BUSINESSWEEK ONLINE: NOVEMBER 20, 2000 ISSUE

Readers Report

Biting into the Krispy Kreme Debate

Recent hype presents this company and the tasty doughnuts it purveys as a new phenomenon (''Krispy Kreme: A dozen hot questions,'' BUSINESS WEEK Investor, Oct. 30). But Krispy Kreme has been around for decades. The chain has had years to prove itself--and did not do so. New management, new marketing, and franchised outlet expansion can only do so much to reinvigorate an average performer, at best.

Unfortunately, ever since the demise of the corner bakery of yesteryear (crushed by Dunkin' Donuts), the average person has no idea what a good doughnut should taste like. Thus the upsurge in popularity of Krispy Kreme's warm, sugary offering. It has people yearning for a simpler, purer time when doughnuts were more of a morning breakfast staple.

The cracks in the armor will come when year-over-year same-store sales demonstrate underperformance. You can only open so many new outlets before you have to be accountable for same-store performance and growth. I suspect that when Krispy Kreme stock tumbles, a white knight like Starbucks may be in the wings to keep it out of the deep fryer.


M.J. Macedonio
Coppell, Tex.

The days of political correctness are about over, thank God. Give me stuff that tastes good: Screw the calories and fiber content. Krispy Kreme stock will fight the $100 ceiling for a while but will hit $120 before the end of the year and never look back. Rightly or wrongly, it will continue to outperform the market for the foreseeable future.

As for profitability, it has unlimited potential. It is the darling of the doughnut sector right now. If you don't own the stock, be prepared to spend the next five years writing articles about why it shouldn't be worth what it is. You might be right, but that and 25 cents won't buy you a doughnut.

Doug Morris
Peoria

People have lost the connection that, when you buy stock, you are buying a share of the company's earnings. When you buy stock in an ordinary company for a price-earnings ratio of 50 to 100, you can expect a 1% to 2% return on your investment. The rest is blue sky.

No one would become a partner in a business that expected a return on investment that low, but they buy the same deal on stocks every day. It's not investing. It's gambling that the next person is even stupider than you and will accept an even lower return. It's like a chain-letter pyramid scheme. If people ever wake up and discover there is no way to get their money back except by the whim of the market, a lot more than Krispy Kreme will crash.

David Bradish
Des Moines

Doughnuts have been around for a long time. In fact, they are made from our basic staples, flour and sugar. So long as people have a sweet tooth, there will be doughnuts.

Krispy Kreme's founder, Vernon Carver Rudolph--my father--built the company on basic principles: good product, good service, good price, led by a good team. For me, when it comes to a Krispy Kreme, I always see the doughnut, not the hole.

Beverly Rudolph Shaw
Winston-Salem, N.C.



In This Case, Self-Regulation Was Not on Trial

The use of unsubstantiated allegations in a frivolous lawsuit as a pretext to attack self-regulation in the accounting profession did a disservice to the profession, our firm and our former general counsel, Howard Krongard, and your readers (''The Big Five's credibility gap is getting wider,'' Management, Oct. 30). If your reporter had waited just a few days to hear the evidence in the case--which had nothing to do with self-regulation--he would have learned that the judge threw out the plaintiff's case because he found there was no evidence of any improper conduct by our firm or Mr. Krongard. Similar charges had already been dismissed by courts in Pennsylvania and New Jersey. The subject of self-regulation is an important one to the accounting profession. This commentary added nothing constructive to the discussion.

David M. Crutcher
National Director
Marketing and Communications
Deloitte & Touche LLP
New York



The West Is More Dependent on Oil Than Ever

A common fallacy in the press--and repeated in ''Earth to America: The world won't go away'' (Economic Analysis, Oct. 30)--is that the developed economies are now less dependent on oil. There is no need to be concerned about the tripling of petroleum prices, goes the argument, because Western society obtains more gross domestic product per barrel of oil. Oil efficiency is greater.

This logic is absurd. First, Western society is not less dependent on oil. In 1970, North America consumed 16 million barrels a day, Western Europe 12 million barrels, and Japan 4 million. Today, those three numbers are 22 million a day, 15 million, and 6 million. This is not reduced reliance on oil; it is greater reliance.

Second, the observation that we consume less oil per unit of GDP is a theoretical irrelevance. We no longer have the lifestyle or the incomes of our parents' generation. Nowadays we consume far more goods, and we travel more than they did, and therefore end up using far more petroleum. Western society is more dependent on oil than at any other time in history.

