MountainWest Krispy Kreme Franchisee

LAS VEGAS, Nev - Three years ago the Krispy Kreme doughnut brand was hotter than deep-fry oil. Then storefronts were shuttered overnight. Entire regions went bankrupt. All the while, Las Vegas and the MountainWest area grew. While the Krispy Kreme franchise has floundered in the Southwest, Southern California, the Midwest and Canada, the brand is actually growing in the Intermountain region. So much so that the region's franchisee, the Westward Dough Operating Co., turned east and bought out the rights to the Midwest region. Chief Executive Lincoln Spoor, said the company's success here is due to smart, slow growth, luck, and the unique Las Vegas market.

The following is an excerpt from In Business Las Vegas of an interview with the Chief Executive of Krispy Kreme's regional franchisee.

How large is your regional presence, number of stores? Twenty-five stores overall in all the states and a bit over $50 million in sales. That's a lot of doughnuts, right?

Are you a sub franchisor of Krispy Kreme, or an independent operator? How does that arrangement work? Typically companies grow by either franchising individual locations, individual stores, or they give you a lot of territory under which you're required to develop a market. And we're the latter. So we were given originally Nevada and Utah and we had to open nine stores in the two markets over about a five-year period of time. And over time we've acquired additional states, additional markets, to the point now where we're 25 stores.

Which was your original flagship store? That would be the Spring Mountain (Road) store that we opened here in Las Vegas in March of 1998, which was an incredible experience. We broke all the records that Krispy Kreme had ever had over its then 63 years, and it validated my absolute passion and love for the brand because there's nothing more than loving and being passionate about something and then sharing it and to have people embrace the brand like they have, and the doughnut in particular, is very rewarding for us.

What prompted you to start this, to take over so much geography to sell doughnuts? Why not McDonald's or another franchise? I'm very passionate about the product. I fell in love with it in 1992, I had my first doughnut in Alexandria, Va., in one of the original stores built in the '40s. They had a machine that made 1,000-dozen doughnuts an hour and you walk into the store and you see these very nice ladies offering you a free doughnut and then there were people walking out with a dozen. And I had never seen that before. So of course I had to have a dozen, and when I paid for the doughnut, I went crazy. It was the best thing I'd ever had. And it was clearly best of class.

When I did some research on the brand and realized that they're also very big in community affairs and fund raising and schools and paying back the community I really liked that too, that fit well, and it was in line with what I thought companies should do. So I started writing the company, calling the company. I visited them. They were not interested in all in anything I had to offer. But it's a lesson in perseverance because eventually 6 years later we had the development rights for Nevada and Utah and they had actually succumbed to the passion, I guess. So it's a little bit wacky.

I used to be an investment banker in New York and I was having a very good life and then suddenly: doughnuts. So people were like, "Are you OK? We beg you to get therapy, my goodness!" But I loved it, and that's what I wanted to do. It's what I was passionate about. So it was an easy decision.

Can you explain the business model? The business model is like a three-legged stool: You've got the people who walk in the front door, which is our retail business; you have the doughnuts that go out the back door, that's our wholesale business, and in the wholesale business we're in the grocery channel and the convenience store channel; and then we have our fundraising and community affairs. We're very active with working with churches and schools and sports teams and groups to help them raise money. We give them discounted products and through fundraising cards — that's buy one get one free.

Can we talk a little bit about the different points of sale in this business and how they differ? We have, in this market, three suburban stores, one here (on Eastern Avenue near Harden Drive), one on Spring Mountain (Road) and Rainbow (Boulevard) — our flagship store — and one at Craig Road and Martin Luther King (Boulevard). And then we have a store in the Excalibur and a store at Circus Circus and one at the Fitzgeralds downtown.

The Strip business helps offset what otherwise would be a slower summer. The suburban stores in the summer, when it gets so hot, you know the last thing a lot of people want is a hot doughnut. In the meantime, though, families come to the Strip, that's the time they're there from Memorial Day to Labor Day, and they're grazing, they're on vacation, they want to have a good time and they're looking for good food. So we do very well in the summer there, so it's a nice offset for us.

