The Doughnut War
It was Albert Carducci's day off, and had it been up to him, he wouldn't have spent it making baked-goods history. Really, though, he had no choice.
That morning, around 7, his wife had read that Krispy Kreme, the revered North Carolina-based doughnut chain, was celebrating the groundbreaking of its first Boston-area outpost, just beyond the Wellington T station in Medford. Dragging her husband out of bed, she ordered him to return with three dozen.
Four hours later, Carducci found himself standing in a snow-covered lot, shivering against the cold in his black leather jacket, the first person in a line of more than 100 people. In front of him was the entrance to the “Krispy Kreme Mobile Store,” a custom-built doughnut shop on wheels designed to replicate one of the company's full-sized outlets, complete with trademark production line and neon sign. The truck's water pipe, engineered in a more forgiving climate, had frozen overnight, but the resulting delay didn't faze the crowd, whose members passed the time swapping stories about their first Krispy Kreme experiences. One, a software consultant from Walpole (who was accompanied by his geriatric German shepherd), got hooked when a friend brought him a dozen while visiting from California. For a pediatrician from Cambridge, who had pedaled over on a 10-speed in black tights and a pink windbreaker, it happened during a layover in Charlotte. Carducci himself was not yet a convert, but his wife had been a Krispy Kreme fanatic ever since she tasted one while vacationing in Florida.
Carducci paused, surveying the scene. “This is almost like Roswell, New Mexico,” he said.
Finally, the Krispy Kreme crew fixed the glitches, and the mini-factory went into production. As rings of dough passed through a trough of hot vegetable shortening, down a conveyor belt, and under a shower of sugary glaze, members of the crowd watched through a strategically placed window, their expressions mirroring those of visitors to a maternity ward. The command was given to open the door.
Albert Carducci entered and placed his order.
He raised a doughnut to his mouth.
The gaggle of reporters on hand leaned forward to capture the moment.
And, with that, Carducci became the first customer to consume a hot glazed Krispy Kreme doughnut made right here in Massachusetts.
Perhaps rendered speechless by the rapture Â— or merely dazed by the flashbulbs popping in his face Â— he could not muster a coherent review. Behind him, a nurse from Mass General fared better: “Some say it's like a religious experience,” she said. “Some say it's orgasmic. It's both!”
When the Krispy Kreme in Medford stages its actual grand opening later this spring, a doughnut war years in the making will officially commence. Krispy Kreme launched its first store in Winston-Salem, North Carolina, in 1937 but didn't start expanding outside the Southeast until a few years ago. The chain swiftly seduced the media when it arrived in New York, earning giddy newspaper reviews and on-air plugs. With the flip of a switch in Las Vegas, the entire Strip was outshone by the words on its sign Â— “hot doughnuts now.” By the time those lights reached L.A., Krispy Kreme had become an unlikely luxury boutique, a purveyor of celebrity baubles. Stars including Nicole Kidman (who called Krispy Kremes “God's gift to doughnut lovers”) and Susan Sarandon (“like taking a hallucinogen”) volunteered endorsements; during one 12-month stretch, Krispy Kremes made cameos in more than 80 television shows. When the company's stock went public in 2000, Wall Street binged on baked goods the way it had on dotcoms, briefly pushing the shares past the hundred-dollar level.
With the 7.5 million doughnuts it produces each day selling as fast as the company can make them, the Krispy Kreme craze swept through the Rockies, the Pacific Northwest, and across the Great Plains. Finally, last October, the company advanced on New England, the only territory yet to swoon under its glow. So severe were the resulting traffic jams in the Hartford suburb of Newington when the first New England store opened there, a city official felt compelled to call the mayor of Milford, the doughnut chain's next stop, and warn him about the headaches he was in for.
The company, which rang up $622 million in sales last year Â— a nearly 40 percent jump over the year before Â— expects to cause an even bigger stir in Boston. “We look at the area and its population density,” says Stan Parker, the company's senior vice president of marketing, “and we think Medford could have a chance to set a new record for first-week sales.” The current mark is held by a store in Maple Grove, Minnesota, which took in $480,693 Â— more than half of what the typical Dunkin' Donuts collects in a year.
