Oct. 08--Krispy Kreme Doughnuts Inc. is trying to capture a larger slice of the home-brew consumer business by selling 40-ounce packages of its signature coffee blends at a select number of Sam's Clubs in the Southeast.
The company introduced its signature blends -- a house blend, a house decaf and a dark roast -- in its retail shops in September 2011.
The bagged coffee, made with 100 percent Arabica beans, is roasted and manufactured by S&D Coffee. The company also sells 12-ounce ground coffee bags in its shops.
Lafeea Watson, the company's public-relations manager, said the packages will be sold in most Sam's Club stores in the Triad.
"Making Krispy Kreme coffee available to Sam's Club members expands business and consumer access to our great-tasting coffee for home or office use," Brad Wall, senior vice president for supply chain and off-premise operation, said in a statement. "It extends our brand to millions of families and businesses, and adds convenience to our loyal brand consumers."
The company has signed an agreement with Brand Central LLC for the licensee acquisition, development and manufacturing of "innovative" coffee products for the wholesale club channel and its retail shops.
"These new initiatives are part of our ongoing strategic efforts to significantly build awareness and equity in our coffee program through trial and sales of our existing products in new channels," Wall said.
Krispy Kreme said it plans to promote the coffee packages through social media and in-club coffee sampling.
The blends also have been available in its shops in 12-, 16- and 20-ounce cups and a 96-ounce box.
Company officials say the goal is to drive more traffic to its shops and perhaps attract new customers rather than to take major coffee market share from competitors, such as Starbucks, Dunkin' Donuts and McDonald's.
Coffee represents about 4 percent of Krispy Kreme's sales, with beverages altogether accounting for 12 percent. Jim Morgan, the company's chairman and chief executive, has said that just 10 percent of its customers buy coffee in each trip. The goal is for coffee to grow to at least 12 percent of revenue.
"There is extraordinary potential for coffee revenues with these blends that we expect to be a hit with our customers," Morgan said.
John Stanton, a professor of food marketing at Saint Joseph's University in Philadelphia, said it will take a significant marketing effort by Krispy Kreme to make the Sam's Club strategy pay off.
"If you gave consumers a word-association test and said 'Krispy Kreme,' I doubt many would say coffee," Stanton said. "Remember, you get permission to sell products from consumers. You only get permission to put products on shelves from the board of directors.
"I don't see any reason to buy Krispy Kreme coffee other then it is at now at Sam's. Why buy Krispy Kreme and not Starbucks or Dunkin' Donuts or any of the other very good coffee brands?
"It may be a first step toward building brand equity beyond good donuts, but it will take a while," Stanton said. "If they are looking for short-time profits, they won't be in Sam's very long."
John Sweeney, a marketing professor at UNC Chapel Hill, said he expects Krispy Kreme will "expand this business if successful, or quietly withdraw it if not."
"How Starbucks has managed both distribution points without harming the coffee-shop brand is a mystery to me. It may just be the special kind of brand loyalty Starbucks users bring to the product.
"Does Krispy Kreme command the same kind of loyalty?" Sweeney asked. "It will be interesting to see how their consumers respond."
Krispy Kreme's share price has recovered swiftly from a recent 19.4 percent drop to $18.99 a share after investors reacted negatively to an Aug. 29 report of a 4.3 percent decrease in second-quarter net income to $4.7 million.
By comparison, the share price closed at $23.22 Tuesday, just 35 cents below its 52-week high of Aug. 29.
Some analysts cautioned that investors may have overreacted to the missed earnings projections. They say the company's financial fundamentals remain promising for future growth.
Sean Williams, an analyst with The Motley Fool, said Aug. 30 that investors had become accustomed recently to a double-digit jump in the share price following solid quarterly earnings reports.
Since the second-quarter report, the company has announced its first entrance into South America with a franchisee in Colombia. That expansion appears to have been well received by investors.
Keris Alison Lahiff, an analyst with The Street.com, lists Krispy Kreme as "a buy" in a report filed Tuesday
"The rating is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover," Lahiff said.
Lahiff said the strengths include "revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations and solid stock price performance."
"We feel these strengths outweigh the fact that the company has had subpar growth in net income."