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PHILIPPINE CHRISTIAN UNIVERSITY

GRADUATE SCHOOL
STRATEGIC MANAGEMENT
(Group IV Rowena Miranda, Homer Deo Datu Estavillo, Maricar Telan)

I. CASE BACKGROUND

Krispy Kreme is an international chain of doughnut stores that was founded by Vernon Rudolph in
1937 in Winston-Salem, North Carolina, United States. Fueled from a secret receipe his uncle
purchased for making doughnuts from someone in Lake Charles, Louisiana; Krispy Kreme has evolved
into a publicly traded company with 523 stores worldwide both company owned and franchise as of
February 2009.
Vision and Values
Vision: To be a global leader in doughnuts and complementary products, while creating magic
moments worldwide.
Values: (with acknowledgement to Founder, Vernon Rudolph)
we believe...

Consumers are our lifeblood, the center of the doughnut

There is no substitute for quality in our service to consumers

Impeccable presentation is critical wherever Krispy Kreme is sold

We must produce a collaborative team effort that is unexcelled

We must cast the best possible image in all that we do

We must never settle for "second best"; we deliver on our commitments

We must coach our team to ever-better results

Krispy Kreme, while selling assorted doughnuts, its signature item is a glazed doughnut that is
traditionally served warm. To maintain the quality of its offerings both for its company and franchise
stores, Krispy Kreme controlled he manufacturing of all proprietary doughnut mixes and doughnutmixing equipments. Also, products from third party distributed through the stores are provided by
Krispy Kreme.

Growth History
1950s
Expansions including an early store in Savannah, Georgia, and elsewhere in the South.
1960s
Krispy Kreme was known throughout the Southeast, and it began to expand into other areas.
1976
Krispy Kreme Doughnut Corporation became a wholly owned subsidiary of Beatric Foods of
Chicago, Illinois. The headquarters for Krispy Kreme remained in Winston-Salem.
1982
A group of franchisees buy-back the company from Beatrice Foods in 1982 to concentrate in the
line of business.
1990s
Krispy Kreme began another phase of rapid expansion in the 1990s, opening stores outside the
southeastern United States where most of their stores were located. Then, in December 2001,
Krispy Kreme opened its first store outside the U.S. in Mississauga, Ontario, Canada, just
outside Toronto. Since 2004, Krispy Kreme has rapidly expanded its international operations.
From a small bakery when it is founded, the company grew to a public company with revenue amount
of $ 384 million as of February 2009. The store also grew to 523 worldwide.
Financial Scandal
The company has been accused of channel stuffing by franchisees, whose stores reportedly "received
twice their regular shipments in the final weeks of a quarter so that headquarters could make its
numbers".Krispy Kreme was also dogged by questionable transactions and self-dealing accusations
over the buybacks of franchisees, including those operated by company insiders. A report released in
August 2005 singled out then-CEO Scott Livengood and then-COO John W. Tate to blame for the
accounting scandals although it did not find that the executives committed irregularities.

Change Management and Strategy


On January 18, 2005, Krispy Kreme announced Stephen Cooper, chairman of financial consulting
group Kroll Zolfo Cooper LLC, as interim CEO. Cooper replaces Scott Livengood, who the company
said has retired as chairman, president, CEO and a director. The company also named Steven Panagos,
a managing director of Kroll Zolfo, as president and COO, to fuel the operation of the company.