In the $5-billion-a-year doughnut business, Boston is not just another market. It is the promised land. The holy pastry was invented in New England when a boy from Clam Cove, Maine, poked a fork through his mother's fried dough cakes in 1847. New England now ranks second only to California in the number of doughnut vendors, and this January, Massachusetts formally recognized the Boston creme as the commonwealth's official doughnut. Since 1950, when Bill Rosenberg first set up shop in Quincy, the region has also served as both the base and stronghold of the $3 billion Dunkin' Donuts international empire, home turf of the world's largest doughnut purveyor. Six hundred of the chain's 3,829 U.S. stores are in the Boston area. Though Krispy Kreme plans just 16 restaurants throughout Massachusetts, Connecticut, and Rhode Island, all will stand smack in its rival's backyard.
Dunkin' Donuts, now owned by Allied Domecq, a British conglomerate that also owns several leading liquor brands (including Beefeater, Kahlua, Maker's Mark, and Courvoisier), has feigned indifference in its public posture. “I'll let the other guys worry about making noise,” says Ken Kimmel, vice president of Dunkin' Donuts concepts. “I'm too busy making money.” But behind the scenes, the chain Â— which has seen sales rise despite challenges from both Starbucks and Honey Dew Â— has been aggressively deploying new strategies and bolstering its defenses to shield itself from the latest invaders. It has overhauled its basic ingredients, used cameras and undercover operatives to spy on customers, stationed agents overseas, and tested flavor concoctions that are sure to drop jaws in more ways than one. Without anyone noticing, Dunkin' Donuts has done nothing less than reinvent itself.
On a quiet street in Braintree, just down from the South Shore Plaza shopping center, sits a small, gray cinderblock building. With its short smokestack, high-voltage box on one side, and security-code mechanism on the door, it resembles a barracks on the back lot of a military base. Except for one thing: a telltale stripe painted in familiar Dunkin' Donuts magenta.
Inside, Bob Pitts is busy toying with new doughnut ingredients Â— bizarre futuristic foodstuffs straight out of Willy Wonka's factory. Pitts took a job with Dunkin' Donuts more than two decades before Fred the Baker (“time to make the doughnuts”) became the face of the enterprise, way back when the company employed waitresses who served coffee in china mugs and bakers cut doughnut holes by hand. Today, table service is long gone, and the namesake offering, the plain cake doughnut with built-in dunking handle Â— the only one that can't be shaped by a machine Â— has been phased out by automation.
A soft-spoken man with a silvery pompadour and a hard-earned paunch, Pitts now works as a food-science technologist in a lab he shares with three other researchers. On one wall hangs a dry-erase board bearing a list of color-coded “New Doughnut Concept Ideas.” Completed projects Â— “cheesecake,” “churros” Â— appear in blue. Those still in progress Â— “chocolate yeast (with peanut-butter filling),” “donut ice-cream sandwich,” “fried éclairs” Â— are written in pink.
Trish Vincente, Pitts's boss, opens a bucket filled with a substance she identifies as white chocolate bark, a topping that will be sprinkled over lemon icing in this summer's seasonal specials. Other containers hold jalapeño-crunch chips (to be paired with chocolate-chipotle frosting) and nuggets of pea-green candy that turn a bright aquamarine upon contact with the tongue. Those are still in the prototype phase. “We test about 40 varieties each quarter, but only 5 percent make it to market,” Vincente says. “Last year during the holidays, we tried a mincemeat doughnut. It was your worst nightmare!”
