Start Up Blog

Why Krispy Kreme failed in Australia

Posted in entrepreneurship by Steve Sammartino on November 3, 2010

No doubt you’ve heard the news about Krispy Kreme going into administration in Australia. Many people seemed surprised at the news given it was a such a successful launch. But when we look a little closer it’s pretty clear why they failed. They broke a few simple retail rules which are worth considering.

Why Krispy Kreme failed:

Firstly, they failed to understand that in this country they needed to operate as a specialty retailer. Instead they opened 50 stores in a few short years. When Krispy Kreme first opened their doors in this country (Sydney) it was a real treat and the store became a destination outlet. People would travel many miles to the store to buy a dozen doughnuts. You’d even see people returning on airplanes at Melbourne airport with big bags of Krispy Kreme doughnuts. It suggested that Kripsy Kreme had a strong novelty value in Australia. But it can be very misleading when people from wide spread geographies come you as a retailer of non essential items. Contrary to what the ‘spreadsheet’ might intimate, it’s rarely a good idea to take your retail offer to where they live.

To give you some perspective of the expansion folly, let’s consider this:

USA has 224 store serving population of 311 million. (1 store per 1.4m people)

Australia had 50 stores serving a population of 21 million. (1 store per 420K people)

The numbers are mind blowing and it doesn’t even take into account our vastly different food cultures.

The expansion was far too wide far too quick, and KK didn’t allow enough time to understand what their sustained demand would be prior to expansion. No doubt the temptation to expand rapidly during growth would be tempting, but sometimes the best decision we can make is to limit distribution and keep the brand exclusive.

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  1. Ailsa Page said, on November 4, 2010 at 6:57 am

    Great point. I also think that there are some real climate issues that make a difference in Australia. I have travelled extensively in North America and with the cold you want more sweet. I think in the heat of Australia (although currently not in Melbourne today) we crave more savoury and salty. I don’t believe that was taken into consideration either. I’m not suggesting though, that if Krispy Kreme became Salty Dimmies that they would have been successful either!

    • D.B said, on August 20, 2013 at 9:35 am

      Disagree, the climate changes all the time in Australia with the different seasons, especially in the tropics.
      It’s not just seering heat 24/7 all around the country.

  2. charles said, on November 4, 2010 at 9:58 am

    I certainly agree with your points – I remember stories of Melburnian’s flying exclusively to the KK at Sydney Airport to get their fix. However what I was surprised you didn’t take in to account was the growing health movement in Australia. When KK opened in Australia in the early noughties there was certainly a concern for obesity and good nutrition but not to the extent it is now. These days there is a plethora of low-fat/ fat-free, organic, gluten-free, nut-free, taste-free foods available along with takeaway chains exploiting this concern… Grill’d, Boost, Sumo Salad (who in fact hi-jacked a KK store opening) to name a few. Along with offering healthier alternatives the presence of these foods and brands serves as a constant reminder to the consumer that there are nutritious options available and choosing KK as a regular snack option is no longer justifiable. It certainly should have remained a specialty item.

  3. Doughnut woes said, on November 4, 2010 at 11:16 am

    [...] Sammartino posted a good analysis on Start-up Blog, making the point that Krispy Kreme were successful as a speciality retailer when then first opened [...]

  4. Josh Moore said, on November 4, 2010 at 11:47 am

    Another point of interest came from one of my lecturers at uni. He said that in Australia we tend to buy donuts from a donut outlet one or two at a time, as opposed to a dozen or two dozen at a time that Krispy Kreme is known for. As a result, their sales are likely to not have been as high as they had anticipated.

    Very interesting, especially within the franchising communities I am involved with.

  5. stupid_fish said, on November 4, 2010 at 2:01 pm

    I believe that there are multiple reasons why Krispy Kreme failed. They all seem to point to the brand not knowing their audience. They seem to have assumed that because a certain model works in the US, it will work in Australia as well. That is clearly not the case.

