Channel Strategy and Its Long-Term Effect on Brand Identity. Krispy-Kreme- The Undoing of a Brand.

By: Stefan Paul Jaworski, Director North America, Brand Strategy Officer.

(November 1, 2004). In today’s world hyper-focused on brand, at least hyper-focused on “brand surface issues,” one of the most important lessons which keeps getting ignored is that involving the intricate relationship between channel strategy and brand identity. It seems that outside of the superlatives of “advertising,” pretty pictures, and “killer-style,” which are thought by many to compose the “brand kingdom,” the world of the channel and its effect on building or destroying any brand are simply not even thought about. They don’t even appear on the radar screen. In fact, the channel is seen almost as a necessary evil, to be “put up with”, a crude “operations tool” to be kept out of sight- as opposed to a strategic pillar of a brand’s success. Hence, the lack of skill possessed by most advertisers to even consider using it, or its effects on brand: a “where there are no pretty pictures, trendy words, or “killer creative” there certainly is no brand building” mentality. Come into play the new, “trendy brand juggernaut” of the South: Krispy Kreme Doughnuts.

Established in 1937, by Vernon Rudolph who bought the rights to a yeast raised doughnut from a French Chef in New Orleans, Krispy Kreme was a brand that slowly established itself on two key personality traits that became crucial to its brand: hot doughnuts, and a slow growth cycle (scarcity of locations) that made it seem a “rarity”. Combined correctly, they have proven to be the catalyst to a brand icon- the stuff of legend. Until now.

The problem? Krispy Kreme in its desperate rush over the last decade to “grow” the brand into new markets and “capitalize” on the pent up, trend-based hysteria for its offerings forgot to factor into its strategic planning the “channel’s” effect on “brand”. The whole strategy was simply to get the brand name and its offerings into consumers’ hands ASAP- product, locations, and awareness en masse as fast as possible “while demand was hot”. The brand would be built by a combination of “blanketing awareness” via PR and news stories (often of consumer hysteria concerning a new location opening…i.e. “customers slept in line for two days to be served”), and simply ensuring that consumers had access to purchase product. For Krispy Kreme, there was little examination of the more deeper aspects of brand building including the strategic use of the channel and its impact on brand identity. The channel, and how it is used, has a very powerful impact on a brand’s identity and on the success of brand building efforts. Just ask Miller Brewing. “Ads by Bob” was an ad campaign created by Fallon McKelligot (now Fallon Advertising) nearly a decade ago for Miller to revitalize sales. The campaign was a good one, but failed miserably because of failure to incorporate channel realities into its strategic planning. Miller never sought buy in or input from vital channel members such as Mom and Pop stores, bars and clubs, or even major chains that sold its product and directly interacted with its customers. Hence, when the campaign was launched, there was immediate alienation of, and revolt from, a powerful pillar of Miller’s brand building efforts: its channel members. Channel members just did not “get it”- and thus neither did customers that entered their stores in terms of promotional pieces, supporting materials, point of sales displays, referrals, etc. Negative brand advocacy is a powerful thing and the campaign folded within weeks. No channel consideration and strategic planning= no brand success.

Kripsy Kreme’s problem was not simply about alienating channel members (bad enough as this is), but was equally if not more serious: it simply never thought about the reality that “how it used its channel would affect its brand identity.” In its rush to get product into contact with consumers, such as via counter-space in grocery stores, Krispy Kreme would be breaking one of the key founding principles of its brand identity and success: hot doughnuts. As I mentioned, and consumers have testified to from day one, “hot doughnuts” are key to the love affair with Krispy Kreme’s product and brand effecting taste, position, identity, and overall brand experience: hot and thus “fresh,” “just made” doughnuts. It is also the founding aspect of the brand promise. Hence, by distributing and selling doughnuts on grocery store shelves that are cold and sometimes hours to a day-old, Krispy Kreme is directly damaging its established brand identity: including its position, brand experience and brand promise. It is also damaging and jeopardizing its relationship with customers as no serious brand would ever allow its product to be sold in less than optimum (or “substandard”) condition. Would Coca-Cola allow its products to be sold “flat” on store shelves? Anheuser-Busch, always channel savvy to the extreme, has invested untold hundreds of millions in guaranteeing its product being “always fresh”. In fact, the “Born on Date” campaign is a supremely powerful pillar in Budweiser’s brand promise, differentiation strategy, and customer experience—and thus brand identity.