Andrew Oswald
Professor of Economics
Warwick University
Coventry, England



Online Bill Payment Could Be More Electronic

You missed the boat in ''The check is in the e-mail'' (Information Technology, Oct. 30). The real reason online bill paying hasn't lived up to its potential is that electronic payment systems have been little more than glorified check-writing services. To be a real help to customers, payment needs to be an instant electronic transfer from their bank accounts to the payee.

Until recently, I lived in Canada, where this has been the norm for years. I was able to pay all my bills electronically--credit cards, utilities, and local and federal taxes. The bills arrived in the mail, but I paid them electronically by instant funds transfer from my bank to the payee's bank. The best feature was ''post-dated payment,'' which allowed me to schedule payment of the bill on its due date, keeping my money in my account right up until the last possible moment. These features are offered by all the major banks in Canada.

By contrast, the ''electronic bill payment'' offered by my new banks requires me to pay bills five days before the due date to allow them time to process the payment, because in many cases they are simply mailing a check on my behalf. They also take up to two days just to set up a new payee. Online bill payment won't take off until it is a completely electronic process, without these time delays.

Bob Andrews
Coppell, Tex.



E-Books Won't Stand the Test of Time

E-books could be lifesavers for those who need access to hundreds of pages of product or technical information (''Will e-books be real page-turners?'' Media, Oct. 23). And I would rather carry one e-book with 10 novels in it than take the same number of paperbacks on a long trip.

But I can lend real books to multiple friends, multiple times, donate them to libraries or hospitals, or sell them in used-book stores. (Indeed, much of my library consists of used books.) Except for a minor investment in reading glasses, I will be able to read my real books without needing annual software or hardware upgrades. Finally, I don't have to worry about the size, shape, format, type of paper, or font. If a real book is written in English, I will be able to read it.

We can, today, read hieroglyphics, the Dead Sea Scrolls (2,000 years old), the Julius Work Calendar (circa 1020)--indeed, everything written on papyrus, paper, stone, or other material since the dawn of writing. E-book users will be lucky if they can read today's e-books on 2005 equipment. There is no chance that today's e-books will be readable 50 years from now, let alone 100 or 1,000.

Diane Danielle
Berkeley, Calif.



How to Empower Health-Care Consumers

Most health-maintenance organizations do such a poor job that concerned employers may well try contracting with doctors or otherwise getting directly involved in meeting workers' health-care needs (''What comes after managed care?'' Social Issues, Oct. 23). Well-run companies venture outside their core business only reluctantly but find that such employee advocacy can pay off in happy, productive workers.

Unfortunately, many employers who sponsor health benefits are unwilling or unable to devote the necessary resources to the task. The losers--mostly small business and public-sector employees, but also some at large companies--lack an effective program at work but can't buy health services on their own without losing the tax break for job-based benefits.

Why stop at cutting out managed-care intermediaries? Providing equal tax treatment for privately purchased health services would empower health-care consumers, give workers more choices, and relieve employers of a burden many would gladly relinquish.

Thomas Campbell Jackson
Institute for SocioEconomic Studies
White Plains, N.Y.



It Never Pays to Offer Lousy Service

Poor handling of less profitable customers can backfire (''Why service stinks,'' Cover Story, Oct. 23). Rather than bolstering a company's long-term value, it can spawn sagging profits--the very opposite of what it is supposed to do.

Of course, plum accounts should usually be pampered. But identifying and then alienating less-profitable customers--especially those who were wooed with offers of rock-bottom discounts--does not reflect strong strategy. Often, it is the ''me too'' approach now popular following a failed approach of soliciting everyone, getting as many customers as possible (frequently at deep discounts), expecting to retain them at higher prices, and wishing for eventual heavy cross-selling. Eliminating unprofitable accounts would not seem so necessary if companies had better strategies for attracting customers they want to keep.

Phyllis Ezop
La Grange Park, Ill.

Declining service springs naturally out of our current maximum-profits-this-quarter-no-matter-what business model. A classic MBA way of thinking about things is to measure what each customer costs right now. I call this quantification-of-all-things approach the MBA Syndrome.

Since our MBAs don't expect to stay where they are for very long, the most important thing is to reduce overhead for this moment. Of course, our MBAs do this only because they are encouraged by ineffective senior management. Interestingly, no one is thinking about how to make these low-rent customers more profitable. When businesses focus on cutting costs rather than increasing revenue, that is a sign of poor management.

