I think you nailed it. I think the entire fast food fun food thing is way overdone here and due for involuntary scaling back, but I've thought that for years.
Population density in MT is probably the lowest in the nation (including Alaska, keeping in mind that the interior of Alaska goes almost unused so the density congregates on the coast). But Missoula-Kalispell-Hamilton are growing rapidly, and much of the state lives here. It's too much sometimes. We've got a Starbucks stand-alone about three miles from our store, and another going in across the street. The Safeway and Albertsons store that we compete directly with each have Starbucks in their stores. I don't bother to keep track anymore, but here a Starbucks, there a Starbucks, everywhere a Barstucks. So I think it's time for a pause, at least. (I also think it's time for the economy in general to take a breather, and I'm now more in cash than for years, if you count my BRK. A recession will be hardest on the "marginal" outfits, ay?)
My nightmare is that the across-the-street Big Daddy Warbucks will turn out to be a KKD, or somehow wrap them into their operation soon!
But like I said, I do cultivate a certain paranoia.
I agree, the big issue is that the production equipment is oversized and overpriced. (Also agree that they're likely gouging the franchisees on pricing, both for the equipment and the doughnut mix.) They've talked about a lower capacity unit on a smaller store footprint for half the cost. But I don't think half-sized equipment translates into half cost. And if you go to a half sized store, that's half the seating capacity and half the parking lot, which limits their selling capacity of hot doughnuts at peak selling period.
I don't think you have to worry about a Krispy Kreme opening in Montana unless they're already have a lease obligation they can't get out of. It doesn't seem like there would be enough population density there to make the KKD model work.
Well Hello, Mungerian. Didn't know you were active here.
I'll buy your argument that production capacity and overhead are too high- except when they aren't. They have stores doing amazing volume (don't ask me to name them, I can't) and for them it works out.
But they must also have a lot of stores where your point is true. There's two reasons for that. The first is that they have to buy too much production capacity (machines only made in certain size), and the second is that they have to pay too much for it. Then they have to turn around and pay exhorbitantly for their mix and their packaging.
In short, it's my (fairly uninformed) opinion that the company hosed the franchisees pretty regularly. Overmilked the cows, or just turned the franchisees into serfs?
But your point about contradicting themselves is very well made. Well said, and thanks.
<I actually think they make a decent glazed donut, and getting people to go out of their way to eat them very fresh is very, very smart.>
I disagree with you. Their production capacity and overhead are too high and the dayparts for doughnuts are too limited to survive selling primarily hot doughnuts out of retail locations. And by talking about how great they are fresh KKD helped convince people they're inferior products when they're not fresh, which is the way they have to sell most of them to be economically viable. I think "Hot Now" helped create the hype that allowed the McAleers and Scotty to cash in but went a long way toward destroying their brand.
All too true. It's real easy to make nothing in this business!
I need to make it clear: I'm not a businessman, I'm a baker. I go to work, run a mixer, work the bench, wash pans, work the oven, give direction, scrape the floor, teach an apprentice, unload the freight, order the freight. So while my observations have the benefit of experience they are also very limited.
I don't want to give the impression that I think KKD has a healthy future. I think they're a sick company with real "integrity issues" and I don't own them in any form. (Not short, either.) But there are times when the margin cost thingy makes it reasonable to overproduce within reason. That's all.
What I do own is mostly BRK, MRK, PFE, NUE, USG, GPC. Some good, some bad.
>>Have you looked at Krispy Kreme factory stores in operation? It looks to us nonprofessionals like they are inefficient in their use of labor, especially when running way below capacity (as seems to be the case most of the time). Any comments?<<
My branch of the profession is that I'm a baker in a grocery store- not really the same business, and I'm a tradesman more than a businessman.
That said, I've been in the trade since 1964, have seen a lot of changes, and have some overall familiarity.
The only KK I saw in operation was in the Berkeley, CA area; not sure which particular town. They seemed busy and well run labor wise, in that they had enough help but everyone was busy. I doubt they pay very well, but I don't really know. I know that when they advertised for help here they mentioned a 24/7 concept, and that's ridiculous in this market, IMO.
My company competes directly with them in our Spokane, WA market and I haven't heard any real concerns there. But I cultivate a little healthy paranoia!
Thanks for the observation re the Montana ops- they are L&L (Lincoln Spoor) as you said. I hate to wish anyone ill, but it'd be OK with me if they were to fold tomorrow ...
I actually think they make a decent glazed donut, and getting people to go out of their way to eat them very fresh is very, very smart. But I don't think they can expect much in the consignment type markets- partly because they aren't fresh anymore, and partly because there's lots of other things to compete with.
Your line of thought is good however you are not adding all of the variable expenses. Cost of Goods is one thing but Utilities and Labor make a a huge part of the cost of donuts. Maybe as high as 60%. If you buy back 40% of you product, you make nothing.