Recipe for growth

Store openings for Krispy Kreme Doughnut Corp. have become legendary. Hundreds of people wrap around city street corners, waiting in line through the night just to be among the first to sample one of the company's glazed treats.

The grand openings have helped Krispy Kreme evolve into a Wall Street darling since the 63-year-old chain went public last April. The Winston-Salem, N.C.-based company's stock has swelled as much as 295 percent since then, making it the second-most successful initial public offering last year, according to Bloomberg LLP in New York.

But it's going to take a lot more than 1950s-style shops and 20-plus products to help Krispy Kreme capitalize on its 5-year-old strategy of spreading its minibakeries beyond its Southern roots into major metropolitan markets such as Los Angeles and secondary markets such as Rochester, N.Y.

That's one reason why the company tapped CIO Frank Hood, a textile industry veteran, to reshape its IT strategy. Hood's approach to Web-enabling the firm's core business applications and allowing its 175 stores to communicate more effectively with headquarters is already beginning to yield dividends, according to senior management. "Frank helped us understand what the technology could do for our business," says Randy Casstevens, Krispy Kreme's senior vice president of corporate finance. "He's not an expert in accounting or finance, but he knows enough to determine what [tools] people need."

A New Mix

That's just what Hood and his 22-person IT team have been doing. Before Hood came on board in 1997, Krispy Kreme was entering new lines of business such as in-store bakeries and distributing its goods through convenience stores. At that time, the company relied on a hodgepodge of outdated IBM AS/400-based applications to support its operations.

But before Hood could develop and roll out Web-based systems to streamline order entry and allow franchisees to post weekly profit-and-loss statements, he had to do some housecleaning and recruiting to fine-tune his IT team. The recruiting effort came at the height of year 2000 project work, when large companies in the Winston-Salem area such as Wachovia Corp. and R.J. Reynolds Tobacco Co. were gobbling up IT professionals at a furious pace. But Krispy Kreme was able to lure many "entrepreneurial" IT professionals because it took a "greenfield approach" to Y2k and replaced nearly all of its critical systems, says Hood.

That appealed to many recruits because they wouldn't have to work on mind-numbing software conversion projects. Many new employees were also immediately given direct responsibility for cultivating new projects, such as the Krispy Kreme Information Exchange, an intranet-based system developed 18 months ago to give franchisees a "vertical view into Krispy Kreme's operations," says Hood.

The intranet allows franchisees to use thin clients to view financial results on a store-level basis as well as troubleshoot equipment problems with fryers or ovens using a multimedia application developed with Handshaw & Associates Inc., a computer-based training firm in nearby Charlotte, N.C.

One benefit of the computer-based training system is that the turnover rate for employees at quick-service restaurants is high compared with other industries, "so you have to make training and troubleshooting very easy, since you're constantly training a lot of people," says Hood.

Meanwhile, the company last month began piloting its Web-based order entry system. The system, which Hood says cost in the low six figures to develop, is expected by midyear to replace a fax-based approach that franchisees and company-owned stores have been using to order materials.

If there are any lingering concerns about Krispy Kreme's expansion strategy, "it might be that it's too slow," says Don Boroian, chairman of Francorp Inc., a franchise management consultancy in Olympia Fields, Ill. For example, the franchise has added three stores in Chicago since 1998, but it's so popular there "that they easily could have added 50," he says.

Still, it's unlikely that Krispy Kreme will make the same mistakes many retailers made in the 1980s and early 1990s when they overexpanded and the market went soft. "We feel very strongly about preserving our brand," says Hood. "There's so much dilution in the market, but, luckily, our consumers are people who love us and want more."

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