Now, let’s continue my entry about franchising. Be warned though, this is a long read… Get some chips and dips, because I believe this will be interesting.

The last time I blabber about franchising, I talk about problematic brands that tried to extend its wing but seemingly didn’t have the strength to flap it out. Es Teler 77 probably a small example from a good pool out there, but it is good enough to illustrate. Let’s take a recap, this is weekend anyway where I usually wrap things up in weekend roulade.

Es Teler 77 is what I call a geographic resource centric business, meaning that it can’t operate at 100% efficiency outside the boundaries or places that it needs its resource to operate. Es Teler 77 needs ripe-fresh-and ready tropical fruits that can only be found… D’oh, in tropical countries. Opening a branch or selling a franchise on non tropical countries means that it has to deal with the hassle of exporting and importing fresh produces which in itself is a hassle. Creating Es Teler 77 signature product is not quite the easiest thing in the world. It’s like making Sushi, you have to select the best ingredient out there, ingredients which are best taken directly and used immediately from mother earth.

There’s also the problem of habit of eating when introducing Es Teler 77 signature product outside tropical countries. It’s not a dessert, it’s heavier, it’s not condiment, it’s something more, so what is it? Well for sure on four seasoned countries it can only be eaten on summer or at least best to, so there goes 9 months of potential revenue. What about culture? Here in Indonesia people love impulse buying, especially snacks. Almost anywhere in Indonesia you can find small stalls which sells snacks from simple fried cassava/banana/tofu/chicken, to traditional snacks. Mind you that these are not light snacks but can be considered as light meal. Now what countries have that kind of eating habit? Not much eh?

Speaking of habit of eating, let’s continue on to our second example, Krispy Kreme…

Donut’s as we know is an American thing, coffee and donuts, just like the cops on those movies always took in the morning or when they are in break. For years donuts are considered as snacks in Indonesia, made not so popular by Dunkin Donuts, the first Indonesian franchised store which sells donuts. Then suddenly, two years ago J.co, a locally owned donut retailers opened up its business and BOOM! Donuts are on its way to stardom baby! Donuts are now hip and a cool thing, far from so so image Dunkin Donuts has created for years. Indonesians love new things, they will always took that 1st chance to try anything new. In marketing term you can say that Indonesians are super early adopters. Sell anything that is new here and people will buy it, seriously! Nokia E90? We got it, there’s even engineering sample sold on a local mega store. Lexus? Seen it driven here and there, even though they are ridiculously overpriced (Lexus IS250 is more expensive than Mercedes E260, and Mercedes has better image and recognition here). Chinese cars? There’s few on the road, Chinese motorcycle, ditto.

Yes Indonesians are super early adopters, but they also put emphasize on satisfaction and expectation. When a product is bad, most often than not the product will be literally shunned by the community. After all we are talking about Easterners stereotype where word of mouth are more believable than advertising or promotion. Chinese motorcycle for example, about 4 years ago it’s super cheap and people (at first) flock on to it, anywhere it’s Chinese motorcycle for a while. However, just like flash flood, it’s over instantly (in this case less than half a year), as cheap also equals cheap quality and everywhere Chinese branded motorcycle dying on the roads, on the workshop, everywhere. 4 years later, only a handful of people bought Chinese branded motorcycle, and that even after extensive test driving and manually selecting the bike before purchasing.

Now let’s back to Krispy Kreme stuff. 1 year after J.co opens up its business, it seems that everything is fine and dandy, people still queue long lines to purchase even half a dozen of donuts. Now does this means J.co’s donuts are a success, you bet it is. However, hot on the tail of J.co is PT. Mitra Adi Perkasa, Indonesian Krispy Kreme franchiser who wants a piece of the donut so to speak (pardon the pun). There are rumors that J.co is using Krispy Kreme recipe therefore it is expected that with brand name and originality claim, it is expected that Krispy Kreme will do better than J.co.

