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Tuesday, Dec. 11, 2007
Tenacity, chance imported Krispy Kreme craze
The long lines of people waiting for the taste of fresh glazed doughnuts don't seem to be getting any shorter at Krispy Kreme outlets in the Tokyo area, even after the U.S. doughnut chain's third store opened last month in Kawaguchi, Saitama Prefecture.
Its success is the result of long, draining negotiations headed by Takashi Sawada, board director of Krispy Kreme Doughnut Japan Co. and cofounder of corporate turnaround company Revamp Corp.
"There were many twists and turns during the four years it took to sign the (franchise) contract with Krispy Kreme," recalled Sawada, 50, a former vice president of Fast Retailing Co., the operator of Uniqlo stores.
The roller-coaster experience Sawada went through reflects the rise and fall of Krispy Kreme in the U.S., which enjoyed a surge in its stock price after it went public in 2000 but plunged when the U.S. Securities and Exchange Commission launched an investigation into the doughnut chain in 2004 for alleged window-dressing of profits.
When he first started negotiating, the share price of Krispy Kreme was high and the company made stringent demands for the franchise contract in Japan, Sawada said.
At that time, many Japanese companies were competing to win the Krispy Kreme contract. Chief among them was McDonald's Holdings Co. Japan, Sawada said, adding that there was even talk about McDonald's and Revamp teaming up to carry out the Krispy Kreme business together.
But the continued investigation into Krispy Kreme in the U.S., which forced many of the company's executives to resign, brought the negotiations to a halt.
Eventually, however, Sawada succeeded in winning the contract.
"I didn't give up," he said. "I think Krispy Kreme's staff thought that I had the strongest passion to introduce Krispy Kreme to Japan."
His love of the glazed doughnuts combined with his tenacious negotiating style helped him win the franchise contract after years of talks.
Sawada first came to know about the Krispy Kreme craze in the U.S. in 2002 through a friend of several decades, Lawrence Maltz, a former executive of Starbucks Corp. who encouraged him to introduce it to Japan.
"When I tasted doughnuts fresh from the oven, it was as if they melted in my mouth," Sawada said. "I thought I could eat many more."
Despite warnings that glazed doughnuts might be considered too sweet for Japanese tastes, Sawada was strict in his policy of not changing the taste before getting consumer responses in Japan.
"If consumers think we need to change the taste, we will take that into consideration," he said. "But if we made changes before opening the first store, we wouldn't know what was right and wrong when we make revisions."
While Krispy Kreme may be a popular doughnut brand often found in U.S. supermarkets, convenience stores and gas stations, Sawada's idea was to add a sense of premium to the brand — that eating the doughnut would be considered fashionable.
So far, Sawada's strategy appears to be working. People continue to flock to the first outlet in Shinjuku, which opened last December, winning huge media attention.
The second opened in the new ITOCiA shopping complex in the posh Ginza district in October and the third last month in a shopping mall in Kawaguchi, Saitama Prefecture.
The fact that Krispy Kreme was able to open its first store near JR Shinjuku Station, which Sawada claims was more by chance than precise marketing, led to the success of its other stores as well.
"Even if we had a strategy, it couldn't have been achieved if that property was not up for sale," he said. "We just happened to get the information that an Italian restaurant there was about to close down."
Sawada acted fast. Although there was already a deal about to close for the property, he cut in and persuaded the realtor to sign a contract with him.
Krispy Kreme Doughnut Japan, owned 30 percent by Revamp and 70 percent by confectioner Lotte Co., plans to open 30 to 50 stores in the next fives years, but Sawada says its huge popularity may force the company to push the schedule forward.
"What we have to do first is to deliver the doughnuts as quickly as possible so that our customers don't have to wait long to buy the product," said Sawada.
Through projects like Krispy Kreme, Sawada, as managing partner of Revamp, hopes to dig out potential businesses and make them prosperous by investing in financial and human resources of its own.
That is why Revamp is not an investment fund that gathers a large amount of financial resources from investors and tries to increase the money by helping rebuild ailing companies.
"What we want to do is to look for potential businesses and run the company with partners we can trust using our own financial resources," Sawada said. "It will give business opportunities to the younger generation, and that is how I can contribute to society."