Help Wanted

For 2008, two food retail companies needed a new chief executive officer. A CEO has been named at the first company while the second company cast about for a new leader. At first glance, the company with the new actually old CEO, Starbuck’s, appears to have an easier task. However, a deeper look reveals the second company, Krispy Kreme, represents the easier task.

Steal this mug to save this company

For 2007, Starbuck’s (SBUX) posted revenues of more than $9 billion. Its revenues, net income, profit margin, and quick ratio improved for fiscal year 2007 as compared to fiscal year 2006. If the company performs well financially, then why does its stock trade at nearly half of its 52 week high?

The answer to what ails Starbuck’s is found not on the pages of the New York Times but on the company’s web site; specifically, the portion devoted to music sales.

Under new releases, customers can pick from Mary J. Bilge, Radiohead, Pavarotti, Frank Sinatra, and several compilations compact discs. At Blipverts, we know all these artists especially the compilations will receive positive reviews from NPR’s Fresh Air. Heck, we imagine these discs sit in the changer in many townhouses in Georgetown and Williamsburg. In other words, these artists sell well to customers over the age of 45.

Yes, not only is Starbuck’s for old people but Starbuck’s represent safety and tranquility. Its stores offer a safe haven from an increasingly unsettled world filled with doubt over the American economy and world stability. Why will anyone under the age of 30 choose to sit in such environment? Especially for $6 an hour interent access?

For this posting, we took field trips to four Starbuck’s. The only store that boasted a majority of under 30 year olds is located across the street from a college campus that boasts a student population in excess of 25,000. At the other three stores, the conversations were filled with stories of day care, dinner parties, and the rising cost of filling up the SUV. In other words, middle age people and their tales of woe.

Blipverts wishes Starbuck’s Howard Schultz the best of luck. May he prove better equipped for this task than he did for running the Seattle Sonics.

At Krispy Kreme (KKD), though, the task appears much easier compared to Starbuck’s.

Krispy Kreme’s stock trades closer to its 52 week low. Its net income improved for its last financial year but it remains negative. The other financial measures show a company in distress.

Its turnaround though represents a classic MBA case rather than Starbuck’s problem of old and getting older customers.

Krispy Kreme lacks any semblance of marketing. The company engages in no promotional activities. Their expansion strategy appears incoherent at best, and their relationship with current franchisor have to be among the worse in the fast food industry including Dairy Queen’s. Tim Horton’s, Canada’ premiere doughnut maker, has expanded into states along the Canadian border. And Krispy Kreme employees are in dire need of a morale boost.

How would we at Blipverts manage Krispy Kreme:
People

• Our salary will be $100,000 a year for five years. If we meet certain targets at the end of five years, then we get a $500,000 bonus. If we do not meet the targets, then no bonus.
• All current hourly employees receive a $2an hour raise because the front line employees remain our most visible asset. If our front line employees appear surely or miserably, then our customers will not return because of the poor experience.
• Starting hourly salaries go up by a $1. We have to attract and keep better front line employees.

Place

• No more selling Krispy Kreme doughnuts at non Krispy Kreme locations. We are selling the smell of doughnuts and coffee. You cannot smell the doughnuts at your local gas store.
• Close all stores west of Texas and north of the Mason-Dixon line. Krispy Kreme sells fried doughnuts. Southerners consider this a delicious meal. People outside the South consider this unhealthy.
• The less than compact franchise footprint forces Krispy Kreme to spend needlessly on transportation costs.
• Expansion will focus on areas with heavy commuter traffic and near college campuses because these locations represent where our target market gathers.

Product

• Improve the smell of the coffee. You cannot smell the coffee roasting in the store. You cannot sell what you do not smell!
• Streamline the menu because it offers too many selections. The menu must reflect Krispy Kreme’s simplicity, not complexity.
• To this end, drop the frozen coffee because it is inconsistent with Krispy Kreme’s message.
• Coffee must be fresh and hot. Flavored syrup shots are okay because of the mark up.
• Serve the coffee either in the mug for in store sales or a one-size to go cup.
• To-go cup must have a unique design like the those blue and white to go coffee cups found only in New York.
• No latte, macchiaotto, Americano, Italiano, or anything sounding Continental appears on the menu board. It is coffee; keep it simple.

Price

• Round numbers are a must because it looks better on the shortened menu board.
• Charge the same price for all types of doughnuts.
• Wireless internet access is free.

Promotion

• Give away all those t-shirts and ball caps that are not selling. Let our customers become our billboard.
• Discourage customers from taking the ceramic mug. Employees should shout at customers from behind the counter as they run out the store with the mug clutched in their hands.
• Buy billboards near our locations.
• Buy local television spots to highlight how we make our doughnuts.
• The spots must include music that evokes the Waltons, Newhart, and Northern Exposure. Nostalgia. Simplicity.
• Krispy Kreme might look into buying a license for the theme songs from one of those shows.
• Expand the music to 2:30 and post it as a free download on every site possible.
• In-store signage touts free internet access.
• Sprinkle flyers, and table tops throughout area business and colleges.
• All print material must tout the menu, free internet access, and the message, “Simplicity made easy”.
• Krispy Kreme’s slogan becomes, “simplicity made easy.”
• Conduct a mass mailing with a refrigerator magnet that includes the menu and the slogan, “simplicity made easy.”
• Cease promoting the fund raising scheme where charities buy and then resell the Krispy Kreme doughnuts.
• Instead, charities can buy doughnuts at a discount. Do not tout this feature. If someone inquires, then offer it. By continuing this practice, customers associate Krispy Kreme with band candy and band turkeys. Our product is not a turkey!

Next

• Meet all front line employees, store managers, and district managers by visiting every store.
• At these meetings ask everyone for ideas, comments, and, especially complaints.
• Create an internal web site where employees can check on their vacation days, time off, voice opinions, provide ideas, etc.
• We will blog about our experience. And, we will encourage all employees to contribute.

Competent management represents the cure for what ails Krispy Kreme. We are not sure how Starbuck’s can make itself young.