Online Newsroom – Krispy Kreme Crisis

Presented by:

Sarah Black, Caitlin Brown, Kayla Loveday,

Tessa Manton, and Megan Sanders

Monday, November 2, 2009

 Online Crisis Newsroom
November 2009

Situation Analysis

One of Krispy Kremes strengths is the fact that they have been the premier seller

of doughnuts and coffee since 1937. The company offers many different varieties of

doughnuts as well as unique signature coffee roasts. They also have an intense focus on

shop-operation basics which improves the consumer experience as well as financial

results. Krispy Kreme is currently building on international franchise development

success and enhancing franchisee operational support domestically and internationally.

Krispy Kreme has distribution warehouses in North Carolina, Illinois and

California. From these three locations, 350,000 cases per week are shipped globally to

275-plus Krispy Kreme franchises and other grocery stores and convenience stores. The

company became international in 2002 and now has franchises in Canada, Mexico,

Puerto Rico, U.K., Turkey, Middle East, Malaysia, Korea, Japan, Philippians, Australia

and Indonesia.

Overexpansion and the lack of a coffee program have been factors in Krispy

Kremes dwindling sales. The company’s stock has dropped about 80% in the last year

and Krispy Kreme is facing bankruptcy. At present only seven franchises have been

terminated and Krispy Kreme is doing everything in their power to keep that number

where it is.

Krispy Kreme has many opportunities they intend to take advantage of. They are

currently developing, testing and deploying new menu offerings such as Kool Kreme, a

proprietary soft-serve ice cream that will be accompanied by toppings. In addition to

expanding their menu, they plan to enhance franchisee operational support domestically

and internationally to help their struggling franchises.

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Krispy Kremes biggest competitor right now is Dunkin Donuts followed by

Starbuck's. A common theme in these competitors is the pairing of quality coffee in

addition to the doughnuts. Hostess is another donut competitor that the Krispy Kreme

Company is dealing with. They are able to sell donuts by the box directly to consumers

for a low price.

PR Contacts

Brian K. Little
Director, Corporate Communications
Krispy Kreme Doughnuts, Inc.
P.O. Box 83
Winston-Salem, N.C. 27102
blittle@krispykreme.com

Ruthie Winig
Agency Communications
Mullen Advertising Agency
101 North Cherry Street
Winston-Salem, NC 27101
mailto:ruthie.winig@mullen.com

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November 2009

News Release

Krispy Kreme Doughnuts, Inc.

370 Knollwood St., Ste. 500
Winston-Salem, NC 27103
Public Relations Elite
Contact: Kayla Loveday
Phone: 904-540-1337

FOR IMMEDIATE RELEASE

THE HOLES IN KRISPY KREME

WINSTON-SALEM, N.C., Nov 1, 2009— Chief executive officer Scott

Livengood was ousted Tuesday as head of troubled Krispy Kreme Doughnuts Inc., which

has been under regulators’ scrutiny for its franchise buybacks and earnings outlooks and

is facing shareholder lawsuits.

The Winston-Salem Company’s board of directors said Livengood, a 28-year

doughnut maker veteran who has been criticized for his handling of the company’s recent

financial problems, would retire as a part of a series of important actions to address the

company’s current situation. He had been CEO since 1998 and was replaced by Stephen

Cooper, who was recently involved with the Enron Corp. bankruptcy reorganization.

Though Cooper was under fire as new acting CEO, he remained positive about the future

of the company. "We have a great product with our doughnuts and we want the public to

know we also have a great selection of coffee and other beverages,” Cooper said.

Earlier this month, the company said it was restating earnings for the last three

quarters of fiscal 2008. That came after allegations in a shareholder lawsuit that the

company padded shipments to hide declining sales over the last two years.

MORE

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In its SEC filing, the company said it continues reviewing other errors and

proposed adjustments that could result in the company’s new income for the year being

trimmed by as much as 7.6 percent.

