Even if the curvature is $\leq 0$, hence the exponential is a diffeomorphism, one can find a point where $r$ is not smooth. Intuitively, if $r$ is smooth its gradient would give you the shortest way to go to the origin. Consider the shortest loop based at $p$ of length $l$. On this loop consider the point $q$ on this geodesic at the distnace $l/2$ of $p$ ; if the exponential map computed at the point $q$ is a diffeo (for instance if the manifold has $K\leq 0$), in the neigbourhoof of $q$ the gradient of $r$ would give you two opposite direction.
For example, consider a surface with curvature $0$ outside a small neigbourhood of some point with huge negative curvature, (even a flat torus if the genus is 0), and such that our geodesic loop remains in the $K=0$ region.
Passing to the univeral cover at the point $q$ via the exponentail map at this point, one see that the distance to $p$ can be computed in a chart : is the minium of the distance to two points say $P, P'$ such that the origin (the lift of $q$) is the middle. Using Pythagore formula the distance in this euclidan open set will be $r(x,y)= Min (\sqrt {(x-l/2)^2+y^2} ; \sqrt {(x +l/2)^2+y^2)}= Min (r_1, r_2)$ (around $(0,0)$. But $\partial _x r_1 (0,0)=-1$, and $\partial _x r_2 (0,0)=+1$, and $f$ is not smooth.
For your second question, on the 2-sphre with constant curvature, if $p$ is the south pole and $q$ the north pole, $q$ is a crtical value of $\exp _p$ but around $q$ the distance to $p$ is smooth.