  6. Pauline Harvey said, on November 5, 2010 at 8:48 am

    They were just too expensive. Simple.

  7. Andre Sammartino said, on November 5, 2010 at 9:54 am

    That’s stats on store numbers would seem to indicate that the failure of the firm has less to do with the donut recipe and more to do with the franchising model.

    For a land with reportedly the highest franchising rates in the world, we really do seem to have a lot underskilled participants in what are too often Ponzi schemes (repeat same story in Australia for Baskins and Robbins, Starbucks etc)…

    For several years the revenue for the master franchiser here would have come principally from new franchise sign-ups, but this was clearlyan unsustainable source of income.

  8. Rob Smallwood said, on November 8, 2010 at 11:41 am

    Great blog mate. Very useful info and topics.

    I grew up 25km from the KK Head Office in the USA in the 60s.

    On Sunday morning my dad would usually treat the family to a dozen KK doughnuts (2 each) They cost 5c each, so a dozen was well under a dollar–a great way to make the whole family happy and not blow the family budget. Back then, no one ate doughnuts during the week that I can recall. (Hence, hardly any obese people in America then either!)

    When KK came to Oz, I dropped in. After the initial gasp at seeing the price of a single plain glazed doughnut of something like $3.50, I bought it anyway, purely for the nostalgia. Yep, it tasted just like the original ones, but I was offended at being asked to pay that obscene price for a small chunk of deep-fried bread dough with a coating of plain sugar syrup that would have cost a fraction of a cent to make. And there was nothing particularly special about it. It was a brief moment of nostalgic fun, but I never went back after that day.

    Unlike something like coffee, for most people, doughnuts are a ‘reward’ product (“I’ve been good, so I’ll treat myself”), bought only infrequently. But again, unlike coffee, no one except an idiot eats doughnuts every day. For KK to have expected this to be otherwise is just poor business strategy at best, and at worst it’s a blatant case of corporate social irresponsibility.

    KK tried to become a MacDonalds– making consumption of an undifferentiated chunk of deep-fried bread into a daily affair in a world trying to fight obesity and striving toward healthier foods. Unsustainable.

    As you pointed out, the only thing KK had going for it was the aura of the exclusivity of the brand when there were few outlets and great distances between them. Once they became ubiquitous, the glamour and intrigue was destroyed and so was the willingness of customer to pay a premium price for it. People will always want most that which is not easy to obtain. If it’s hard to get they’ll pay more for it. When there’s one on every corner, they lose interest.

    It still astounds me how many corporations the world over, with virtually unlimited resources at their disposal to formulate strategy and deploy their business models, still ignore the most basic marketing principles and make such fundamentally poor decisions.

    And the worst part is, this same mistake has been made so many times before by others that KK probably won’t even warrant a mention in a Harvard Business School Case Study.

  9. Russo said, on November 8, 2010 at 8:28 pm

    With two stores there was novelty value Amazing how greedy they got thinking they could open fifty stores rip people off at over 3.50 for one donut and blackmailing them into dozens. I loved the two stores driving for hours to get there and spread the word , the writing was on the wall when they started to advertise milk shakes. Core business is key you idiots

  10. Robert Jordan Entrepreneur Ideas said, on November 12, 2010 at 3:25 am

    Krispy Kreme made the same kind of rapid expansion mistake here in Chicago and its outlying suburbs. I can remember 10 years ago, a Krispy Kreme store was hard to find. You would have to drive FAR out of your way and hope that when you got there the “Hot Now” sign was lit up. We were crazy about Krispy Kremes. Then, all of a sudden, Krispy Kremes were opening left and right in the Chicagoland area. We were ecstatic at first. I went at least once a week for my donut fix. But not too long after the stores opened, they weren’t busy anymore. They were like ghost towns. I suppose the novelty wore off (personally, I stopped going because I ate too many and lost my taste for them). As quickly as they all opened, many of them closed. Now in my area (where I could think of at least 5 locations) there is only one. The closest Krispy Kreme after that is 35 miles away.