Remember, also, that the unique branded environment Krispy Kreme locations have traditionally offered (you can watch through glass the doughnuts being made and eat them right off of the conveyer belt) is a very important aspect of the entire “brand identity package.” Many customers, especially those with families, come to see “doughnuts being made” and “eat a hot one right off the line.” By selling product in grocery chains and commercially, Krispy Kreme is losing such vital brand associations and experiences that are gained by having customers purchase and enjoy its products within a carefully designed (unique) and controlled branded environment. By extending its channel (making it longer) Krispy Kreme is also giving up “vital brand control” to retailers. Such loss of control almost always guarantees “substandard” brand presentation and customer experience—at least without stringent agreements, guarantees, training and enforcement programs in place. Would McDonald’s allow the Big Mac to be sold in a dirty roadhouse without its trademark consistent quality, taste, Arches, uniformed employees, child play area, booths, and brand colors? Of course not. Yet, from what I have personally witnessed in many grocery stores where Krispy Kreme is selling its product, it seems they are allowing just that.

Especially, for a brand whose identity, differentiation, and brand-customer experience success from day one were based on “hot doughnuts,” one would think that Krispy Kreme would be making its first priority discovering ways to ensure only “hot doughnuts” be sold in an officially branded environment— and not purposely propagating the sale of inferior quality product in inferior, non-branded environments for the sake of “getting product out there.” All of the locations, shelf space amounts, PR stories, and initial sales volume achieved will only dig a deeper grave for Krispy Kreme as a brand if it continues to ignore the reality that its dedication to them, at the expense of keeping a key aspect of its brand identity, is continuing to damage that brand identity, position, brand-customer experience and brand promise. Let us also not forget that the vital “rarity” aspect of the brand identity that helped to generate the “mystique” of the Krispy Kreme legend is also not being done a service by opening locations at a tremendous pace in many places—overexposure. Suddenly, with locations sprouting up everywhere, Krispy Kreme has lost much of its initial luster, exclusivity, and “specialness” that was attached to the “hard to get” cache. And, the more locations and distribution points are increased, the more the brand will lose these “vitals,” eventually becoming “common” and possibly a “commodity.” The results are already being seen with sales and stock prices decreasing; as well as dilution of the icon “Krispy Kreme” brand identity.

Where once people waited in long lines to buy Krispy Kreme’s doughnuts by the dozen, it is not unusual now to walk into a store and see no customers. In fact, some stores are surviving not from in-store customer sales but from corporate, special occasion and commercial sales- just look at the Fargo North Dakota location. In fact, in May 2004, Krispy Kreme stock fell 18% in one day with Wall Street’s best analysts putting the company on watch. The company of course blames the Atkins (low carb) and South Beach Diet fads, but analysts correctly are not buying it.

"This [low-carb] phenomenon has affected us (Krispy Kreme) most heavily in our off-premises sales channels, in particular sales of packaged doughnuts to grocery store customers," CEO Scott Livengood said in a statement. However, on a conference call Friday morning, some analysts were skeptical about how much the low-carb craze was to blame for the shortcoming. When an analyst asked why the Atkins and South Beach inspired diets should affect demand now, when doughnuts have never been a part of any diet, the company said "our intention is to give you the facts as we know them...this is not an unraveling... the jury is out. This could be a new way of eating, even though it is not supported by nutritionists. 1"

