Krispy Kreme's Essential Ingredient

By Edward Cone Print this article Print

The doughnut-maker and -franchiser doesn't spend a penny more than it needs to on technology. Its frugality hasn't held back its growth.

The opening of the first Krispy Kreme doughnut shop in a new market has become something of a pop-culture event. In October, it was New England's turn, as people slept outside and lined up in the dark at a Krispy Kreme in Newington, Conn. Earlier this year, the Minneapolis Star-Tribune assigned four reporters to cover the chain's local debut. PDF Download

The one place Krispy Kreme's rapid expansion doesn't draw a crowd is at corporate headquarters in a nondescript office park in Winston-Salem, N.C. The company has grown from 100 stores in 1999 to 249 stores in 2002, but has only added 14 information technology workers in that time (total tech head count is now 26). And while companies in the restaurant industry tend not to spend much on information technology—the industry average is just 0.78% of revenues— Krispy Kreme is especially frugal, spending 0.5% of revenues.

"The battle is to grow but not add too much expense," says Chief Financial Officer Randy Casstevens. "If we are considering an infrastructure that can support 2,000 stores, we can't add a person in IT every time we add 20 stores."

Krispy Kreme's 2000 stock offering catapulted the longtime regional favorite into the national limelight, requiring the company to add important technology tools including a warehouse management system and an online ordering application that allows store managers to order supplies electronically from those automated warehouses. "Our goal is to be highly scalable, to add technology if it makes sense," says Chief Information Officer Frank Hood.

There is no secret formula for Krispy Kreme's parsimonious style of expansion, no single metric to track its cost- effectiveness. "Pragmatism is the banner we operate under," says Hood. "We joke about statistics like dollars per IT worker." Michael Litvak, a senior research analyst at Gartner Measurement, agrees high-level numbers alone are inadequate for measuring the productivity of a company's technology staff. "They give you some direction, but you have to look at how the technology actually works at an individual company," he says.

Krispy Kreme managers focus on specific business needs and then approve technology projects to support them. Budgets start from zero each year, expensive consultants are eschewed—"We don't need someone from a big-name company to tell us what's broken," says Hood—and development is phased to allow users to provide input into the design process. Up to 30% of prototyped features may end up getting scrapped on a typical project, as users identify things they can live without.

Developers working on the online ordering system, for example, rethought a rule that would have forced managers to order only full pallets of doughnut mix from a Krispy Kreme warehouse. "We architected for that functionality [to require full pallets], but with the prototype we could see it was something that could alienate people," says Jim Saunders, a principal with consultants JS Walker & Co., which worked on the project. (The Matthews, N.C., firm generally charges $105-$150 per hour for coding and design work, about half, say, what Accenture would charge.) "If a pallet holds 50 bags and someone orders 51, you want to ask him if he really needs that extra bag. But if you have corporate telling him he can't have it under any circumstance, you might offend him."

This article was originally published on 2002-11-01
Senior Writer and author of the Know It All blog

Ed Cone has worked as a contributing editor at Wired, a staff writer at Forbes, a senior writer for Ziff Davis with Baseline and Interactive Week, and as a freelancer based in Paris and then North Carolina for a wide variety of magazines and papers including the International Herald Tribune, Texas Monthly, and Playboy. He writes an opinion column in his hometown paper, the Greensboro News & Record, and publishes the semi-popular EdCone.com weblog. He lives in North Carolina with his wife, Lisa, two kids, and a dog.
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