My Krispy Kreme’s

Krispy Kreme Doughnuts owns and franchises stores that produce and sell over 20

different types of specialty doughnuts. Since the company’s founding in 1937, Krispy Kreme has

grown into a leading specialty retailer producing over 1.8 billion doughnuts a year. With the

acquisition of Digital Java in 2002, Krispy Kreme expanded its product line to include gourmet

coffee. Retail stores now brew and sell their own line of coffee, which puts them in direct

competition with many food and beverage establishments. In the recent years, Krispy Kreme has

been expanding rapidly in both the United States and abroad. Their most important source of

marketing has been their loyal customer base and word of mouth. Their market is everyone,

everywhere. Krispy Kreme has become a universal product and a global brand. This has all

been accomplished without the expensive costs of brand building and product awareness. They

have significant growth opportunities domestically and internationally.

Krispy Kreme has had a strong presence in the southeastern United States for over forty

years. Fifteen years ago, a business model was put into place and the company began expanding

throughout the nation. Eight years ago, they entered into 27 new U.S markets. In December

2001, they opened their first international store in Ontario, Canada. Since that time, the business

operations have expanded into three additional international markets: Australia, the United

Kingdom and Mexico. In recent years, their target market has been cities with a population of

100,000+. As they continue to grow in the future, they will begin to expand their operations into

smaller communities.

The food and beverage industry as a whole is growing rapidly. Increasingly, Americans

are on the go and eating meals away from home. Doughnuts are fast and affordable treats, and
Americans are not just eating doughnuts for breakfast. Half of Krispy Kreme sales occur in the

late afternoon and early evening. People are eating doughnuts for dessert and for a quick snack.

Krispy Kreme even receives orders for wedding cakes made of doughnuts. Every time a new

Krispy Kreme opens in a community, it increases the overall awareness of doughnuts. Our

competitors even see increased doughnut sales when a Krispy Kreme opens a new location. As

we expand internationally, we hope to spread America’s love of doughnuts around the world.

Demographically, Krispy Kreme has no limits. People of all ages, ethnicity and income

enjoy our products. Our international stores have been enthusiastically accepted in all cultures.

We do not define our markets by geography - we define our markets by their stages of

development.

Market Geographies: Our strongest market is the southeastern United States and is our

Established target market. We have been doing business in this part of the country for over 65

years. We have a very loyal customer base which crosses all demographic lines. Since our

nation-wide expansion began in 1996, we have primarily focused on large cities and urban areas.

As we continue to grow, we will expand our operations into communities with smaller

populations that are currently serviced by off-premise retail sellers such as grocery stores and

convenience stores. Both of these expansion strategies make up part of our Emerging and New

target markets.

Market Demographics: Within our current markets, our demographic with the highest 12-

month patronage (26%) has been mid-boomers ages 42-55 (Sheridan ).

 According to the National Restaurant Organization, Americans spend approximately

$354 billion annually at food and beverage establishments (Fox ). Of this amount,

approximately $3 billion is spent on doughnuts alone. Over $6 billion is spent annually on

gourmet coffee, and with our expanded coffee and beverage line, we have broadened our market.

This will be very important in sustaining our long-term competitive edge.

Americans are increasingly looking for fast, affordable and convenient food alternatives.

Fewer households are preparing meals at home and this trend is expected to increase in future

years. Krispy Kreme satisfies each of these consumer desires. Krispy Kreme retail stores are

conveniently located off of major thoroughfares to allow easy access for customers. Many retail

stores feature drive through windows as an added convenience. Our products are also available

in grocery and convenience stores for customers in areas without a retail location. Despite a

trend in the U.S. towards healthier eating and low carbohydrate diets, Krispy Kreme’s business

has remained unaffected. People view our product as a treat, not a meal source. Doughnuts sales

have consistently increased over the past few years.

Technological advances have allowed Krispy Kreme to expand into new markets. New

doughnut warming machines allow doughnuts to be pre-cooked at factory stores. The doughnuts

are then reheated and glazed at the smaller retail stores, allowing customers to enjoy the hot

doughnut experience without manufacturing equipment onsite. The hot doughnut is a trademark

of Krispy Kreme and an advantage over the competition.

