Krispy Kreme Japan is Staging a Big Comeback

It can be tough for a transplanted brand to succeed in Japan. Krispy Kreme has learned that lesson firsthand. But after a few years where it looked like it might circle the drain, the franchise seems to be getting its legs back.

What happened? And – more importantly – will it make any headway against that other donut shop?

The trials and travails of Krispy Kreme Japan

“Business struggles in Japan” isn’t much of a headline. Pretty much every business in Japan – and the world – has had a tough go of it these past few years. The food service industry in particular has struggled to make up lost profits from a three-year decline in in-person eating.

But international brands often face another set of challenges altogether. What works in other countries doesn’t always necessarily translate to Japan. Subway has found that out the hard way as it’s struggled to make build-it-yourself sandwich culture take off. Meanwhile, other companies, like Starbucks, have enjoyed great success by tailoring their offerings to the Japanese market.

At first, it looked like Krispy Kreme was more Starbucks than Subway. Japanese companies Lotte and Revamp combined to forge a franchise contract with the American company and opened 30 to 50 stores within the first year. Rather than aim for affordability as in the US, Krispy Kreme Japan branded itself as a high-end offering. The chain also tailored its recipes to the tastes of the Japanese market[1].

And it worked. For a while. It wasn’t uncommon to see lines spreading out the door.

But in recent years, Krispy’s lost a bit of its krisp. After expanding to 64 stores, profits began to decline. All told, the chain’s had to shut down 17 stores.

What explains the dip? Many pundits contend that Krispy Kreme in Japan succumbed to two factors. One is the health – and particularly the low-sugar, low-carb craze – which hit Japan in recent years. The second: combini donuts. Critics contend the ubiquitous Japan phenomenon of convenience stores put a big dent in Krispy’s profits when they got into the fried dough market.

What explains Krispy Kreme’s big recovery in Japan?

But now, Doi Yoshinori, an editor at ITMedia, says the chain is roaring back to profitability. And it did so at the weirdest time possible for an in-person business: the middle of a pandemic. After taking an initial hit when the first lockdown occurred in Japan, the chain turned a nice profit in the fall of 2020. As of September 2022, profits continue to rise.

Doi says he disagrees with the conventional wisdom of why Krispy Kreme tanked in the first place. First, he says, the health craze in Japan continues unabated. That seems to disprove the contention it was ever a factor in the first place.

Second, industry insiders say they never saw any impact of combini donuts on sales. Combini donuts became popular for a while among a certain set of customers but interest eventually cooled. However, those in the know say the customer bases are separate enough that the spike and decline had little impact on Krispy’s core business.

So why the turnaround? Doi attributes it to two factors.

Doi says the initial boom left Krispy Kreme Japan struggling to deliver consistent quality at its stores. CEO Wakatsuki Takako (yes, a female CEO! in Japan!) made a concerted effort when she took over to right the ship. The store closings were a part of that. Survey results seem to show the effort is succeeding and that more customers say they’re receiving speedy and friendly service in each store.

Another factor: the increased number of “touch points” with customers. Even before the pandemic hit a crisis point in the country, Krispy Kreme Japan instituted additional sales channels, such as takeout, delivery, and store display cabinets. The move was an explicit play by CEO Wakatsuki to increase non-store sales. And it seems to be working beautifully.

Will Krispy catch Misudo?

Now that Krispy Kreme is roaring back, a good question is: what impact will it have on that other donut chain?

Mister Donuts (ミスタードーナツ; affectionately known as just ミスド; misudo) is a Japanese staple. The company opened its first store back in 1971 and went on a decades-long tear. At its peak, Mr. Donuts had 1,600 stores – far and above Krispy’s presence.

However, even Misudo hasn’t been immune to the ravages of the past several years. Social media users have been noticing for years that Mr. Donuts around them seem to be disappearing rapidly. And they are: the chain is down to a measly 978 stores as of September 2022[3].

It’s not all bad news. Profits are on the rise again and the franchise continues to expand into stores and throughout Asia. But as Money Voice notes, they also haven’t had a buzz-worthy “hit” product since around 2000.

Does that mean Krispy Kreme Japan is set to eat their lunch? Krispy CEO Wakatsuki doesn’t seem much interested in that. The chain does have plans to expand stores again. However, the focus seems to be more on creating a well-loved product that endures the test of time rather than dethroning Japan’s reigning donut king.

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Sources

[1] Krispy Kreme Donuts. Wikipedia JP

[2] 「大量閉店」に追い込まれたのに、なぜクリスピーは“復活”したのか. ITMedia

[3] 第３次ドーナツブーム到来も時流に乗れないミスドの現状。“大量閉店で苦境”との声も実際は？今のブームも「田舎では無縁」で復活を期待する声も. Money Voice