Krispy Kreme is under a formal SEC investigation of its franchise buybacks and

earnings outlooks and is facing shareholder lawsuits. The once-high flying company

posted a $3 million third-quarter loss, its second losing quarter of 2008 and its stock has

dropped sharply to about a quarter of its 2007 value.

Krispy Kreme has closed a number of stores since May and is taking other steps

to address the company’s problems. Jim Morgan, CEO, plans on pacing the company and

abstain from growing too fast. “At this point I would be willing to be the tortoise not the

hare.”

Krispy Kreme is an international retailer of premium-quality sweet treats,

including its signature Original Glazed® doughnut. Headquartered in Winston-Salem,

N.C., the company has offered the highest-quality doughnuts and great-tasting coffee

since it was founded in 1937. Krispy Kreme is proud of its Fundraising program, which

for decades has helped non-profit organizations raise millions of dollars in needed funds.

Today, Krispy Kreme can be found in approximately 530 locations around the world.

Visit us at http://www.kaylaloveday.com/kayla/krispykreme.

END

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 Online Crisis Newsroom
November 2009

Background Information

Vernon Rudolph founded Krispy Kreme Doughnuts in 1933 when he and his

uncle purchased a secret yeast-rising doughnut recipe from a French chef in New

Orleans. The two men eagerly set up shop in Winston Salem North Carolina. Four years

later, on July 13, 1937, they sold their first doughnuts at a local grocery store. The

doughnuts quickly caught on and soon the public was demanding them hot out of the

fryer. As a quick solution, Rudolph cut a hole in his shop wall and discovered a great way

to sell his Hot Original Glazed doughnuts straight to consumers, the same way they do

today.

Throughout the 1950s, 29 Krispy Kreme shops opened in 12 other states,

however, Winston Salem still remained their headquarters. Due to the expansion,

Rudolph and his uncle built their own mix plant and distribution system.

The Krispy Kreme decor was standardized in 1960, with every store adorning a

green roof and redbrick interior. The stores are built with a window for customers to

watch the doughnuts being made. The neon "Hot Doughnuts" sign became iconic to the

Krispy Kreme experience. Rudolph died in 1973 and Beatrice Foods bought out Krispy

Kreme in 1976. The company was purchased back by a group of franchisees in 1982.

Krispy Kreme began rapid expansion in the 1990s. In 1996, they opened their first

franchise in New York City followed by the opening of their first store in California in

1999. Krispy Kreme then went international in 2004 by opening a franchise in Australia.

The company had always relied on word-of-mouth advertising, waiting until 2006 to turn

to radio and television.

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November 2009

Frequently Asked Questions

Why is Krispy Kreme going bankrupt?

As we all know in this time of economic crisis, consumers have to cut back their

spending. This being said Krispy Kreme has taken a hard hit financially. Overexpansion

and the lack of a coffee program have also been factors in the dwindling sales. These

issues are currently under analysis by the Krispy Kreme Company; they are optimistic

that these factors will successfully be corrected.

What does this mean for the shareholders?

Shareholders have felt the decline of the company more than our consumers. Although

the company’s stock has dropped about 80% in the last year, Krispy Kreme feels that

with re-modifications and improvements, there is nowhere to go but up. "We are not

satisfied with our financial results for the second quarter," said Jim Morgan, chairman,

president and CEO of Krispy Kreme.


What will happen to employee jobs?

Of course the last thing Krispy Kreme wants to do is eliminate job opportunities and

more importantly existing jobs. Every employee is a valued asset to the company.

Unfortunately, Krispy Kreme has been forced to make the executive decision to make

budget cuts. The employment situation is being handled very delicately on a case-to-case

basis.

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How many locations have already shut down?

At present, only seven franchises have been terminated. Krispy Kreme still proudly

serves 494 locations.

How much longer can Krispy Kreme last in their current state?

With no change, the future of Krispy Kreme looks unfortunate. In 2003, Krispy Kreme

traded as high as $48.90 but dropped throughout 2004 and fell as low as $4.40 in October

of 2005. Though numbers have plummeted, Krispy Kreme only sees great opportunity.

