Marketing Week (MW): Krispy Kreme UK is a franchise of the US doughnut brand. How does the franchise run?
Judith Denby (JD): We are the same as any other Krispy Kreme in our global markets in that we have franchise rights and do not sub-franchise. Krispy Kreme Doughnuts in the States is the franchise holder and it allocates rights per country. We pay the US a royalty and they support us.
The US company owns the brand and are very protective about the articulation of it, so they own and manage things such as logos, brand name and trade marks. Beyond that, they have very little control over the business here.
They control the recipe, the doughnut mix and supply the equipment. Then we have the ability to tailor our doughnut range to the local market.
At the start, we had to import everything from the States, which just didn’t work on so many levels – commercially and in terms of the supply chain, it’s a nightmare. The ingredients legislation and regulation is different in this country, so we have invested a lot of time and effort in being able to source locally and at the same time not cross the proprietary boundaries.
MW: How are the expansion plans going and has the economic downturn had an effect?
JD: The plan is to open about ten stores a year and we have about three years left now on that plan, so there will be about 85 by 2014. Hopefully, we will open in two or three new areas this year, including Scotland, where we have initial planning permission for a site in Edinburgh and are seeking one in Glasgow, but it is a very convoluted process. We are desperate to go to Scotland and we get so many requests from consumers to go there.
If anything [in a downturn] we would probably accelerate [store openings] rather than cut back – although there aren’t plans to do that. We have spent a significant number of years perfecting our business model. We worked through one recession, slowed our growth and made sure we got our core business really healthy. Now we are sustaining growth and have the financial backing to do so.
MW: How do you collect data on your customers and how do you use it?
JD: We have 30,000 members on our Friends of Krispy Kreme database. We can tell people when we are doing new things or when we have news we can email them and drive them into stores.
Another route we are starting to explore is using members to generate insights. We ran some focus groups about a month ago and recruited solely from Friends of Krispy Kreme – whereas we usually use traditional recruitment methods using agencies. We mailed them a survey and from that, asked if they wanted to join a focus group. We had 5,000 responses, which is phenomenal.
People were happy to come into a store for two hours [for the focus groups]. We gave them a gift card and some doughnuts – and it didn’t cost us a pile of cash. They were probably the best groups I’ve ever run in terms of what we got out of them.
We showed them some work we’d been doing on our menu boards to make them clearer and easier to read, and we’ve now put the chosen boards in four of our stores and will roll that out.
Doing these groups made us see that we have 30,000 people wanting to talk to us, so we will look at creating a panel so we can track insights on how they behave with us over time and how they feel; or use it as a test bed for new products, for example.
MW: How do you use social media?
JD: It is really useful when we are launching stores in generating excitement. When we opened in Cardiff, we did about two weeks of sampling which was seeded through Facebook. We didn’t publicise where we were going and when by other means.
A couple of hours before we arrived somewhere, we’d post a picture to say ‘this is where we are going to be tomorrow’. Then we’d post when we were there and invite people to come and meet us.
The Cardiff shop had a queue of 1,000 people and that was all done through Facebook. So we do use social media but are selective. It has to fit with our overall marketing strategy and what we are trying to achieve.
MW: What else do you do in terms of marketing?
JD: Advertising is something we trialled last year and we have done two rounds of it now in central London, in Tube trains and on escalator panels in close proximity to our stores. This drove a 17% increase in footfall over the period it ran.
That was about reminding people about us and the creative linked with office scenarios. We will continue to invest in that [kind of advertising], but are nowhere near doing national TV or having huge above-the-line campaigns.
We also did an ‘office hero’ road show, the first time we’d ever done a branded experiential piece. We had a van with a giant doughnut on the top, going into office parks and meeting the PA or office manager, delivering some doughnuts and wall calendars with birthday stickers and a voucher to encourage people back into the stores. Also if people tweeted us while the van was in their area, we would come and do a drop to their office too.
MW: Can the Krispy Kreme brand ever move beyond doughnuts alone?
JD: Coffee makes up about 15% of our sales and from February we are going to start to communicate about it a lot more. We have a good coffee offer at the moment. It is ground and made in-store. We have some loyal coffee buyers, but we don’t do a great job of talking about it at the moment.
I don’t think we are ever going to set ourselves up to be direct competitors to Starbucks or Caffè Nero. We just don’t have the number of stores. They are experts in their arena and we are experts in doughnuts, but we have a great coffee offer too. The coffee blend has been developed for the UK and is roasted and distributed in London.
We have explored all sorts of alternatives, such as partnering with a well-known brand, but we came back to the idea that we know we do a good coffee.
Krispy Kreme – the real story
Krispy Kreme was founded in the US in 1937 and now has nearly 700 stores worldwide. It came to the UK in 2003, where it currently has 48 standalone outlets, and can be found in 400 Tesco stores. A management buyout last year changed the financing but not the running of the UK business, says Judith Denby, its chief marketing officer.
It plans to continue expanding, aiming for 85 UK stores by 2014. But as a brand that is all about treats or impulse and therefore only occasional purchases, Denby’s job is to keep reminding people that the brand exists.
“With any brand, especially a treat one, it is easy to just forget about it, so we need to work hard at talking to our customers and give them reasons to come in to us, even if it is only a couple of times a year,” says Denby. With competitors such as Starbucks, Greggs and Costa Coffee, it is a crowded market.
Krispy Kreme real-time reader responses
@Willr1: Where does Krispy Kreme see its place in society when obesity is at an all-time high?
JD: Clearly it is a very relevant and valid challenge for us as a nation. Most people are aware of it and there are lots of initiatives to try and raise awareness of that as an issue. We are well aware of that and we will do what we can to give people the information they need.
As a product and brand, we are about treats. On average, people visit us seven or eight times a year. We are not a meal replacement and will never try and be one or position ourselves as that. We have the nutritional content on our website and in store. Not everyone wants to see it on a menu board so that is not in our short-term thinking.
There are 217 calories in an original glazed doughnut, which probably isn’t as bad as some people might perceive.
We will continue working on the ingredients we use to make sure they are as good as they can be, so for example we have removed hydrogenated vegetable oil completely.
@FixedFeedUK: Have you thought about loyalty and reward schemes for customer acquisition and retention?
JD: We do a coffee loyalty scheme. If someone buys five coffees, they get the sixth free. We don’t currently do a doughnut loyalty scheme as there are other ways of giving customers value, such as our dozen boxes, which provide better value than buying single doughnuts.
Also, because our doughnuts are an occasional treat, I don’t know how effective a loyalty card would be.
@BeanstalkGroup: Have you ever considered licensing your brand, as it has great potential to extend?
JD: Yes we have, but we are not permitted to do much licensing within our franchise agreement. A better way is to have brand partnerships – the Glamour magazine partnership during London Fashion Week is an example [where pink and orange glazed doughnuts were made]. We had a big uplift in people visiting our stores.
We also had branded photo booths in shopping centres and people uploaded their pictures to Facebook with their doughnuts and we gave them an offer to drive them into stores.