Like any restaurant, Dunkin' Donuts relies on new products to prompt the impulse purchases that fatten its bottom line, and, as its showdown looms with Krispy Kreme, the pressure to dream up exotic flavors has never been greater. The innovation Bob Pitts is most proud of, however, affects every one of Dunkin' Donuts' 52 existing varieties, including those that are already strong sellers. All of the company's doughnuts are made from either yeast-raised dough (“Boston Kreme,” for example) or cakelike batter (the chocolate or plain). In 2001, after three years of tweaking in the doughnut lab, the company replaced its recipe for the yeast-raised category with a reconstituted version. This month, it will do the same with its cake doughnuts. When a certain soft-drink manufacturer tinkered with its secret ingredients, the result was the much-maligned New Coke. Dunkin' Donuts doesn't face the risk of a similar disaster because the goal of the new-and-improved formulas isn't to change how its doughnuts taste. It's to improve the odds that all the doughnuts within a given variety will taste exactly the same. Perfect specimens. Clones.
Eventually, Dunkin' Donuts will run all the mix through a new high-tech, patent-pending “proofing box.” This stainless-steel contraption looks like the kind of super-high-tech fridge in which Ted Williams currently resides. But it functions more like a sauna, allowing uncooked dough to rise in a contained microclimate, immune from the variations caused by temperature and humidity.
“With the old units, quality depended on the judgment of the bakers, who had to rely on their skill and expertise to determine when the dough was ready to be pulled out,” says Pitts, beaming like a man showing off his new riding lawnmower. “What we're trying to do is take the art out of making doughnuts and turn it into a science.”
Across a parking lot, Rob Stephen sits at a round table in a windowless room, a row of coffee cups in front of him, a brass spittoon wedged between his knees. Stephen is Dunkin' Donuts' resident java guru, charged with insuring the quality of the signature brew. The walls of his lab are lined with shelves holding phone book-sized bins full of beans (including some from competitors). It's a coffee library. Stephen, the librarian, wears mismatched clothes and a few days of stubble. Wisps of thinning black hair poke out from his head.
Dunkin' Donuts sells 800 million cups of coffee every year, more than any other company. But its prowess is being tested as the coffee competition continues to heat up. Stephen must protect his company's lead not only against Starbucks, but also against Krispy Kreme, which recently upgraded its brew. This winter, Dunkin' Donuts test-marketed a new line of beverages Â— espressos, cappuccinos, lattes Â— in Portland and Bangor, Maine, and West Palm Beach, Florida. Those drinks belong to the fastest-growing segment of the coffee trade, but whether or not the company decides to go forward with them, the attention Stephen devotes to its standard coffee will remain the most important part of his job description.
Dunkin' Donuts serves a mildly roasted coffee, and a mild roast, like a steak prepared rare, tends to leave the natural flavors intact. “We don't have the fudge factor that other brands have because we're essentially putting the coffee out there naked,” Stephen says, referring to the liquid in its virgin state, before the scoops of sugar and 18 percent cream are added. To ensure the beans are up to standard, his team conducts taste-testing sessions four days a week. The samples come from the countries that supply the company Â— a list guarded with a zealousness that would make Donald Rumsfeld jealous. When a unit is deemed unworthy, the corresponding 40,000-pound shipment is junked. Hoping to reduce the number of rejects, the company has built a tasting lab at the port it uses in one of its chief exporting countries. Beans from that nation are now checked before they're even allowed on the boat. “To my knowledge, no other U.S. company does that,” says Stephen. “We studied what some of our European competitors were doing. And then we 'Dunkin'-ized' it.”
If a customer has a choice of big-name coffees at any given intersection, one rancid cup could send him over to Starbucks for good. Unfortunately, the company doesn't have an army of Rob Stephens to brew its coffee in every one of its stores. There's no way to guarantee that individual shops won't, for example, let their pots sit longer than the maximum 18 minutes, stock stale doughnuts in an attempt to stretch profits, or cut enough corners in their cleanup chores to shame a fraternity house. It takes only one mouse dropping to turn stomachs nationwide.
In 1995, ABC News featured Dunkin' Donuts in a prime-time exposé on unsanitary restaurants. Three years later, the New York Post set off another round of dirty jokes by running a front-page photo of rodents cavorting through a tray of doughnuts in one of the company's Manhattan storefronts. Determined to avoid further embarrassment, Dunkin' Donuts has resorted to hauling chronically sloppy shopkeepers to court. Over the past two and a half years, Dunkin' Donuts has sued at least 350 of its U.S. franchisees; McDonald's, which has more than three times as many restaurants in the U.S., has filed only 12 such lawsuits.