In the past year, Krispy Kreme has become more creative with new retail store

placement. The first airport store opened in Orlando, FL with great success. Customers

traveling to various destinations are able to bring fresh doughnuts to friends and family in areas
where Krispy Kreme is not yet available. This introduces the product to people in these markets

and creates anticipation for a store opening in their area. We have also opened stores in select

Wal-Mart stores allowing us to extend our product into smaller markets. In Toronto, a satellite

store was opened in the underground PATH. Thousands of business commuters were then

exposed to our products, which greatly increased demand in the Toronto area.

SWOT Analysis

Strengths Weaknesses
Great management team High turnover rate
Powerful Strategy Anti -Union
Strong brand name Franchise Operations
Good customer Service Rapid Expansion
utilizing volume-buying power Product Diversification
volume driven  
Strong dealer network  
Wide geographic coverage  
Inexpensive advertising  
   
Opportunities Threats
Rising consumer demand Competition
Expanding into new areas Foreign Currency Exchange Risk
Global Expansion Interest Rate Risk
Market Growth Commodity Risk
Competition Fragmentation  

A single Krispy Kreme doughnut has a nationwide average consumer cost of $0.85. A

dozen glazed has an average price of $6.00 while a dozen mixed doughnuts averages $7.00. At

the retail level, Krispy Kreme competes with other doughnut stores, bakeries, bagel shops, coffee

shops, fast-food restaurants, take-out food providers, grocery stores, and convenience stores. At

the wholesale level, it competes primarily with grocery store bakeries and packaged baked
goods. Krispy Kremes largest retail competitors are Dunkin Donuts and Starbucks. Krispy

Kreme customers generally visit occasionally and buy large quantities of doughnuts. Starbucks

and Dunkin Donuts target a market of daily visitors. The food and beverage industry is rapidly

growing and Krispy Kreme has found a niche. After acquiring Mister Donut in the 1990’s,

Dunkin Donuts became the doughnut industry giant in the United States. However, Dunkin

Donuts sees their largest competitors as McDonald and Starbucks. Doughnuts are only a small

portion of their product line. They also offer breakfast sandwiches, muffins, and bagels. Coffee

alone accounts for 35-40% of Dunkin Donuts sales. Their doughnut products are not made fresh

at the store. They are produced at a factory and shipped to the stores.

Krispy Kreme has set itself apart from the competition by creating a strong brand name.

People do not go to Krispy Kreme just for the fresh, hot original glazed doughnuts. They also go

for the experience. The fifties style decor and the doughnut-theater have made Krispy Kreme a

destination. Customers can watch doughnuts being made through glass viewing areas. A neon

sign in the window alerts customers Hot Doughnuts Now. It is the mystique as well as the

doughnuts that people drive for miles and stand in line for hours.

Krispy Kreme's business objective is to create shareholder wealth through an ambitious

growth strategy. Our proven business model is built around increasing brand awareness and

ultimately creating brand loyalty. Krispy Kreme's target market is all encompassing. We believe

that everyone is a potential doughnut lover and more importantly a potential Krispy Kreme brand

loyalist. Thus, our aim is to differentiate Krispy Kreme from the competition. Our competition

is variable and diverse including other doughnut retailers as well as bakeries, bagel shops, coffee

shops, fast-food restaurants, grocery stores and convenience stores. Our marketing objective is
not only to increase our market share in providing doughnuts and coffee, but to also expand the

total market. Krispy Kreme will achieve its ambitious growth strategy through strong

positioning, optimized distribution channels, a product mix built around core products, intelligent

promotions, and providing inviting facilities, service and pricing. The Krispy Kreme brand name

is central to our business achievements. We specialize in serving up the world's most delicious

glazed doughnut; however the experience we provide to our patrons is the cornerstone of our

brand. Without our world renowned brand reputation, we are just another innovative corner

coffee shop.