  11. Patricia said, on September 27, 2011 at 9:46 am

    My theory on why KK has failed is more grass roots. I can walk into any Westfield shopping centre right now, find a doughnut shop and get hot fresh made dougnuts there and then. With Krispy Kreme increasingly I was finding after driving for miles to their store, they were not making hot doughnuts so it was a waste of time. It got to the point that myself and all my friends just stop going. If they couldn’t give us the one thing that set them apart from any 2 cent doughnut shop with a small machine to make them, then they were a joke, and thats exactly what they became. You can fancy it up and give all the business/financial theories you like. If you don’t give your customers what they want your going down, no matter how much money you have,

  12. Graham said, on August 7, 2012 at 6:16 pm

    The issue here is that they must beleive that Australians are stupid. In the US you can buy a dozen donuts for $8. Why on earth they think we should pay over $20 for a dozen is the stupidity.

    I alsi used to buy Mr Donut donuts at 7 11. They where $1.50 each, Then Krispy Kreme did a deal with them and booted Mr Donut out and the price changed to $3.50.

    I stopped buying them. I refuse to get ripped off and doubly refuse to see and Australian owned company strong armed by a US franchise.

    Take your Donuts and buzz off back to the USA if you think you can rip Aussies off !!!!!!!! We are NOT a stupid people you can MILK.

    • ilovefood said, on May 1, 2013 at 1:03 pm

      agreed. we should support Aussie local businesses! :)

    • Sun said, on May 31, 2013 at 4:51 pm

      It looks like you are mate. You are even making a mistake in grammar.

  13. melissa gray said, on September 11, 2012 at 6:45 pm

    Krispy kremes is the best thing that happened to this country in a very long time. Admin can pull their heads outta their backsides and open more outlets.

  14. JD Ember said, on January 29, 2013 at 6:33 pm

    What most of you people fail to see is anything beyond your own point of view.

    Firstly, “Krispy Kreme” (not Krispy Kremes) make a yeast raised donut that is often glazed and at first had many unique fillings. Generally donuts on Australia are a “cake donut” usually cinnamon, jam filled, iced or some combination. There is no comparison between any major donut company in Australia and Krispy Kreme.

    Secondly, if you look at pricing in America everything is a fraction of the price that it is in Australia because we have higher salaries and business pay higher taxes. They donuts were priced at what is financially viable.

    I 100% agree that they expanded to far to quickly which is why that survive the way they do now.

    One of the biggest problems was the brand identity. Only people who’d travelled to the US or people who had heard about them from others were excited. The average Australian did not care.

    I am also sick of this attitude about “US predator franchises” coming into Australia. We live in a free market capitalist society. That’s the way it works. We do it because it is GOOD for the consumer to have competition and variety.

    I also don’t buy the health movement argument because people are always going to eat crap. By the same token shouldn’t McDonalds, KFC, Hungry Jacks, Red Rooster etc all start to fail?

  15. www.talksalt.com said, on February 5, 2013 at 1:39 pm

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  16. Craig said, on February 16, 2013 at 10:17 am

    Krispe Kreme has a Taste and texture Familiar to North American Taste Pallets for example, Their Sugar and confectionary has a different Taste. When American Food Chains come to Australia , they tend to try to change as little as posible to operate. Some things they do include, Subway- No Butter or Beetroot, Burger King (Hungry Jacks) Ranch dressing Krispe Kreme- covering Yeast Dounuts with a Thin Glaze made from American Sugar.

  17. Deborah said, on September 26, 2013 at 1:05 pm

    I’m an avid fan of the KK donuts, however i do agree the increase prices here for a select dozen isn’t worth the time and day. They should target to a more approachable audience here and not rely on the brand name to think it will market so well here. I feel the prices at 7/11 at this point in time are ridiculed and disgusting.


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