The other part of the business, the wholesale business, we like to partner with specific people in markets. We don't like to be everywhere, we don't want to be ubiquitous. So we typically pick partners in all of our markets. And Terrible Herbst is a great partner for us in the convenience store channel here. And we're in grocery stores, primarily Smith's and Albertsons.

How is this business different than another fast food chain, say McDonald's, Burger King, Dunkin Donuts? Dunkin who? They're primarily a beverage service. They're moving out of their Donut brand and more into the Dunkin brand these days.

If you look at fast food, generally, they're very short on customer service, friendliness. The experience isn't very good, the food is OK. We like to think that we're in the business of food served fast, not fast food. Because we have a 30-foot-long glass window and when you look through the window and you see these incredible doughnuts being made. You can't see that anywhere else. It's the beginning of what we call creating a magic memory. Because most people don't remember when they had their first Big Mac or their first Whopper or their first piece of Pizza Hut pizza, but they sure remember when they had their first Krispy Kreme.

It all begins by looking at this process, and the wonder and the magic in it all. And then coming around and hopefully we have great customer service and we're saying, "Hi, how are you?" We offer free glazed doughnuts during our hot light period. And what we mean to say is "this is 70 years of history, please try it." And a lot of people are taken aback because a lot of people are here for just one doughnut. But the majority are here for a dozen or more. So that's probably the beginning of what it's all about and differentiating between ourselves and others in the fast food business.

Other doughnut companies, they love to run out of doughnuts. If they've run out of doughnuts by 11 they've had a good day. That's not what we're about. We want our 15 varieties available at all times. We're going to make them fresh in front of you all day and all night. So we have a hot light — a big round sign — on the building. When that's lit up, it's a beacon, it's our bat sign to people when they're driving by that you come in right now. That sign is lit, you can get a hot, fresh-glazed doughnut. That's 5 to 11 every morning, 5 to 11 every night. Seven days a week. So that's the other thing that really differentiates us. And thirdly the quality of the product, it really is truly best of class. There's nothing like it. Nothing like that glazed doughnut. Or our other doughnuts for that matter.

How have the diet crazes affected your business? The Atkins diet, the Mediterranean diet, the South Beach diet. All are saying stay away from sugar or stay away from the carbs. How has that affected business for you? There was a time when our corporate franchisor had said the Atkins diet is hurting us. I don't subscribe to that view. I think what's happening is people are very smart about what they eat these days. They ration their calories. You do, I do.

So what we're doing is we're looking at it in a cost/benefit manner. We are saying, "You know what, I'm rationing my calories or I'm on a diet but you know what, I really want something great. I really want something best of class, so if I cheat, and everybody cheats, then I'm going to cheat with the best." That's what we do. People cheat with our doughnuts. They cheat with Häagen-Dazs ice cream, they cheat with Mrs. Fields cookies, they cheat with In-N-Out burgers.

All of those brands are best of class and you don't regret it. If you've gone off your diet if you've cheated a little bit and you've done that, it's worth it. You're like, "You know what? I've cheated, I loved it, and I'm glad." Whereas if you go for something else that isn't best of class, you eat it and you're like "Darn it, I shouldn't have done that. I really wish I hadn't done that." That's a different trade, but that's not our issue at all. We are best of class and people will come in whether they're on a diet or not for that one indulgence. And that's what we think we're about.

Any interest in adding different products or changing products to try to accommodate dieters? Oh yes. We're working on a 100 calorie doughnut and a reduced sugar doughnut. And the key, of course, is to make it taste as close to our signature product as you can get. You do that two ways: One is by using the new sweeteners that are out there today, and the second is by reducing the portion. You go into any of the stores today, in the candy rack, all those candy bars are a lot smaller today than they used to be and the calories are lower and the sugars are a lower and the fat calories are lower and that's one way of doing it. We'll have, I would guess, a 100 calorie doughnut by maybe the middle of next year to address those concerns. There's a whole wheat doughnut that we're testing.