Even when franchisees are trying to be helpful, their creative interpretations of company procedures can become a source of consternation at corporate headquarters. Researchers at the doughnut lab, for example, have noticed that fine-tuned ingredients can wind up in unauthorized combinations, a problem that, for some reason, seems particularly prevalent in Rhode Island. “My daughter likes the lemon-filled chocolate-frosted that she can get there,” says doughnut lab boss Trish Vincente. “It drives Bob crazy to hear that. He'll say, 'That's not in the system!'”
Though the morning rush has subsided at the Krispy Kreme in Newington, Connecticut, Jonathan Janikies continues his frenetic pace. Trim, dark-haired, and tanned from a recent trip to Florida, Janikies patrols the store, pausing to put a souvenir baker's hat on a toddler standing at the counter. He checks the railing on the wall next to the open kitchen. It isn't loose. He runs his finger along the ledge above the front door. It's not dirty.
Janikies is the general who has been chosen to lead the incursion into Dunkin' Donuts territory. He is Krispy Kreme's General MacArthur; his uniform, pressed black slacks and a white oxford embroidered with the company logo. His Connecticut stores are up and running Â— and making money. The Medford location is next.
When Jonathan's father, Nicholas Janikies, decided he wanted to get into the doughnut business in 1998, his Cranston, Rhode Island, firm, the Jan Companies, already owned a full-service restaurant, several country clubs, and more than 60 Burger Kings in four states. Even with those qualifications, the elder Janikies's application to become a franchisee was not a lock. “Krispy Kreme gets hundreds of inquiries a week,” says Greg Schroeder, a restaurant analyst at Fulcrum Global Partners in New York, “and that allows them to be very selective.” The company's admissions process is, in fact, every bit as demanding as that of Harvard Business School.
Two years and countless phone calls later, Janikies was finally awarded a contract to open 16 New England stores over the next 5 years, at a cost of about $2 million each. All four of Nicholas Janikies's children work for him, but it was the youngest, Jonathan, who asked to spearhead the Krispy Kreme project. The 32-year-old is now vice president of operations of a venture named New England Dough.
The junior Janikies's first step was to enroll in Krispy Kreme's in-depth training program. He spent two weeks at corporate headquarters and another 12 at a store in California, mastering every detail of the company's system under the tutelage of a mentor. (There was one secret, however, that his baking Yoda refused to share. “The recipe for the doughnut batter is in a vault at headquarters,” Janikies says. “They wouldn't even show it to me.”) He also voluntarily supplemented basic training with field trips to observe the opening-day hullabaloo at eight other stores. “You see the lines,” he says, “and it helps you to not feel overwhelmed when it happens to you.” He wants to instill the same sense of preparedness in the supervisors he's hired to oversee his Medford operation, several of whom spent the winter in Connecticut living out of hotel rooms and learning the Krispy Kreme playbook.
When fully staffed, the Medford store will employ about 200 people. At 4,500 square feet, it will be almost three times the size of the average Dunkin' Donuts. It will contain some surprises as well. The shop will feature the chain's updated décor, which the company selected after conducting focus groups in a showroom near its corporate offices in Winston-Salem, North Carolina. (The look is very IKEA Â— lots of blond wood with stainless-steel accents.) It will also be one of the first to include a station for preparing a new line of espresso drinks, added to accompany the four upgraded coffee blends the company unveiled last fall. But the centerpiece will still be the signature doughnut-making machine, which tempts customers by allowing them to watch the production of Krispy Kreme's most potent weapon: the fresh glazed doughnut.