However, this is my critics lie upon Mitra Adi Perkasa, do they actually did a research about the eating habit of Indonesians rather than just following in J.co’s successful steps? Do they did a research that Indonesians like to eat donuts? This actually a classic condition where one fails to oversee the immediate surrounding or the market condition. Ya Kun Kaya, a Singaporean owned breakfast stall was a hit in Singapore even until today. When you visit Singapore, be sure to eat breakfast at one, the combination of milked tea and kaya sandwich are top notch. However here in Indonesia Ya Kun Kaya is positioned as a lavish upscale snack place in shopping complexes which opens at noon… WTF?? For years I saw mostly empty chairs and I’m just sad how a wonderful product was put out of its intended place. This is because Indonesians didn’t eat breakfast outside of their house, it’s just habit, custom, culture or whatever you might called it. Indonesians are communal individuals, they eat breakfast with the family in the morning, and if possible eat dinner together with the family. How about the singles? Well, they eat alone, but still at the comfort of home. Indonesia’s capital is not the friendliest place to travel you know, with traffic jams 24/7, there is not enough time to go anywhere to eat.

Does Mitra Adi Perkasa knows about donuts are not indigenous to the locals? I don’t know. Now let’s continue to the horror story that haunted Indonesia’s Krispy Kreme franchiser until today.

If you wanted to know how Krispy Kreme fair, please check my previous post about Krispy Kreme. I suspect that Mitra Adi Perkasa relies solely on J.co’s success and that Krispy Kreme is an international brand that they expect the franchise will be successful. However that’s just wrong. In my days of observing Krispy Kreme is that they are successful enough in the first months, queue line as long as J.co’s but it only lasts for a brief time. Now Krispy Kreme is like Dunkin Donuts, barren, devoid of customers except for the occasional people lured by the buy a dozen get two dozen more promo. So how can J.co survived but Krispy Kreme couldn’t? The answer is deceptively, and eerily simple.

While Mitra Adi Perkasa seemingly rely on promotion and Krispy Kreme brand, J.co actively pursue recognition in the form of pure marketing campaign. I’ve talked about habit of eating, where as donuts are not staple food or even snacks for Indonesians, so what does J.co did? They did a roadshow, taking donuts and coffee to universities and literally educate students to integrate donuts and coffee into their life. Now who wouldn’t target young aspiring future users these days? This conforms to Adam Morgan’s book, Eating The Big Fish (1999). He wrote about how second liner brands could outperform the number one brand. In this case, J.co used the classic approach of education, educating how to properly eat donuts and the likes. Who knows that glazed donuts are overly sweet because it is meant to be dipped into the hot coffee to soften the sweetness thus making the coffee sweeter along the way… I do, but most Indonesian’s don’t.

For J.co and Krispy Kreme, everything is already written in stone, as J.co aggressive marketing strategy seemingly defeat Krispy Kreme costly promotion. The defeat of Krispy Kreme lies not on its unattractive promotion, it is attractive indeed, you get triple for the amount you paid, but for what? Those who got “touched” by J.co will surely know how to eat and when to eat it properly. But those who eat Krispy Kreme just ate it because they bought it. Now it’s not just about Krispy Kreme lack of creative marketing effort, but also on its lack of improvement of the product they sell.

I’ve also noted on the last post about how Krispy Kreme franchise characteristic is its own down fall against creative competitors. It cannot changed its recipe because it’s a franchise company. Robert M. Grant wrote on his book (Contemporary Strategy Analysis, 2006) about evolutionary theory and organizational change. He mentions about organizational willingness to change and adapt to their surroundings if they see it fit. The lack of creativity out of Krispy Kreme might not be the fault of their franchisers, but attributed also to Krispy Kreme headquarter to not let local franchisers to introduce new products in its lineup.

I see Krispy Kreme Indonesia is dying, unless Mitra Adi Perkasa could introduce the same marketing concept as J.co, they might succeed, but for this time being, I’ll be watching from a distance, the slow death of Krispy Kreme Indonesia.