After four years of record growth, Krispy Kreme this week announced its first-ever quarterly loss. While the doughnut company has placed much of the blame on the explosion of low-carb dieting, Krispy Kreme’s shift away from its core brand values may really be to blame.

This week, Krispy Kreme reported an unprecedented quarterly net loss. The doughnut company, which had US$666m in sales in 2003, has posted a Q1 loss of $24.4m and has announced expected profit decreases of 10% for 2004. Krispy Kreme has blamed the current low-carb dieting craze for its woes. Indeed, in an effort to combat the trend, Krispy Kreme announced on Wednesday that it would introduce low-carb doughnuts to its menu.

Much of Krispy Kreme’s popularity has centred on its reputation as an offbeat brand whose products are best enjoyed hot out of the oven. The company’s tagline “The Hot Light Is On” refers to the trademark neon “Hot” in-store sign used to notify customers when a new batch of doughnuts has finished baking. Over the past four years, however, the company has expanded rapidly to over 400 stores, and has become increasingly reliant on selling pre-packaged doughnuts on retail store shelves.

While Krispy Kreme has blamed the low-carb trend for its falling profits, Dunkin’ Donuts has had no such problems. Indeed, the doughnut giant posted a 9% growth in sales in its 4,000 stores over the last six months. Dunkin’ Donuts does not offer pre-packaged versions of its products. Instead, the company establishes retail centres within larger stores, baking its products on the premises and maintaining the look and feel of its other stand-alone outlets. Leveraging the bakery’s sensory appeal, Dunkin’ Donuts uses the scent of freshly baked doughnuts to draw customers.

As consumers rely more heavily on impulse purchases for snacking, Krispy Kreme has moved further away from the ‘freshly baked’ concept upon which it has built its success. Rather than blaming external factors, it should get back to basics, and examine is core brand values.

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