Passikoff: The Donut Theory of Branding

All the expansion devalued Krispy Kreme’s brand differentiation.

Donuts came to the New World (United States) in 1624. With Dutch settlers to New Amsterdam (New York City) escaping religious persecution and looking for a market for their “olukoek” (pronounced “oily cake”), basically a sweetened cake fried in oil. Round-shaped knots of dough. Get it? Dough nuts.

I made up the part about looking for a market for donuts, but by the 1800’s donuts were a very popular pastry. It wasn’t until the mid-19^th century that donuts started to look and taste pretty much like they do today. In 1920, Alfred Levitt, a Russian refugee, invented the donut machine. Donuts were so popular they couldn’t be made fast enough by hand to meet the demand.

Demand is a good thing. Particularly when you have a product to sell. It’s the paramount position to be in. You can track it via something called a “market demand curve.” That’s the summation of all the demographic demand curves in a given sector. Like donuts.

Donuts do very well when it comes to demand. The average person demands 35 a year, although they probably call it “snacking” or, in many instances, “breakfast.” The average consumer “demands” about 3 donuts a month. Do the math and you’re talking about a gabillion donuts a year. OK, not a gabillion, but more than seven billion cause’ we’re pretty sure people lie about how many donuts they really eat. Not you, of course. But you know who I’m talking about!

You have to “watch” values.

Certain category values drive demand. You have to watch values. They don’t so much as sneak up on your category as much as pounce. And today they move faster than Joey Chestnut (the world’s No. 1 ranked competitive eater) takes to eat 257 Hostess donuts, the Guinness World Record. That would be 6 minutes. Values can shift faster than that. Just saying. And because they do, values often get missed. Marketers that miss value-shifts and are unprepared when they finally have to acknowledge the shift, usually they end up with the sticky end of the balance sheet. You can end up with the sticky end if you ignore values too. More about that later. Now, back to donut values.

“Taste” is a value, generally important to any category you have to put into your mouth. But have you ever had a donut that wasn’t tasty? Well, not a stale one, maybe. But what’s tastier than a fresh-made donut? Come on! “Health” is a value related to most food groups including donuts. But the thing is, you’re never eating a donut because you think it’s a healthy option. Be honest. The healthiest part of the donut is the hole. Now “variety,” there’s a value that resonates when you think about donuts. “Variety” is significant in the donut sector. Glazed are the favorite. Followed by Boston cream, chocolate frosted, and jelly. But the value consumers value most when it comes to donuts is “Appearance.”  No, not sprinkles. They’re kind of an add-on. Appearance is an exemplar for “hot, fresh, and light.” Hold that fact in your head for a moment.

Brands matter when it comes to donuts. Well, brands always matter. But in this instance preferred donut brands are:

1. Dunkin’
2. Krispy Kreme
3. Hostess
4. Tim Horton’s
5. Entenmann’s
6. Little Debbie
7. Tastykake
8. Any donut brand anywhere, including small bakeries, local pastry shops, and corner food carts.

It’s that #2 brand, Krispy Kreme, I want to talk to you about. (Remember my earlier comments about ignoring values and the value of “Appearance?” now’s the time to bring them foremost in your mind. Ready?) Krispy Kreme was founded in 1937 and were initially sold in grocery stores. Steady and unsteady growth led to its ultimate expansion to a publicly traded company on the Nasdaq.

Krispy Kreme donuts became an actual craze in 2000. The craze was fueled by differentiation, à la “Appearance.” Millions of customers would wait in long lines for a taste of the warm delicacies – hot, fresh, light, and glazed – beautifully created right in front of their eyes, aka, “demand.” Big demand. As a result, the number of Krispy Kreme franchises exploded. New stores emerged everyplace. This rapid growth became a brand and financial problem.

“Wait,” I hear you cry, “Why would increased demand be problematic?” And that’s a really good question. The really good answer is, all the expansion devalued the Krispy Kreme brand differentiation. Krispy Kreme attempted to sell its brand everywhere and anywhere – ranging from gas stations to kiosks – which diluted its appeal. Those donuts were often four to seven days old, which pretty much canceled out the “fresh” aspect integral to the Appearance value. And, one can only suppose, the hot and light aspects too.

The value of “Appearance” took an overall hit. “How? How did all that expansion devalue the brand differentiation and the value of “Appearance?” I’m pretty sure you’re asking. I have an answer for that too. By making the once-specialty donuts ubiquitous they lost their uniqueness. A lot of the newer sales outlets required pre-made donuts as opposed to the ones made fresh in factory stores, called “hot, fresh, light theatre shops.” So no more “hot, fresh, and light.” More like “cold, greasy, and dense” which, is pretty much the opposite of “hot, fresh, and light.” As you might imagine, it alienated brand devotees, so the brand took a hit.

Why mention all this? Because Krispy Kreme returned to the public markets this summer and is focusing on delivering fresher, lighter pastries. Remember the values of Appearance? That’s what they’re trying to leverage. Or re-leverage. Krispy Kreme went public in July and is buying out franchisees trying to improve the quality of donuts sold outside their hot-fresh-light theatre stores where customers watch donuts come off production lines. Just like they used to when the brand exploded two decades ago. So, to quote a well-known donut expert, “Mmmmmm. Donuts!”

If you missed National Donut Day (June 5^th) and National Jelly-Filled Donut Day (June 8^th), don’t panic. There are others where you can join in later this year: National Cream-Filled Donut Day (September 14^th), and Buy A Doughnut Day (October 30^th). Surprised there are so many days celebrating donuts? Well, just think of them as occasions to treat yourself and celebrate being smart enough to monitor and leverage all those category-specific values that can help your brand grow and prosper.

And sticking with our theme we’d remind you that brand managers who don’t track and leverage values (no matter what category they operate in) end up with lower earnings, lower share prices, and having to spend a lot of money reinventing their brand.

Usually with a glazed expression on their face.

Robert Passikoff is founder and CEO of Brand Keys. He has received several awards for market research innovation including the prestigious Gold Ogilvy Award and is the author of 3 marketing and branding books including the best-seller, Predicting Market Success.  Robert is also a frequent contributor to TheCustomer.

Photo by Setyaki Irham on Unsplash.