In the end, no matter how many hours Janikies puts in, the success of Krispy Kreme in New England will rely on that product. “Although Krispy Kreme has 25 varieties of doughnuts, all we ever hear about is the glazed. I don't know what's in the other 24,” says David Shayt, a Smithsonian cultural history specialist who collected materials for a special exhibition on Krispy Kreme to coincide with the company's 60th anniversary in 1997. “And then, on top of it, they really emphasize that product when it's hot.” The cakes are generally only hot during breakfast and evening hours Â— and, for maximum effect, must be consumed within minutes of being purchased. Basically, the company has turned one item into Justin Timberlake, and the rest of its menu into the other, more anonymous members of 'NSync. Krispy Kreme is betting that this one doughnut will conquer the saturated New England market.
As Janikies talks about his goals for the launch of the Medford store, an elderly woman walks past, flakes of glaze falling off her chin. “Once you've had one hot,” she tells her companion, “you won't go anywhere else.” That's just what he wants to hear, but this woman's prediction will not hold true for every customer. There is a little hole in this business plan, a weakness Dunkin' Donuts is scheming to exploit.
The expectations Dunkin' Donuts has created for its edibles aren't quite so lofty, and the scores it received in a survey of restaurant quality (where it trailed both Krispy Kreme and Starbucks) weren't so sweet, either. But Dunkin' Donuts does have an advantage in this turf battle. It has staked its fortune on making sure that, wherever you go, doughnuts will be waiting. Their doughnuts. They'll promise to put a cup of coffee and a choice of baked goods in your hand and send you quickly on your way. And that seems to be increasingly what customers want.
Over the last decade, the percentage of Americans who grab breakfast on the run has doubled, according to the NPD Group, a New York market-research firm. “There are only a few things that will change consumer behaviors,” says Harry Balzer, an NPD vice president. “Number one is to offer people something that will save them time.” In an effort to do just that Â— and to give its regulars a reason to return for a second (or third) visit each day Â— Dunkin' Donuts has been trucking its products to unusual outposts all over New England. At the Home Depot in South Attleboro, a Dunkin' Donuts store roughly the size of a cruise ship cabin started up on Labor Day. The company has been negotiating an arrangement that would put kiosks in Home Depots nationwide. An agreement with Stop & Shop supermarkets has been in place for more than a year. The company has agreed to equip its shopping carts with coffee-cup holders to encourage customers to grab a caffeine fix while browsing the aisles.
Dunkin' Donuts is also moving ground forces into Krispy Kreme's home state of North Carolina, where it intends to build on its existing 23 locations. There even appears to be room for more Dunkin' Donuts in the Boston area. As recently as 1995, company executives believed the strongest markets could sustain no more than one store per 25,000 residents. It now targets a ratio of 1 to 7,000. “Since Krispy Kreme announced its entry into New England in January 2001, we have added 250 stores in the region,” says Dunkin' Donuts VP Ken Kimmel. “I love that fact.”
To make sure that all these new stores are speedy and well-oiled, the company has figured out a way to climb inside the customer's head, to see what makes your saliva glands tick. Dunkin' Donuts has hired spies.
One year ago, the chain retained the services of Envirosell, a New York outfit that specializes in analyzing how the design of a store affects consumers' habits. For three days, the agency used a network of video cameras to record activity in four of Dunkin' Donuts' Boston stores. Teams of researchers, dressed to blend in, were dispatched to collect additional observations on clipboards. They tracked everything customers looked at, attempting to determine which signs were effective (and which were just distracting), where best to display information about new products, and how to minimize the phenomenon of the person who, after standing in line for minutes, waits until he gets to the counter to make up his mind.
“We hadn't studied an environment quite like Dunkin' Donuts. It was wild,” says Craig Childress, who headed the Envirosell team. “Customers would walk in, have a conversation with the cashier, and the entire transaction would be completed without any mention of their actual order or how much it cost. I had never seen that before. The level of loyalty and the social dynamics of the place were surprising.”
Dunkin' Donuts now consults the dossier Childress prepared when selecting the location of its displays, a decision scrutinized to the inch. The company has no definite plans to authorize further reconnaissance efforts, but that may just be its public position Â— after all, in the heat of battle, some missions must be kept secret.