ANALYSIS: Client Profile - Word of mouth tastes pretty sweet toKrispy Kreme

Krispy Kreme may be the doughnut of choice for the likes of Madonna

and John Travolta, but star power has never been part of the company's

PR strategy. The idea's always been to let the product speak for itself.

Jim Edwards reports.



Until about four years ago, Krispy Kreme's PR operations were stuck in a

time warp. For the past 63 years, the company had survived and prospered

mainly on word of mouth. More recently, however, the company has

experienced a modernization of its tactics.



Asked to cite an example of the main thrust of its PR efforts, Krispy

Kreme SVP of marketing Stan Parker says, "We may show up (as sponsors)

in a high school football game program or a high school annual."



In fact, the majority of Krispy Kreme's PR efforts have been activities

that are considered afterthoughts at other companies. Among Krispy

Kreme's programs is a good grades program in which kids can bring in

report cards and be rewarded with free doughnuts. The company also gives

cheap doughnuts to local charities so they can be sold to raise money.

Oh, and another communications tool: making sure the neon "Hot Doughnuts

Now" sign is turned on when the product is ready.



The company started in the South, and has only recently expanded into

new territories. Transplanted southerners, business travelers, and

people who go south for vacations have all flocked back to the place

that has provided them with sweet memories. Until recently, that

migration of former customers had been the main medium through which

Krispy Kreme has gotten the word out. "The doughnuts sell themselves,"

Parker says.



But this is a company that in the last two years has gone public, opened

its first foreign store (in Canada), and plans to build another 40

stores in 2002. It currently operates 190 stores in 31 states. Its

accelerated growth is ushering in a period of increased PR activity and,

arguably, a modest modernization of the way that Krispy Kreme handles

its messaging.



The first noticeable change was the hiring of New York-based agency

LaForce & Stevens in 1997. Krispy Kreme had never used a national PR

agency before.



Much of LaForce & Stevens' work has been the handling of routine company

announcements and the release of quarterly earnings reports. But the

agency has also spent time formalizing the way Krispy Kreme handles its

outside relationships and resources.



For instance, in advance of every store opening, Krispy Kreme hires a

small local agency - usually a two- or three-person outfit - to assist

with media duties. LaForce & Stevens is involved in the selection

process.



The agency also has the responsibility of maintaining relationships with

influential Krispy Kreme eaters, such as John Travolta, Susan Sarandon,

and Tim Robbins. It's not something the company shouts from the rooftops

- word of mouth is still the preferred method - but partner James

LaForce says boxes of doughnuts were delivered backstage at stops on

Madonna's recent concert tour.



As if the smell weren't enough ...



One of Krispy Kreme's attention-getting methods is to tie the opening of

a new store with a local celebrity or cultural institution. For last

year's debut in Austin, TX, "we were active in supplying doughnuts to

the Bush campaign base," LaForce says.



Doughnut delivery can be a delicate business, however. "We would never

just throw doughnuts at someone without a previous conversation,"

LaForce says. As the company expands farther afield, delivering

doughnuts for publicity reasons becomes less practical. Part of Krispy

Kreme's charm is selling the product hot from the kitchen. When stores

opened in Los Angeles and Houston, the doughnuts were baked in Las Vegas

and driven overnight to local media the next day - not ideal. "We

couldn't get the product made fast enough and warm enough into a truck

and deliver to that new market," LaForce says. "They're very fragile,

and they're delicious anytime, but they're kind of extraordinary in the

first few hours after they've come off the hotline." This is no trivial

matter at Krispy Kreme. "Hot Doughnuts Now" is a key part of the brand's

equity.



A potentially sticky situation



It presents a particular problem as the company considers opening in

Europe or Asia, where it will be impossible to ship hot doughnuts to the

media ahead of time. "They might get production facilities set up long

before they open the store. That's what I'll recommend we do. It's no

fun talking about it unless we can give them a doughnut at the same

moment," says LaForce.



Foreign expansion raises another sticky question about Krispy Kreme's

word-of-mouth strategy. The brand is advancing into countries where

there isn't any previous knowledge of doughnuts. But both Parker and

LaForce are confident that the simple act of giving away doughnuts will

have the same effect in London as it has in North Carolina. "The world

has become a smaller and smaller place, and I have a feeling that most

of the people that we would initially be going after would have tried

the product in New York or LA," LaForce believes.



Krispy Kreme is having to address audiences it never gave a second

thought to in prior decades, most notably the investment community.

Krispy Kreme got a double shot of publicity by opening on the NASDAQ in

April 2000, and then moving its stock to the more robust NYSE in May of

this year.



At the kickoff event, Krispy Kreme CEO Scott Livengood and NYSE chairman

Richard Grasso were joined by Rev. Jesse Jackson. "We set up on Wall

Street right in front of the New York Stock Exchange. We gave away about

40,000 hot doughnuts and 70,000 cups of coffee. That was a nice one,"

Parker says. Livengood also appeared on CNNfn and CNBC to offer hosts

Rhonda Schaffler and Maria Bartiromo each an original hot glazed.



Is this the new Krispy Kreme? "Certainly our pace has quickened," Parker

admits. "We're becoming more intentional for sure, but the culture of

the company and the values that we had before the IPO are the same."



Krispy Kreme already operates from a position of strength. Most people

already have positive feelings toward dough, sugar, jelly, and

chocolate.



Parker can actually prove this. "We just completed a survey of 20,000

people," he says. "Intuitively, we felt like our customers were

everyone, everywhere. And what we got back was exactly that." The survey

measured approval rates across seven different demographic groups. Not

surprisingly, "the bar charts were all about the same height." In short,

doughnuts have no enemies.



That is reflected on the balance sheet. In the first six months of this

year, Krispy Kreme reported a sales increase of 34.9% from $211.1

million in the same period of last year to $284.7 million this

year. Net income claimed was $11.6 million, compared to $6.6 million in 2000.



As far as Parker is concerned, his main problem has been the one that

has plagued the brand since the beginning: "Not everyone knows that when

that neon sign comes on we have hot doughnuts," he says. "Often they

think the sign is just for decoration, but it's not always on."



KRISPY KREME

SVP, marketing: Stan Parker

Outside agencies: LaForce & Stevens, New York; various local agencies

hired on a project basis to support individual store openings

Budget: $98,000 was spent on advertising last year



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