Note from the quote above that Krispy Kreme’s CEO indicates openly that the damage has been done in the “off premises” sales channel—exactly where the problem of cold/old doughnuts and thus brand damage started and continues! Hence, Krispy Kreme has empirical evidence that something is going wrong in the channel—yet, it prefers to focus on the lame excuse of the Atkins and South Beach diets! The firm’s CEO in my opinion is very fortunate as he is getting a very clear warning sign (a clear and present danger sign), and an early one, that something is wrong in the channel and thus brand. In my opinion, he should discover and isolate it now before it spreads like wildfire to the ‘outside” world of consumer perception where real brand damage that can cause brand failure occurs. Thankfully, top Wall Street Analysts are not buying into the Atkins and South Beach fallacy and seem to see a more long term problem at hand:

“Morningstar's analyst Carl Sibilski said he placed the stock under review after the company's release. ‘The Atkins thing surprised me,’ he said. ‘That's something I expected to hear last year. The Atkins diet won't be their downfall, it will be their strategy of trying to sell doughnuts wholesale.2 "

Indeed, we are seeing the bonafied results from damaging a brand identity and position, as well as directly breaking a key brand promise: things that would not have happened if Krispy Kreme had properly used brand strategy in the first place to grow its brand. A complete and expert brand analysis and strategy would have factored in detailed channel analysis, scenarios and planning, as well as any effect(s) on the brand, its identity, and position- in isolation as well as in regard to the other multiple brand factors. Remember, brand strategy leads business, advertising, promotional, and any other kind of brand activity and efforts. The result of ignoring this reality?

“Shares of Krispy Kreme soared after going public in early 2000, but they have dropped 13 percent this year as investors have become more skeptical about the company's long-term growth prospects. In addition, Krispy Kreme said it will dispose of its Montana Mills bread unit, close six factory stores and shut three underperforming coffee-and-doughnut shops. 3”

As noted earlier, all of the locations and grocery stores in the world will be of no use whatsoever, and in fact will directly damage the Kripsy Kreme brand (especially its identity), if they are allowed to continue to contribute to the breaking of the key core brand value and brand promise via not providing hot doughnuts. The above injury does not include the long term intangible damage to Kripsy Kreme’s brand identity, position, brand promise, customer relationships and loyalty, as well as place in the market. These damages when tallied up will be in the many multiples of any capital and stock losses- and if left unresolved they could prove fatal brand and corporate wise.

Time and time again our firm tells companies, marketers, PR and ad agencies that brands are not just about logos, pretty pictures, and clever play on words—they involve deep strategic and tactical consideration and mastery of multiple factors, aspects, forces, dynamics, resources, skills, and relationships. Just a few of these include market dynamics, market/industry evolution realities, channel realities and forces, brand management and architecture realities (and effects), competitor challenges and consumer evolution—all having the potential to be both tangible and intangible. Indeed, a very complicated array of things that must be considered when building and managing a brand. Sadly, for the Krispy Kreme brand, the channel is one of the most important. A channel when planned with strategic excellence, and implemented tactically the same way, is one of the most powerful and effective ways to propagate, enhance, support, and defend a brand long-term: including its identity, promise, customer experience, brand-customer-market-society relationships, and position.

-STEFAN PAUL JAWORSKI, DIRECTOR NORTH AMERICA, STUDIO X-TEMPORAL GLOBAL BRAND CONSULTING

Studio X-Temporal Global Brand Consulting(SXTC) is a Multinational Brand Consultancy that leads the marketing world in both practical application and ideation generation in brand management and strategy. Clients have included many of Asia’s and the World’s top brands of all sizes and across all segments such as Coca-Cola, Microsoft, Kao Cosmetics, Motorola, Panasonic, Apple, Budweiser, EXXON, TDK, Tsingtao Beer, Heineken, Malaysian Telecom, The Hard Rock Café, as well as governments such as New Zealand, China, the UK, Malaysia, and Dubai. The firm is responsible for 16 industry-leading globally published books, as well as many highly regarded white papers, articles, and case studies appearing in prestigious publications from the Financial Times of London to the Multinational Business Review. The firm has offices across Asia, in the EU, and North America.

www.sxtcbrand.com

[1,2, 3] Stein, Andrew. CNN/Money staff writer. CNN/Money. Krispy Kreme: Diets hurt doughnuts. 