Since then there have been crucial changes in the company’s upper management as well

as implementation several other tactics that the company is sure will boost sales.

What do they need to bounce back?

Morgan also stated that, “Krispy Kreme must move forward on implementing our key

strategic initiatives in order to achieve the positive long-term results we believe are

possible."


• Building new, small retail concept shops in select markets to bring KK's signature

doughnuts "closer to consumers" and establish the economics of a domestic hub-and-

spoke model.

• Intense focus on shop-operation basics to improve the consumer experience and

financial results.

• Developing, testing and deploying new menu offerings to give consumers more

reasons to visit KK. One launch that KK considers to have particular promise is Kool

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Kreme, a proprietary soft-serve ice cream that will be accompanied by toppings bars

(including fresh fruit toppings), which is now being tested in select markets.

• Improving business practices in the off-premises channel, "which has particular

revenue and cost pressures."

• Building on international franchise development success, and enhancing franchisee

operational support domestically and internationally.

• Providing increased supply-chain support around the world and improving franchisee

service levels and economics.

Executive Biographies

Stephen F. Cooper began his career at Touche Ross & Co.,

New York City, 1968; helped establish its reorganization

advisory group; left c. 1987 to form bankruptcy advisory firm

with Frank Zolfo called Zolfo Cooper; firm became Kroll Zolfo

Cooper, 2002; also heads Catalyst Equity Partners, a venture

fund; has held various executive positions at major corporations, including vice chair and

chief restructuring officer of Laidlaw, Inc., 2000, interim chief executive officer of

Enron, 2002-04, and chief executive officer of Krispy Kreme Doughnuts, 2005.

James H. Morgan has been a director since July 2000 and was

elected Chairman of the Board of Directors in January 2005. On

January 6, 2008, Mr. Morgan was appointed as the Company's

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President and Chief Executive Officer. Mr. Morgan served as Vice Chairman of the

Board of Directors from March 2004 to January 2005. Since January 2001, Mr. Morgan

served as Chairman of Covenant Capital, LLC, an investment management firm, which is

the General Partner of The Morgan Crossroads Fund. As of January 2008, Mr. Morgan

has taken an inactive role in Covenant Capital, LLC and The Morgan Crossroads Fund.

Previously, Mr. Morgan served as a consultant for Wachovia Securities, Inc., a securities

and investment banking firm, from January 2000 to May 2001. From April 1999 to

December 1999, Mr. Morgan was Chairman and Chief Executive Officer of Wachovia

Securities, Inc. Mr. Morgan was employed by Interstate/Johnson Lane, an investment

banking and brokerage firm, from 1990 to 1999 in various capacities, including as

Chairman and Chief Executive Officer, and led the transition during the merger of

Interstate/Johnson Lane and Wachovia Corporation in 1999. Mr. Morgan currently serves

on the Board of Directors of Coca-Cola Bottling Co. Consolidated, the nation's second

largest Coca-Cola bottler.

Douglas R. Muir was appointed Executive Vice President and

Chief Financial Officer in June 2007. He joined Krispy Kreme

as Chief Accounting Officer in June 2005. Mr. Muir had been a

consultant to the Company since December 2004. From 1993 to

2004, he held various senior financial management positions

with Oakwood Homes Corporation, including Executive Vice President and Chief

Financial Officer. Prior to joining Oakwood Homes, he had a 17-year career at Price

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Waterhouse, including as an audit partner from 1988 to 1993. Mr. Muir is a certified

public accountant.

Kenneth J. Hudson has served as Senior Vice President of

Human Resources and Organizational Development since

February 2005. He joined Krispy Kreme in October 2003 as

Vice President of Human Resources. From January 2000 to

August 2003, Mr. Hudson was Vice President of Human

Resources at Lexington Home Brands. Prior to joining Lexington Home Brands, he had

general management experience in operations and human resources in various public and

privately-held companies, including Delta Airlines, Thomas Built Buses, Blessings

Corporation and General Electric Company. Through these different company

assignments, Mr. Hudson developed expertise in new business start-up in Europe and the

United States, and domestic and international mergers and acquisitions.

