Krispy Kreme closes 21 stores as part of restructure plan

Krispy Kreme will close nearly half of its Australian stores, resulting in the loss of over 200 casual, part-time and full-time jobs, as part of a restructuring plan, with the aim of making the company financially viable, it has confirmed.

The announcement comes after the company was placed into voluntary administration late last month due to a range of factors including low sales, high costs and an unsustainable expansion strategy, which included poor locations with high rents.

Company spokesperson Matt Horan confirmed it will close 21 of the 48 remaining retail outlets on the east coast, but all staff entitlements will be paid and 61 staff have been given jobs in nearby stores. The decision was the result of a first creditors’ meeting, which was held on Tuesday in Sydney.

“Following a review by its voluntary administrators, Krispy Kreme Australia today announced the closure of 21 retail stores as part of its restructure – 15 in New South Wales, five in Victoria and one in Queensland. Three stores were closed in the ACT last week,” the company said.

“A further 27 retail outlets will remain open and trading as usual as the voluntary administration process continues.”

The stores to be closed in New South Wales are the Macarthur Square, Blacktown, Brookvale, Campbelltown, Castle Hill, Erina, Erina Fair, Hornsby, Jesmond, Lake Haven, Mt Druitt, North Ryde, Sydney George Street, Sydney QVB, Tuggerah and Tumbi Umbi locations.

Victoria will lose the Broadmeadows, Chadstone, Crown Casino, Eastland and Southland stores, while Brisbane will lose the Albert Street location.

The company has also confirmed the voluntary administration process, spearheaded by Smith Hancock, is still ongoing. Horan says directors are still hopeful the company will be brought out of the administration process.

“The directors of Krispy Kreme appointed voluntary administrators to the company in October, having formed a view that… due to a number of underperforming stores, the company was at risk of not meeting its financial obligations if it continued trading under the current model,” the company also said.

It is also understood the Krispy Kreme Doughnut Corporation, which owns the brand, are keen to restructure the firm. Other investors include Soul Private Equity, which bought a 24% stake in 2006 for $16.996 million, David Coe and Rams Home Loans founder John Kinghorn.

Krispy Kreme opened to popular demand in 2003, but since then sales have dropped and the company has expanded rapidly with fewer than expected sales. In 2008, Soul Private Equity wrote down its investment.

The company has lost over $200 million since it launched earlier in the decade. The company posted a loss of $12.5 million in 2008, and while sales increased in 2009, the chain only managed to record a profit of $62,000.

Chief executive and major shareholder John McGuigan, who is also understood to have pumped millions of his own money in keeping the company afloat, said last week factors including poor locations, declines in sales, rents and high distribution costs have forced the company to restructure.

The latest development is reminiscent of when Starbucks reduced its Australian store count in 2008 by 61, with analysts saying the company expanded too rapidly while lacking sufficient demand.