May 7, 2004:

By: Stefan Paul Jaworski, Director North America, Brand Strategy Officer.

(November 1, 2004). In today’s world hyper-focused on brand, at least hyper-focused on “brand surface issues,” one of the most important lessons which keeps getting ignored is that involving the intricate relationship between channel strategy and brand identity. It seems that outside of the superlatives of “advertising,” pretty pictures, and “killer-style,” which are thought by many to compose the “brand kingdom,” the world of the channel and its effect on building or destroying any brand are simply not even thought about. They don’t even appear on the radar screen. In fact, the channel is seen almost as a necessary evil, to be “put up with”, a crude “operations tool” to be kept out of sight- as opposed to a strategic pillar of a brand’s success. Hence, the lack of skill possessed by most advertisers to even consider using it, or its effects on brand: a “where there are no pretty pictures, trendy words, or “killer creative” there certainly is no brand building” mentality. Come into play the new, “trendy brand juggernaut” of the South: Krispy Kreme Doughnuts.

Established in 1937, by Vernon Rudolph who bought the rights to a yeast raised doughnut from a French Chef in New Orleans, Krispy Kreme was a brand that slowly established itself on two key personality traits that became crucial to its brand: hot doughnuts, and a slow growth cycle (scarcity of locations) that made it seem a “rarity”. Combined correctly, they have proven to be the catalyst to a brand icon- the stuff of legend. Until now.

The problem? Krispy Kreme in its desperate rush over the last decade to “grow” the brand into new markets and “capitalize” on the pent up, trend-based hysteria for its offerings forgot to factor into its strategic planning the “channel’s” effect on “brand”. The whole strategy was simply to get the brand name and its offerings into consumers’ hands ASAP- product, locations, and awareness en masse as fast as possible “while demand was hot”. The brand would be built by a combination of “blanketing awareness” via PR and news stories (often of consumer hysteria concerning a new location opening…i.e. “customers slept in line for two days to be served”), and simply ensuring that consumers had access to purchase product. For Krispy Kreme, there was little examination of the more deeper aspects of brand building including the strategic use of the channel and its impact on brand identity. The channel, and how it is used, has a very powerful impact on a brand’s identity and on the success of brand building efforts. Just ask Miller Brewing. “Ads by Bob” was an ad campaign created by Fallon McKelligot (now Fallon Advertising) nearly a decade ago for Miller to revitalize sales. The campaign was a good one, but failed miserably because of failure to incorporate channel realities into its strategic planning. Miller never sought buy in or input from vital channel members such as Mom and Pop stores, bars and clubs, or even major chains that sold its product and directly interacted with its customers. Hence, when the campaign was launched, there was immediate alienation of, and revolt from, a powerful pillar of Miller’s brand building efforts: its channel members. Channel members just did not “get it”- and thus neither did customers that entered their stores in terms of promotional pieces, supporting materials, point of sales displays, referrals, etc. Negative brand advocacy is a powerful thing and the campaign folded within weeks. No channel consideration and strategic planning= no brand success.

Kripsy Kreme’s problem was not simply about alienating channel members (bad enough as this is), but was equally if not more serious: it simply never thought about the reality that “how it used its channel would affect its brand identity.” In its rush to get product into contact with consumers, such as via counter-space in grocery stores, Krispy Kreme would be breaking one of the key founding principles of its brand identity and success: hot doughnuts. As I mentioned, and consumers have testified to from day one, “hot doughnuts” are key to the love affair with Krispy Kreme’s product and brand effecting taste, position, identity, and overall brand experience: hot and thus “fresh,” “just made” doughnuts. It is also the founding aspect of the brand promise. Hence, by distributing and selling doughnuts on grocery store shelves that are cold and sometimes hours to a day-old, Krispy Kreme is directly damaging its established brand identity: including its position, brand experience and brand promise. It is also damaging and jeopardizing its relationship with customers as no serious brand would ever allow its product to be sold in less than optimum (or “substandard”) condition. Would Coca-Cola allow its products to be sold “flat” on store shelves? Anheuser-Busch, always channel savvy to the extreme, has invested untold hundreds of millions in guaranteeing its product being “always fresh”. In fact, the “Born on Date” campaign is a supremely powerful pillar in Budweiser’s brand promise, differentiation strategy, and customer experience—and thus brand identity.