Steven A. Lineberger has served as Senior Vice President and

President of U.S. Store Operations since August 2007. He served

as Senior Vice President of Strategic Growth Initiatives from

February to August 2007. Mr. Lineberger joined Krispy Kreme

as Vice President of Brand Development in August 2006. Prior to

joining Krispy Kreme, he was Chief Operating Officer of First Presbyterian Church in

Winston-Salem, North Carolina from June 1999 to May 2006. Prior to that, he was a

senior executive at Sara Lee Corporation, where he worked for 17 years in various

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marketing and general executive management roles, leading highly integrated

manufacturing and supply chain operations across numerous facilities and multiple

countries, including as President and CEO of Sara Lee Casualwear and Footwear from

1994 to 1999.

Darryl R. Marsch has served as Senior Vice President, General

Counsel and Assistant Secretary since September 2008. Mr.

Marsch joined Krispy Kreme in May 2007 as Vice President

and Associate General Counsel. In January 2008, Mr. Marsch

was appointed to the additional office of Assistant Secretary.

Prior to that, Mr. Marsch was Senior Counsel for R.J. Reynolds Tobacco Company from

November 1998 to May 2007. From September 1991 to October 1998, Mr. Marsch was

an associate at the law firm of Jones Day in Washington, D.C.

M. Bradley Wall has served as Senior Vice President of Supply

Chain and Off-Premises Sales since April 2008. Prior to that,

Mr. Wall served as Senior Vice President Supply Chain from

February 2007 to April 2008, Vice President of Manufacturing

Operations from July 2005 to February 2007, Vice President of

Beverage Operations from February 2004 to July 2005 and Vice President of Business

Development from February 2003 to February 2004. Prior to that, he held various

management positions in our Business Development and Financial Planning and Analysis

Department. Mr. Wall joined Krispy Kreme in July 1995 as a systems analyst.

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Jeffrey B. Welch has served as Senior Vice President and

President of International Store Operations and Development

since August 2007. He joined the Company as Senior Vice

President of International and Development in April 2004. Prior

to that, he was Vice President of Real Estate International with

The Home Depot, Inc. from September 1999 to April 2004. From 1991 to 1999, Mr.

Welch held various positions with Yum! Brands, Inc., the most recent being Vice

President of Franchising and Business Development for Europe, Africa and the Middle

East.

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Product Information

Krispy Kreme has been the premier seller of

doughnuts and coffee since 1937. They offer

many different varieties of doughnuts including:

original glazed, glazed cinnamon, chocolate iced

glazed, chocolate iced glazed with sprinkles,

chocolate iced glazed kreme filled, dulce de

leche, chocolate iced custard filled, glazed

raspberry filled, glazed lemon filled, glazed

cruller, maple iced glazed, sugar, cinnamon bun, cinnamon twist, cinnamon apple filled,

glazed kreme filled, powdered strawberry filled, traditional cake, chocolate iced cake,

chocolate iced glazed cruller, powdered cake, chocolate glazed cake, glazed blueberry,

glazed sour cream, apple fritter, New York cheesecake, and caramel crème crunch.

In addition, Krispy Kreme offers four unique signature coffee

roasts. Also, they have the kaffe kreme, mocha, cappuccino, and

latte espresso drinks. They also have Krispy Kreme Chillers

including creamy flavors (berries and kreme, oranges and kreme,

lemon sherbert, chocolate chocolate, mocha dream, and lotta latte) and fruity flavors like

orange you glad and very berry.

Krispy Kreme also sells many merchandise products such as T-Shirts, coffee mugs, gift

cards, toys and even hats.

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 Please click on the image below
to visit the Krispy Kreme
Crisis Online Newsroom

This is a mock-up web site demonstrating my

design skills in both Adobe Photoshop and
Adobe Dreamweaver.

This fictitious site exhibits the elements I would

include in an actual online newsroom
during a crisis situation.