I have had an account with a national bank for many years. I liked the convenience of its many branches, drive-up banking with real tellers, and friendly, helpful staff. Of course, that was then. This is now: drive-up tellers replaced by automated teller machines, branches closed, staff cut, tempers frayed, and the surviving staff tired and overworked. I'm leaving that bank for a smaller one that actually appears to want my business. Will losing my business hurt their bottom line? Probably not, but they are not just losing my business. They're also losing my children's future business--they are losing business from the many people who are in contact with me. Every customer lost takes away future potential business as well.

Bruce Phillips
Bellingham, Wash.

It's no secret that hotels, restaurants, and stores give better service to their regular customers. But this sidesteps the real question: How did these customers become regular in the first place? Probably because they were happy enough with that vendor to return for more.

And if vendors are now, as a deliberate business practice, giving first-time buyers lousy service, it seems reasonable enough that many customers will never return after the first visit. So where will the future regular customers come from?

But wait: Maybe we're on the verge of producing a whole new class of even higher-profit customers, who come back loyally again and again despite getting lousy service. And when they do, why bother to give them excellent service? In my business, all the new customers who appear are treated like the most important customer in the world--until they show themselves to be deadbeats.

Norman Linton
St. Petersburg

It is important for companies to realize that providing extraordinary customer service at all levels of the business is a real possibility--and it can be cost-effective at the same time. In fact, failing to provide the same effective service consistently across the board can be extremely detrimental to an organization in the long term.

All customers have the potential to be top-tier. Corporations that don't see a return on investment and continue to buy into the notion of providing the best service only to the most ''profitable'' customer are putting themselves at a disadvantage. Under this notion, corporations are not considering the overall reputation of a company; the cost required to obtain new customers vs. maintaining customers; and how effective customer service plays into overall competitive advantage.

There are technologies available today that give corporations the capability to empower every customer-service representative with the knowledge of its best agent and/or have the customers receive answers through assisted or self-service. There are two options: build your business by providing all customers great service all of the time, or gamble on those few ''best'' customers.

Massood Zarrabian
CEO and President
Servicesoft
Natick, Mass.

I've been in the retail business for almost six years, and customer service has always been taught as the backbone to success. Every sale is an important one, for it ultimately affects a company's bottom line. To give minimal service to those who spend less than others seems absurd. Opportunities for rewards or perks for spending should be offered to everyone. Companies need to be honest with consumers. They should be told up front that they might receive only minimal customer service if they spend only a certain amount. Customers are then responsible for their own actions, and in turn decide where to spend their money. Customers may appreciate the honesty more than finding out in BUSINESS WEEK how unimportant they really are.

Brett Bernandez
Danbury, Conn.



''Nothing mellow at Yellowave'' (News: Analysis & Commentary, Oct. 23, 2000)

''Nothing mellow at Yellowave,'' (News: Analysis & Commentary, Oct. 23) should have stated that Israel Digital Broadcast Corp. subsidiary NewS@t qualified for a license to broadcast satellite TV but has not yet paid for that license. Also, it was Prosper Abitbol and Eric Benhamou who were reunited in 1998, not Ron Oren and Benhamou. Finally, the statement about Benhamou's role being disputed in court filings should have read: ''Benhamou's role is but one of several issues Oren and [Laura] Ballegeer have with Abitbol.'' Benhamou is not party to this lawsuit.



''Equities: Up from the bottom'' (Finance, Nov. 6, 2000)

''Equities: Up from the bottom,'' (Finance, Nov. 6) incorrectly stated that JDS Uniphase and Ciena had earnings shortfalls. In fact, JDS recently reported a fiscal first-quarter gain, and Ciena has yet to report its latest quarter.



''Who is the fairest guru of them all'' (UpFront, Nov. 13, 2000)

''Who is the fairest guru of them all'' (UpFront, Nov. 13) should have said that Lehman Brothers' Net analyst Holly Becker first downgraded Amazon.com on July 26.





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LETTERS:
Biting into the Krispy Kreme Debate

In This Case, Self-Regulation Was Not on Trial

The West Is More Dependent on Oil Than Ever

Online Bill Payment Could Be More Electronic

E-Books Won't Stand the Test of Time

How to Empower Health-Care Consumers

It Never Pays to Offer Lousy Service

CORRECTIONS & CLARIFICATIONS:
''Nothing mellow at Yellowave'' (News: Analysis & Commentary, Oct. 23, 2000)

''Equities: Up from the bottom'' (Finance, Nov. 6, 2000)

''Who is the fairest guru of them all'' (UpFront, Nov. 13, 2000)

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