Remember, also, that the unique branded environment Krispy Kreme locations have traditionally offered (you can watch through glass the doughnuts being made and eat them right off of the conveyer belt) is a very important aspect of the entire “brand identity package.” Many customers, especially those with families, come to see “doughnuts being made” and “eat a hot one right off the line.” By selling product in grocery chains and commercially, Krispy Kreme is losing such vital brand associations and experiences that are gained by having customers purchase and enjoy its products within a carefully designed (unique) and controlled branded environment. By extending its channel (making it longer) Krispy Kreme is also giving up “vital brand control” to retailers. Such loss of control almost always guarantees “substandard” brand presentation and customer experience—at least without stringent agreements, guarantees, training and enforcement programs in place. Would McDonald’s allow the Big Mac to be sold in a dirty roadhouse without its trademark consistent quality, taste, Arches, uniformed employees, child play area, booths, and brand colors? Of course not. Yet, from what I have personally witnessed in many grocery stores where Krispy Kreme is selling its product, it seems they are allowing just that.

Especially, for a brand whose identity, differentiation, and brand-customer experience success from day one were based on “hot doughnuts,” one would think that Krispy Kreme would be making its first priority discovering ways to ensure only “hot doughnuts” be sold in an officially branded environment— and not purposely propagating the sale of inferior quality product in inferior, non-branded environments for the sake of “getting product out there.” All of the locations, shelf space amounts, PR stories, and initial sales volume achieved will only dig a deeper grave for Krispy Kreme as a brand if it continues to ignore the reality that its dedication to them, at the expense of keeping a key aspect of its brand identity, is continuing to damage that brand identity, position, brand-customer experience and brand promise. Let us also not forget that the vital “rarity” aspect of the brand identity that helped to generate the “mystique” of the Krispy Kreme legend is also not being done a service by opening locations at a tremendous pace in many places—overexposure. Suddenly, with locations sprouting up everywhere, Krispy Kreme has lost much of its initial luster, exclusivity, and “specialness” that was attached to the “hard to get” cache. And, the more locations and distribution points are increased, the more the brand will lose these “vitals,” eventually becoming “common” and possibly a “commodity.” The results are already being seen with sales and stock prices decreasing; as well as dilution of the icon “Krispy Kreme” brand identity.

Where once people waited in long lines to buy Krispy Kreme’s doughnuts by the dozen, it is not unusual now to walk into a store and see no customers. In fact, some stores are surviving not from in-store customer sales but from corporate, special occasion and commercial sales- just look at the Fargo North Dakota location. In fact, in May 2004, Krispy Kreme stock fell 18% in one day with Wall Street’s best analysts putting the company on watch. The company of course blames the Atkins (low carb) and South Beach Diet fads, but analysts correctly are not buying it.

"This [low-carb] phenomenon has affected us (Krispy Kreme) most heavily in our off-premises sales channels, in particular sales of packaged doughnuts to grocery store customers," CEO Scott Livengood said in a statement. However, on a conference call Friday morning, some analysts were skeptical about how much the low-carb craze was to blame for the shortcoming. When an analyst asked why the Atkins and South Beach inspired diets should affect demand now, when doughnuts have never been a part of any diet, the company said "our intention is to give you the facts as we know them...this is not an unraveling... the jury is out. This could be a new way of eating, even though it is not supported by nutritionists. 1"

