[DesertCat]

It's a nice promotion. I don't think it's meaningful.

They will be unable to file their quarterly, so that means they'll file a NT-10Q in a couple weeks. They should give a sales and liquidity update. Predictions are sales in the $100M range (down almost half from the 2004 peak of $185m per quarter) and that they are out of available credit. It looks like they won't be getting the money owed them by KKD Australia, or are able to sell KKD UK, so I'm expecting things are desperate.

Their franchisees are desperate. Their second largest, the SoCal franchisee, is trying to find an investor to keep his business alive. Here's his interesting account from his blog on how KKD "helped" the effort.

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What Me Worry?

A homily.

Imagine for a moment that you're a Krispy Kreme Area Developer from somewhere on the planet. You've developed many stores, but in the last two years, sales have suffered and you are holding on by a thread. But you are determined to restructure your business and survive and, after a seemingly endless search, you come upon a funding source, Prospective New Partner.

On PNP's due diligence list is a meeting with top execs of Krispy Kreme. You arrange it. The three parties gather around the doughnut shaped conference table, the one you used to sit at when Tate and Livengood were on the other hemisphere. (Isn't that the opposite side of a round table? I guess only if it's a globe.) The new execs exchange mild pleasantries, and then one launches into an explanation of why performance has been so poor. This starts with a bit of a tap dance, and then reaches a crescendo with what's really gone on: Operator Bungling!! Not satisfied with a passing reference, this exec drones on and on about it. Not with facts and figures (especially about you, since he's not shopped your stores), but with his insightful observations that PNP might think was you.

Now you're considering leaping across the equator to choke him, but that might give credance to what he's saying. So you simply pipe up with a passing reference to the negative publicity, lack of marketing, and the like. The other exec adds some smarmy comments about you and your team. What joy! You point out that same store sales have bottomed and move on and out the door. How much damage has been done? Is PNP about to take a pass? How much back-filling is needed. You can't truly bag on these execs, knowing that PNP is counting on national leadership. What to do?

The point of this fable should be clear: KKD management refuses to accept responsibility for what's happened.

Can anyone seriously buy this? Can you, my hypothetical Area Developer brother or sister, in all candor, accept all that responsibility or blame your ops team for the dive in same store sales over the last two years?

To what degree did franchisees participate in the charade about Atkins? Are we as operators responsible for the negative publicity about misstated financials? About SEC investigations? (You see any SEC investigators doing mystery shopping?) About now impaired franchisee-insider buybacks? Which of us operators overlooked national marketing? Which of us forgot to introduce new retail or wholesale products? Who created the poor POP materials? Who let the dog eat the marketing research?

To be sure, we could all improve operations and the management team can help us. Great Circle doubles mystery shopping and continues to train and re-train operations personnel. We've received very high grades from KKD in store operations, but if there is anything we should be doing better, hey, tell us what it is and we'll improve.

But to tell PNP that KK's woes are attributable to bungled operations? Set aside the obvious question of jeapordizing a potential source to make a franchisee healthy. Set aside the possible malevolent intent. Set aside the principle of it all. When you don't recognize your own contribution to the problem, you're not going to find the solution. Until KKD accepts responsibility for what has happened, it will continue to be a source of poor results.


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