Have you ever had a Krispy Kreme doughnut? They’re delicious. I’ll admit personally, they’re not my
absolute favorite place to get doughnuts, but based on everyone’s reaction to them,
I feel like I’m in the minority here. Don’t get me wrong—they’re good.
Just look at these things! You can tell they’re good just by looking at them. But everything I come across
just describes them as unbelievable. [CHARLES BARKLEY:] Man, this is one of the
greatest inventions ever [COMPANY MAN:] They are unique, I will say that. Like how a McDonald’s hamburger has that unmistakable taste, the same goes for Krispy Kreme, so if you’ve never had a Krispy Kreme doughnut,
I can’t do much in the way of describing it to you. It’s one of a kind. The company identifies that taste as one of their
brand elements, and I want to identify three of their brand elements that
really seem to separate them from their competition. One was the taste. In 1937, the founder Vernon Rudolph bought the recipe from a French chef, and, to my knowledge, it’s the exact same one
they use today. But I do want to give Vernon Rudolph a little more credit. I don’t want you to think any less of him because he didn’t come up with the recipe himself. For one, selecting and implementing the right recipe is no easy task, and for two, he did team up with some engineers to invent and build the doughnut-making equipment, which would obviously have an impact on the taste. The second way they separate themselves
is what they call “Doughnut Theater,” which is quite a dramatic label, but most of the Krispy Kreme locations
make the doughnuts in the restaurant itself, and they make it visible to the customers,
which has a ton of benefits. It acts as visual proof that they are, indeed,
freshly made. It’s a source of entertainment when you’re waiting in line or sitting down to eat. It just adds to the overall experience. The third thing that separates them is their sign. It says “Hot Krispy Kreme Original Glazed Now.” When the sign is lit up, it lets the public know that there was just a fresh batch of doughnuts made. Picture this: you’re driving past a Krispy Kreme. You’re not sure if you wanna stop in or not, and you notice the sign. The fact that they’re freshly made is just enough to
tip the scales and convince you to stop. It’s a great way to attract some impulse buyers. So, now Krispy Kreme has a unique-tasting product that’s made on site in front of the customers, along with a great way to convey to the public
when they’re making it. It all came together to form a successful business. I said it all started in 1937, and for the next 60 years,
not much happened. Their very first location was in North Carolina, and they didn’t leave that southeast region until 1996. That’s the year they opened their first store
in New York City. In 1999, they expanded into California. The next year they took the company public,
meaning it was now on the Stock Exchange, and from there, things just went crazy. That public offering gave them the resources they needed to implement their plans of expansion. The next four years were a period of
aggressive expansion. In the year 2000, they had 142 locations.
By 2004, that number was up to 357. Just to state that in a way that gives
a little more perspective, in their first 63 years, they opened 142 locations. In the next four, they opened 215. And as you would expect, their revenue went up during that time as well, from $300 million to over $700 million. Just based on these figures,
I would guess for many of the people watching this, outside of that southeast region, the first time you heard about Krispy Kreme was
during this time. They were popping up everywhere, everyone loved their doughnuts, the stock was performing really well. They were sort of thought to be the next big fast food restaurant to emerge. This is where things went bad, and I mean it when I say things went bad. Krispy Kreme experienced one of the biggest falls that— here, let me tell you about it. It actually started in May of 2004. You’ll notice that they did slow their growth that year, and I held off on showing you the income graph because that was already severely affected in 2004. Yeah, it’s pretty crazy when you see it like that. A big part of the loss is actually
from their sale of Montana Mills. It’s a bread company that they had bought
less than two years earlier. I think the best thing we can use to show their fall here is their stock price. Now, this isn’t a perfect graph, since I just plotted their trading price at the first trading day of each year, but it does show how much they fell in 2004. They were experiencing decreased sales. But, the reason the stock market went down so rapidly is because of an accounting scandal. During this time, the SEC was
conducting an investigation concerning aggressive accounting methods
that were used to increase their earnings. The shareholders were filing lawsuits against them,
and their auditors, alleging similar things. Simply put, they were having trouble
meeting their earnings expectations and they, allegedly, used some accounting tricks
to help meet them. As a result, they had to restate some things
from their previous reports, they delayed issuing some of their quarterly reports. All of this is very bad when it comes to stock price, and the stock price is what determines
the value of the company. Just think of it like this: they were so afraid
of delivering less-than-impressive earnings because it would upset the investors and
make them wanna sell their stock. That’s a very common thing in the stock market. Well, now they weren’t delivering any earnings results, and telling the investors that they can no longer rely on the results that they delivered earlier. Unless you’re an investor that’s okay with accepting