Note from the quote above that Krispy Kreme’s CEO indicates openly that the damage has been done in the “off premises” sales channel—exactly where the problem of cold/old doughnuts and thus brand damage started and continues! Hence, Krispy Kreme has empirical evidence that something is going wrong in the channel—yet, it prefers to focus on the lame excuse of the Atkins and South Beach diets! The firm’s CEO in my opinion is very fortunate as he is getting a very clear warning sign (a clear and present danger sign), and an early one, that something is wrong in the channel and thus brand. In my opinion, he should discover and isolate it now before it spreads like wildfire to the ‘outside” world of consumer perception where real brand damage that can cause brand failure occurs. Thankfully, top Wall Street Analysts are not buying into the Atkins and South Beach fallacy and seem to see a more long term problem at hand:

“Morningstar's analyst Carl Sibilski said he placed the stock under review after the company's release. ‘The Atkins thing surprised me,’ he said. ‘That's something I expected to hear last year. The Atkins diet won't be their downfall, it will be their strategy of trying to sell doughnuts wholesale.2 "

Indeed, we are seeing the bonafied results from damaging a brand identity and position, as well as directly breaking a key brand promise: things that would not have happened if Krispy Kreme had properly used brand strategy in the first place to grow its brand. A complete and expert brand analysis and strategy would have factored in detailed channel analysis, scenarios and planning, as well as any effect(s) on the brand, its identity, and position- in isolation as well as in regard to the other multiple brand factors. Remember, brand strategy leads business, advertising, promotional, and any other kind of brand activity and efforts. The result of ignoring this reality?

“Shares of Krispy Kreme soared after going public in early 2000, but they have dropped 13 percent this year as investors have become more skeptical about the company's long-term growth prospects. In addition, Krispy Kreme said it will dispose of its Montana Mills bread unit, close six factory stores and shut three underperforming coffee-and-doughnut shops. 3”

As noted earlier, all of the locations and grocery stores in the world will be of no use whatsoever, and in fact will directly damage the Kripsy Kreme brand (especially its identity), if they are allowed to continue to contribute to the breaking of the key core brand value and brand promise via not providing hot doughnuts. The above injury does not include the long term intangible damage to Kripsy Kreme’s brand identity, position, brand promise, customer relationships and loyalty, as well as place in the market. These damages when tallied up will be in the many multiples of any capital and stock losses- and if left unresolved they could prove fatal brand and corporate wise.

Time and time again our firm tells companies, marketers, PR and ad agencies that brands are not just about logos, pretty pictures, and clever play on words—they involve deep strategic and tactical consideration and mastery of multiple factors, aspects, forces, dynamics, resources, skills, and relationships. Just a few of these include market dynamics, market/industry evolution realities, channel realities and forces, brand management and architecture realities (and effects), competitor challenges and consumer evolution—all having the potential to be both tangible and intangible. Indeed, a very complicated array of things that must be considered when building and managing a brand. Sadly, for the Krispy Kreme brand, the channel is one of the most important. A channel when planned with strategic excellence, and implemented tactically the same way, is one of the most powerful and effective ways to propagate, enhance, support, and defend a brand long-term: including its identity, promise, customer experience, brand-customer-market-society relationships, and position.

-STEFAN PAUL JAWORSKI, DIRECTOR NORTH AMERICA, STUDIO X-TEMPORAL GLOBAL BRAND CONSULTING

Studio X-Temporal Global Brand Consulting(SXTC) is a Multinational Brand Consultancy that leads the marketing world in both practical application and ideation generation in brand management and strategy. Clients have included many of Asia’s and the World’s top brands of all sizes and across all segments such as Coca-Cola, Microsoft, Kao Cosmetics, Motorola, Panasonic, Apple, Budweiser, EXXON, TDK, Tsingtao Beer, Heineken, Malaysian Telecom, The Hard Rock Café, as well as governments such as New Zealand, China, the UK, Malaysia, and Dubai. The firm is responsible for 16 industry-leading globally published books, as well as many highly regarded white papers, articles, and case studies appearing in prestigious publications from the Financial Times of London to the Multinational Business Review. The firm has offices across Asia, in the EU, and North America.

www.sxtcbrand.com

[1,2, 3] Stein, Andrew. CNN/Money staff writer. CNN/Money. Krispy Kreme: Diets hurt doughnuts. 

May 7, 2004: