Krispy Kreme readies for major Canadian expansion

Krispy Kreme is staging a major Canadian comeback. The coffee and doughnut chain, which largely retreated from Canada more than a decade ago, is planning to add up to 50 stores in Ontario and Quebec, before taking the concept across Canada.

Krispy Kreme, which was founded in the U.S. in 1937, arrived in Canada with much fanfare in 2001. The brand is famous for its “hot light” that signals when fresh, hot doughnuts are coming off the conveyor belt.

Canadian franchisee KremeKo had plans to open around 30 “factory” stores, which were roughly 5,000 sq. ft. Eighteen stores were built before the company ran into challenges—the stores were too costly to build and operate.

By 2005, KremeKo had closed 10 of its stores and filed for bankruptcy protection. Chris Lindsay and Kelcey Hamaker who had worked for the company from the start, purchased the Canadian rights in 2008, and are co-CEOs of Krispy K Canada.

With a “hub and spoke” business model and new urban café concept, the company believes it now has the right recipe for success.

“The business has been doing very well for the past several years—we’ve been seeing great double digit growth in our existing facilities,” said Hamaker. “But at the same time, we needed to make sure that we had a footprint that made sense… After several years of testing, we believe our hub and spoke model is ready to be brought into more markets in Canada.”

Krispy Kreme opened its first urban café concept in Toronto in 2010, followed by another Toronto location in 2012. This month, it opened a third Toronto location in Kensington Market, the culmination of testing and refining its updated concept. The company still has three factory stores in Montreal, Quebec City and Mississauga, Ont., which supply its three urban cafés.

The new location features a first for the brand: a re-thermalization oven that allows its signature doughnut to be served hot. “It’s similar to what you would get if you were in a hot doughnut factory and you were eating an original glazed doughnut right off the line,” said Hamaker.

The design of the space is also “dramatically different” from the Krispy Kreme of old, said Hamaker. “The look and feel we were going for was a vintage feel, yet modern,” he said. Some elements pay homage to the brand’s heritage, such as a wall of doughnut crates—a nod to the wooden crates that Krispy Kreme used to transport doughnut in the 1930s and ’40s.

The café also has an expanded menu including bagels, croissants, muffins and savoury items.

The expansion plan is to open 40 to 50 stores in Ontario and Quebec, and eventually expand across Canada. “Short term, our focus is the Greater Toronto Area, Greater Montreal Area and Quebec City because that’s where our producing facilities are, and that allows us to expand the hub and spoke model relatively quickly.”

Doug Fisher, president of Toronto-based foodservice consultancy FHGI, said what Krispy Kreme is doing is interesting, but he doesn’t think it’s going to work.

“I think their model is completely wrong,” he said. “The whole Krispy Kreme thing was about fresh-made doughnuts coming off the line and buying them in dozens… People hunting down cafés or a thermalized product that was made [several] hours earlier in an off-site location, I don’t think is going to work.”

In addition, Fisher said there’s no real doughnut market in Canada. For example, about 7% of Tim Hortons sales is doughnuts, about 65% is coffee and the balance is a mix of the other hundred items that Tim’s has to draw people in, said Fisher.

“The problem in Canada is very few people [now] buy doughnut by the dozen,” he said. “And Krispy Kreme doesn’t have a branded set of other offerings from coffee to sandwiches to soups, and that’s really what they need to at least try to break the market.”