high amounts of risk, you’re selling your shares in Krispy Kreme,
which is exactly what happened. So, things were done that made their earnings appear higher than they actually were, but the question I have is, why were their earnings low
to begin with? And I don’t have a perfect answer for this—just
some speculation. Their CEO at the time blamed it on people being more concerned with their health. Everyone was on a low-carb diet and no one wanted doughnuts anymore. I’d say, that may have had a small impact, but probably not the best explanation. The more common belief is that the low earnings resulted from over-expansion. I already expressed how quickly they were expanding. The thought here is that they started opening locations too close to each other and that new locations were taking sales away
from the older locations. I’m not completely sold on this explanation either. In 2005, they were up to 402 locations, of which
334 of them were in the United States. Now, I don’t know how spread out
these locations actually were, but I’d like to think that the United States,
loving Krispy Kreme as much as they do, has enough demand to justify 334 locations. Dunkin’ Donuts currently has over 9,000. But it is possible that the new locations were just
poorly planned. Maybe most of them were in a health-conscious community where Krispy Kreme already existed… I don’t know. Another common way to explain these low earnings
is their sale of products outside of their restaurants. Krispy Kreme is known for their fresh, pleasant-smelling doughnuts, not their packaged doughnuts. So, when they offered them like this in the supermarkets, it made people stop caring as much. They were no longer something special that you can only get from the restaurant—you can get them anywhere. I think the idea is that people would
pass up the restaurant because they knew they could just
get them at the supermarket, but then when they were at the supermarket
they’d pass them up anyway because they’re not drawn in by that fresh smell. And there’s probably some degree of merit to
all of these explanations. But despite having decreased earnings and a scandal that just sent their stock crashing down, they survived. Looking at their stock price over a longer range,
we can see it continued dropping into 2006 but then started to go back up in 2007,
only to start dropping again in 2008. In the beginning of 2009, it was trading for $1.65. But, you have to remember, that was
during a time where…most stocks were struggling. Since then, they’ve been recovering. They were taken off the market in 2016 when they were bought by a company named JAB. The selling price was right around $20 per share, totaling $1.35 billion, which is evidence of a recovery. Someone willing to pay that much is a good sign. The company that bought them, by the way, also now owns Panera, Keurig, and Dr. Pepper/Snapple Group, among other things. Looking at Krispy Kreme’s revenue over a longer range, it too bottomed out in 2009, but has increased
every year since. And the net income tells a similar story, and that
it’s been positive every year since 2010. All three of these graphs perfectly depict a rise, a fall, and a rise again. The graph that stands out is their number of locations. Through all these ups and downs, the only time they slowed their expansion is in 2006. Do you see how that’s a little lower than 2005? That was right in the middle of their accounting issues and plummeting stock price, but every other year, they’ve been
opening new locations. The difference now, compared to their struggling years,
I suppose, is that it’s now a much smarter expansion. If it was indeed way too concentrated before, or if the U.S. just wasn’t accepting any more than
a few hundred locations, they’ve addressed it. I said in 2005 they had 334 domestic locations. Well, in 2015 they had only 297, meaning, despite what this graph looks like, there’s actually now fewer locations in the United States. These new locations are spread out all over,
in many different countries, and I suppose that’s what we can attribute
to their recovery. They found all these new markets to
sell their doughnuts. And, keep in mind, unless the new owners have done something miraculous over the past couple of years, Krispy Kreme is still nowhere near their peak,
by any measure. But considering how far they fell, and how that momentum could have brought them
even lower or even knock them out completely, it’s impressive to see a recovery like this. Let me know in the comments:
what do you think about all of this? The rise, fall, and rise again is pretty easy to see, but the explanation behind a lot of it isn’t quite as clear. Why do you think they stopped selling as many doughnuts right around 2004, and to what do you attribute their recovery
from all of this? Also, what are your thoughts on them overall? Are the doughnuts really as good as
everyone makes them out to be? If everyone in the United States loves them
as much as it seems, it’s just weird that they would have so much trouble selling them back in 2004, and even today, they only have 300 locations
across the country. How do you explain all of it? I’d like to hear what you have to say. Thank you for watching! [Music] Note: Can someone else also write "[Music]" at the beginning of the video because I can't figure out how to do that
Tbh, I only like the plain glazed krispy kreme. All the other ones taste like I'm eating sugar by the mouthful. I usually like sugary foods but krispy kremes are kinda disgusting to me.
Saw the title: knew it had to be Company Man.
The narrator sounds just like Sam'O'Nella.