As a regional franchisee are you given freedom to tinker with the business model or the product or marketing strategy? Oh yeah. Krispy Kreme corporate, with the new regime there and the new CEO, they're very experienced in managing world-class brands. They realize they don't have a monopoly on good ideas. The good ideas generally come from the franchise world because we're out there putting it on the line every day and we try different things and they're very open to that and we've been very satisfied with how that relationship has worked. So they're open to us trying different marketing things, they're open to us putting different things in the stores to appeal to different customers to bring them in. The only thing you don't want to mess around with is the recipe or the fillings or the ingredients or that 30 foot long glass wall, that's what we're all about.

Can you give us an example? For example, you'll see, when we opened the store, the chairs, the tables, the tile, the design, that was all our idea — the flowers on the table, we like that. It's energy-creating as opposed to energy-taking. We all go to those places where you just say, 'Oh my God, this just doesn't' feel right." We want to be an energy-creating place. We have free WiFi, that's all been done on our own without any direction, any help from corporate, the truck wrap, we're free to do whatever we want there, there's a self serve beverage display here that's something that we worked with Pepsi on, that was our idea. The display case, the black trays instead of white, corporate would like us to use white, we like black, I think it looks better.

I know there's a lot of stories in the news about how on the national level the Krispy Kremes aren't doing as well, they're shutting down across southern California, the Krispy Kreme region in the Southwest went bankrupt, how is business here and what are you doing to keep the business afloat? You have to remember that when Krispy Kreme went public it was the most successful idea that year. Seventy percent of their earnings came from the sale of equipment to area developers and franchisees, so there was a push from their side to open stores. So the folks who had major metropolitan markets like Los Angeles, Phoenix, Chicago, Boston, St. Louis, Houston, Philadelphia, Pittsburgh — all the major population centers — they were working under the premise that they had a retail concept and that they could open a lot of stores. And corporate liked that because they were selling a lot of equipment. Their earnings were up and so their stock price went up.

In our market we have smaller population centers so there wasn't the focus on us to open a lot of stores, so we didn't. We haven't opened a store in Las Vegas since the Craig Road store which was in May of 2000. We've opened one on the strip, but not in the suburbs.

But having said all of that, there's no better market in the country than Las Vegas. This is the best market. It's the most dynamic, it's growing. New people come in who haven't had Krispy Kreme who discover us, people move in who had knowledge of us and are so happy we're here. It's a very vibrant business economy and that helps us a lot.

How is the Las Vegas market different than other large cities like Los Angeles, other than the number of stores. Do you do things differently here than you would do in another large city? I think the weather is one thing. In the summer months, the downturn here is probably a bit greater than in other markets where it's not so hot, but fundamentally the business is the same. It's the dynamic aspect of this market that's so phenomenal. You've got really two separate markets.

When I opened the Spring Mountain (Road) store, Vegas had to be the first store because if nobody came in the front door, I could still wholesale out the back door to the Strip and at that time 29 million people came to visit Las Vegas. Now it's multiples of that. Having that available is a great resource, but it's an entirely different market that needs to be managed entirely differently.

You have your suburban market, which is fast growing. When we bought this property there was nothing south of what was then Lake Mead, it's now St. Rose (Parkway). The hospital wasn't there, the businesses weren't there, Horizon Ridge (Parkway) was a dirt road. It's incredible to see what you see today. Those aspects of Las Vegas make it a very attractive market to be in because it just continues to grow.

Where does Krispy Kreme go from here? What does the future hold? We're working with our corporate franchisor on some new products. Which is going to be very exciting, that will be good reason for people who have not come in to come in and for people who do come in to come in more often. We've got some new beverage programs that we're looking very seriously at. We're going to be co-branding with a national coffee company called Caribou in this store (on Eastern Avenue). We're going to close it for a week and refurbish it and it's going to be a Krispy Kreme serving Caribou coffee, so we're going to try that.

We're very exciting about that because we think it could be profound. The coffee experience we have now is OK, I think we have some of the best coffee out there, but nobody knows it. So just like we have Pepsi and we have MediGold for milk, we're going to have Caribou for coffee. So that's going to be a very exciting potential growth vehicle for us.

And a downsized concept, which we're calling a tunnel oven store, which is what (our stores in) Circus Circus is and what Fitzgeralds is, allows us to build the same hot doughnut experience but around a much smaller storefront.

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[Story and photo via In Business Las Vegas]