In Krispy Kreme’s national growth story, a company set out to test two different strategies: franchising vs. company ownership of stores. With hundreds of stores nationwide today, the donut brand seems to have made a choice: of the two, franchising is sweeter.
At this month’s earnings call, CEO Tony Thompson spelled it out plainly in Jonathan Maze’s piece in Nation’s Restaurant News:
“Domestically, our franchisees continue to outperform our company shops,” he said during the call. “Thus, we believe that by focusing more on franchising, we will be in a greater position to maximize the value of the brand for the long term.”
Consider the fourth quarter ended Jan. 31. Company-operated locations in the U.S. reported same-store sales growth of 0.2 percent. But franchisee same-store sales rose 2.5 percent.
Krispy Kreme has 297 domestic locations. Franchisees operate 181 of those locations after adding a net 14 units. The company, by contrast, opened a net five locations over the past fiscal year, after factoring in five closed company units. Franchisees operate all 824 of the chain’s international locations.
To focus more on franchising, however, the company has to make several investments and changes to help operators build more profitable locations and generate higher sales from those units.
Krispy Kreme has several initiatives in place to reduce the investment cost for new stores by “several hundred thousand dollars,” Thompson said. That includes lower costs for construction, site location, equipment and pre-opening.
CEO To Hike Support For Franchisee Real Estate
Thompson went on to spell out what giving the nod to the franchising business model entails – heightened support for real estate, finance, technology and development. A foundational part of any growth plan, real estate support for a franchise traditionally includes strategies for site selection, lease negotiation and build-out.
Will that knowledge flow from Krispy Kreme corporate out to franchisees existing and prospective? Or will the superior profitability track record of franchisees originate some of this heightened support to future store operators?
Time will tell.
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