until everything came crashing down. Stores started to struggle, lawsuits popped up, and U.S. Securities and Exchange Commission investigations were launched.
“The balance sheet was getting out of kilter, and the franchisee relationship started to weaken,” says Jim Morgan, chairman, president, and CEO of Krispy Kreme Doughnuts Inc.
The company knew it was in trouble, but the challenge was diagnosing exactly what was broken and finding a remedy as quickly as possible. In 2008, Krispy Kreme initiated a turnaround strategy. If a 2010 first-quarter fiscal report that showed the company’s net income more than doubled over the same quarter of 2009 is any indication, that strategy is paying off.
A renewed focus on the company’s product and brand reputation, building on strong franchisee relationships, and relying on industry experts with the experience to innovate change was the key to Krispy Kreme reversing its fortunes and returning to growth.
“We still had three things that most quick serves strive for,” Morgan says. “One, in my opinion, the absolute best product. Two, a brand that is known and well-loved, and three, a nucleus of team members who were passionate about the first two.”
Krispy Kreme isn’t the only quick-serve brand that experienced the need for a resurgence in the marketplace. Many other franchisors have found themselves in similar positions where they needed to turn their brand around.
Charlie Morrison was named president and CEO of Pizza Inn at the end of 2008, billed with the task of turning around a franchise that shrank from a commanding 800 units at its height to just more than 300. He says a crucial first step to making the U-turn was talking with those people who knew the brand best—the customers and franchisees.
“Ask questions and listen,” he says. “Don’t assume you know all the answers.”
David Wright, senior associate with The Hartman Group in Bellevue, Washington, says consumers are the best source to figure out how a brand should implement change, and that companies should ask themselves the following questions: What does the brand stand for to core customers? What appeals to them? For noncustomers, what would influence them to come in?
“These are not easy times to diagnose the customer base,” Wright says.
For Michael Goldberg, executive vice president and chief marketing officer for Zimmerman Advertising in Fort Lauderdale, Florida, a defining moment for several of his clients in need of a jump-start was realizing what made them so important with consumers in the past.
“We try to find what is inherently right about the brand that we can use to re-earn consumer credit,” he says. “Papa John’s had better ingredients, Friendly’s had the best ice cream, White Castle pioneered the slider, and Boston Market made rotisserie chicken famous. They were each originals that had fallen behind and needed to redefine their leadership.”
Of course, no brand can ignite growth without the right leadership to make sure it’s on a firm foundation, a problem faced by Mama Fu’s Asian House in 2008.
“There wasn’t a defined infrastructure at the home office,” says Randy Murphy, president and CEO of Mama Fu’s. “We had to get a CEO in place with experience and build infrastructure.” The right CEO, it turned out, was Murphy, who was a Mama Fu’s franchisee before buying the company from Raving Brands in 2008. The company also brought in industry veteran Stephen MacManus as chief operations officer because he knew how to implement all the strong franchise operations it needed.
Starbucks Coffee made a similar move when it brought back founder Howard Schultz in January 2008, after the company began to experience a decline. Schultz immediately introduced a transformation agenda that “returned our focus on operational excellence and customer experience as key components of everything we do at Starbucks,” says Cliff Burrows, president of Starbucks Coffee U.S.
Having the right people in place at every level is vital for a successful turnaround, Burrows says. “What’s important to note is the transformation was only possible through the hard work and dedication of our employees,” he says.
Sometimes the problems with a concept are not blatantly obvious, which John Pepper learned firsthand. Pepper was cofounder and CEO of burrito chain The Wrap, where sales flattened in 2003 and 2004. He finally realized the brand was suffering an identity crisis of sorts. “There was no passion behind the name of our brand,” he says. “I had an awful feeling we were moving forward with a name that was holding us back.”
After a chance meeting with Starbucks’ Schultz and discussing the issue with him and several other industry experts, Pepper hired Cincinnati-based FRCH Design Worldwide to find a new name for the business. The result? Boloco, with the tagline “Inspired Burritos.”
After the name change, Pepper says sales started to rise once more—all without a single change to the concept’s menu.
Krispy Kreme’s Morgan says that when planning a resurgence strategy, companies need to be prepared to invest in the future. “We had to be willing to invest in people in certain spots,” Morgan says, adding that the investment included staff changes in the supply chain, marketing, and operations of the company. Morgan says Krispy Kreme also had capital expenditure requirements for updating existing facilities and opening new stores.
A healthy time investment also should be incorporated into any turnaround strategy. “It’s not easy to do,” Mama Fu’s Murphy says. “It doesn’t happen overnight. It takes a lot of time and energy to fix it. It’s not for the lighthearted.”
And even when a quick-service concept seems to be on the road to recovery, Morgan says operators should not believe the rough patch is over. “Be wary of getting complacent,” he says. “Don’t fool yourself into thinking it won’t happen again.”
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