Mmmmmm, Diminishing Returns

It appears that Krispy Kreme's approach to growth still continues to backfire.

Krispy Kreme Doughnuts Inc. shares dived as much as 15% Monday after the retailer said that it purchased equity it didn't already own in a Philadelphia franchisee that had filed for bankruptcy protection and owed the company $24.1 million.

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The company has faced a number of heady issues in the last year, including an SEC investigation into accounting issues related to franchise purchases.

In January, Krispy Kreme forced out Chief Executive Scott Livengood and other senior managers. Cooper, a restructuring artist from Kroll Zolfo Cooper, was retained to clean up the financial issues and put the doughnut maker back on track.

Meanwhile, the company has been facing a number of lawsuits from both shareholders and franchisees.

Krispy Kreme is going to go down in business history as the ultimate example of how to achieve diminishing returns in record time. Krispy Kreme has been analyzed to death. There's no need in talking about the mismanagement, accounting screw-ups, and the overall growth-with-no-direction strategy. So I'll talk about it from the everyman point of view.

If the Krispy Kreme executives would have stepped out of their ivory towers and actually visited some stores, maybe wearing some jeans and a concert t-shirt, they would found early on a cult-like following. I remember standing in line waiting for a hot, fresh, luscious, pillowy circle of delight. One guy I didn't know started talking to me about how he'd drove over an hour to get some Krispy Kreme since there was none where he was.

Jump ahead in the future five years. I can now buy Krispy Kreme at a freakin' gas station. A gas station? Come on! They have them at Target and Krogers. That's just covered in wrong. What once was a special product that people would seek out for the sheer near-sexual pleasure is now as ubiquitous as ballpoint pens.

Didn't these guys go to business school? They had the ultimate in a controlled supply and demand product. They could have throttled back the supply and rode the sugary wave of success for decades.

I knew it was over when the other day, one of my old coworkers, who used to share the Krispy Kreme love with me like some kind of drug, kind of shrugged off Krispy Kreme as nothing special.

Sadly, there can be too much of a good thing–even doughnuts.

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