A turnaround plan in December 2005 aimed to close unprofitable stores in order to avoid bankruptcy.
Although based on informal advertising such as word-of-mouth, in 2006, Krispy Kreme moved into
television and radio advertisements, beginning with its "Share the Love" campaign with heart-shaped
doughnuts.
On February 19, 2007, Krispy Kreme began selling the Whole Wheat Glazed doughnut in an attempt to
appeal to the health conscious. The doughnut has 83.736 kJ (20 kilocalories in most countries, or 20
Calories in the US) fewer than the original glazed (754 kJ vs. 837 kJ) and contains more fiber (2 grams
vs. 0.5 grams). As of January 2008, the trans fat content of all Krispy Kreme doughnuts was reduced to
0.5 of a gram or less. The U.S. Food and Drug Administration, in its guidelines, allows companies to
round down to 0 g in its nutrition facts label even if the food contains as much as 0.5 of a gram per
serving. Krispy Kreme benefited from this regulatory rule in its subsequent advertising campaign,
touting its doughnuts as "trans fat free" and having "0 grams trans fat!".
International Operations
Besides the stores that Krispy Kreme operate in the United States and Canada, there are also locations
in the United Kingdom, Australia, Lebanon, Turkey, Dominican Republic, Kuwait, Mexico, Puerto
Rico, South Korea, Malaysia, Thailand, Indonesia, the Philippines, Japan, China, the United Arab
Emirates, Qatar, Saudi Arabia, Bahrain,Hong Kong (20062008), andEthiopia.

II. Environmental Analysis


A. External Environment Analysis
A.1 General Environment

Socio-Cultural Environment

Opportunities
As a company with worldwide presence,
the world population is estimated to
increase yearly by 0.8% or around 80
million. This opportunity will propel the
growth of the company. Also, the

Threats
As the diet-preference of
customers shifting significantly
to low-curb or customers
becoming diet-conscious.

Political/Legal Environment

Technological Environment

Economic Environment

international expansion strategy through


franchising to known local company give
the company a localized support.
The international expansion of the
company through franchising to local
company will give a smoother political
and legal environment. Third world and
developing countries opened for
investments through easing the
requirements and giving fiscal incentives
to attract multi-national companies.
The surge of technology making the
world flat. Technology gives opportunity
for publicity and expansion to
environments that are still undevelop for
the business market. As customers
becoming more dependent to technology,
opportunities are high and reaching out
the market will be much easier than
before.
Economy of some of the most populated
countries like China and India are
growing faster than expected which
signal investor for better business results.

Changing legislations (e.g. Tax


laws) and political powers is a
threat to the company which cast
shadows to the long-term
presence of international
companies.
As consumers becoming more
dependent to technology,
customers becoming more aware
and more conscious to low-card
and other products competing
with Krespy Kreme.

Better economic environment


will be a destination for extreme
competition until time the market
will be saturated.

A.2 Industry Environment

Rivalry

Bargaining Power of
Consumer

Bargaining Power of
Suppliers

New Entrants & Entry

Opportunities
As the Krispy Kreme brand is very
successful in its unique marget segmet,
competitive rivalry will be an
opportunity for the market segment to
economic growth.
The company's signature graze donut is
unique and have its own market
position. This unique differentiation of
its market will provide a better
opportunity for the company and
bargaining power of consumer will not
be a much problem for its strategy.
The economy of scale as big company
will render the bargaining power of
suppliers lesser impact to the Company.
In effect, due to its economy of scale,
the company can get better cost price for
its raw materials.
The Krispy Kreme brand is well

Threats
Success of new product concepts
that can limit the potential
growth of the company.
Price will surely decrease due to
rivalry.
Consumers always find lower
priced products are more
attractive than higher priced
products. This consumer attitude
will be a threat to the company to
attract consumers.
Association for suppliers is a
problem to company due to
unique increase or decrease in
their prices.
New entrants will surely position

Barriers

Threats from Product


Substitution.

establish to its own unique market


segment. New entrants will not be a
problem as long as the company will
continously follow its improvements,
innovations and consciousness.
As the company have a controlled
supply and distirbution chain to
establish its quality and cost efficiency.
Product substite will be unlikely be
success and provide the same price and
quality standard.

their product to be a lower-priced


products. This strategy can
attract consumers.
As the company is operating in
the U.S., costs of products are
high. Quality can also be
achieved with lower costs throuh
production in lower cost
countries like China and India.

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