Re: [CANSLIM] KKD - Amazing

From: Davellil5@aol.com
Subject: Re: [CANSLIM] KKD - Amazing
Date: Sun, 2 Feb 2003 10:56:37 EST

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Gene,  Here's some info on KKD.

I was for several years with Doughnut Corporation of America (later 
diversified as DCA Food Industries).  They made most of the donut machinery 
and prepared donut flour mixes used by donut franchises and wholesale donut 
bakeries as well.

There are two kinds of donuts, cake donuts (leavened with baking powder) and 
yeast-raised (YR) donuts.  Cake donuts were always adaptable to wholesale 
manufacture and distribution through supermarkets because they could be 
packed in moisture-retaining cartons without serious risk of the white sugar 
coating melting off -- which gave them a week of shelf-life.  That was not so 
for YR donuts because the glaze coating would melt off in moisture-retaining 
cartons within 24 hours.  So, YR donuts were not regarded as suitable for 
supermarket distribution.  They were mainly restricted to sale in donut 
shops, where they were dispayed in the open, and consumed a few hours after 
glazing.

Since YR donuts were mainly favored down South, Krispy Kreme was for many 
years mainly a Southern franchise.  But, somewhere along the way, they 
figured out how to get 3-4 days of attractive shelf life out of packaged YR 
donuts.  For years, the donut industry had failed in all attempts to do that 
by formulation changes in the donut or the glaze.  I suspect that KKD has 
found a partially moisture-retentive packaging material to effect a 
compromise between premature drying-out of the donut and melting of the glaze 
- -- helped by formulation change.  Just a guess.

Whatever -- 3-4 days of shelf life made it possible to sell packaged YR 
donuts thru supermarkets, especially by displaying them on racks near the 
checkout counter, where fast turn-over would occur.  This kind of 
distribution educated consumers about YR donuts and promoted business in KK 
stores, where the YR donuts would be even fresher.   This opened the door for 
KKD to expand the franchise up North, which their management had the courage 
to do.  Thus a sudden rapid-growth of a stodgy business, stock-market fervor, 
sky-rocketing stock-price and, then, the inevitable descent to reality with 
profit-taking.  Truly, an old Company that became a New America Company for 
awhile by finding a new way of being in an old business.

Now, they're hoping to regain rapid growth by going into the bread business.  
Maybe they'll be smart enough to make it fly.  Maybe by marrying their breads 
with the donuts near the checkout counter -- if the supermarkets will permit 
that.   Good luck!! 

Gene, you didn't know what you were getting into when you broached KKD, but I 
just happen to have been QC Director of a major supplier to their kind of 
business.

I'll bet that -- among all of us CANSLIM-er's, there are individuals with 
expert knowledge of almost every business.  I wish more of us would 
contribute such knowledge when stocks in their fields come up on the CANSLIM 
radar screen.  It would add to our evaluation of investment opportunities.

Dave 



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