To consumers of all ages, race, and income levels, Krispy Kreme is the leading provider

of premium quality doughnuts and coffee beverages. As well as providing an exceptional

product, we provide a visual and visceral experience unmatched within the doughnut and quick

retail food arena. Patrons associate Krispy Kreme with happy memories because we offer a

social and high-quality product and experience.

Doughnuts are an inexpensive luxury. Krispy Kreme’s pricing strategy is to maximize

our market share and increase profits. We provide a premium quality product, service and

environment at an affordable price. Generally our doughnuts cost more than our competitors'.

Our pricing strategy is used as an indicator of quality and enhances our image of providing a

higher quality product. We do not cut prices to create a cheap product. Overall, our strategy

makes our sales recession proof and our long run financial goals realistic.

Marketing research will identify specific opportunities and problems, while defining the

market situation facing Krispy Kreme. Internal and external research will drive our marketing

efforts. Internal marketing research will be conducted in-house in the form of observational
research, survey research, behavioral data and experimental research. These tools will assist

Krispy Kreme in enhancing and refining our product mix. External marketing research will be

imperative for successful growth and entrance into our target markets and will be conducted by

independent market research firms such as Marketing Intelligence Service Ltd, and Information

Resources Inc. Research will provide information on the markets, the marketers, competitive

profiles, retail strategies, the consumer, the products, trends and opportunities. This information

will be invaluable when analyzing international cultures and global opportunities.

Our action programs will focus on growth within our four defined target markets:

established markets, emerging markets, new markets and undeveloped market. Within each of

these markets, we will implement various marketing strategies based upon previously discussed

topics such as distribution, promotions, demographics, marketing research, etc. As our market is

worldwide and very diverse, it is fair to say that our overall action plan will adopt various

marketing strategies to achieve our end goal, which is to increase on and off-premise sales

through new company owned and franchise stores. This will in turn automatically increase

revenue for our manufacturing and distribution unit, KKM&D.

This plan encompasses an aggressive approach to our "New Markets". Starbucks, one of

our identified competitors, has adopted one the of most aggressive growth strategies in the

industry. Even though Krispy Kreme has been effective in the southeastern United States where

we began our business, there are many parts of the country that are not served by Krispy Kreme.

It is important that Krispy Kreme take a stand against competitors in their stronghold

territories. The northeast has been a stronghold of Dunkin' Donuts, a key doughnut competitor.

Within 20 miles of Boston there are 271 Dunkin' Donuts retail locations, yet Krispy Kreme only
has three locations in the entire state of Massachusetts. While some would say that attempting to

push into a stronghold like Boston would be suicide for a doughnut retailer, it is important to

consider the brand equity that the Krispy Kreme brand carries. If Krispy Kreme were to enter

these markets as more of a boutique doughnut shop, we could increase our market share

significantly. The renowned quality and Krispy Kreme mystic would continue to differentiate us

from all other doughnut retailers. Krispy Kreme needs to become the customer’s choice when

they want a great doughnut with great atmosphere. People go to Starbucks for a consistently

good cup of specialty coffee and the atmosphere. If they just wanted a cup of coffee, they would

drink the coffee at their office for free.

Our aggressive growth action plan is already in place and continues to improve as we

gain further knowledge of our new markets and our competitors. Besides our focus on growth in

our four target markets, we feel there are additional action plans that can increase brand loyalty,

number of purchases per customer, number of visits per customer and overall revenue. The first

such action plan focuses on increased brand awareness through promotions, fundraising, public

relations, sponsorships, social cause marketing, our website, etc. to create a buzz.

"The Great Doughnut Giveaway!" It is important to reach out to potential customers. A

Denver-based company, Chipotle, inspires this giveaway concept. Chipotle, a burrito restaurant,

has a policy of never discounting their product. Consumers will only pay full price or nothing at

all for a Chipotle burrito. If Krispy Kreme were to offer 2-for-1 deals on our doughnuts, it would

cheapen the image of the product and consumers might start waiting for the promotions before

they purchased our product again. Bed, Bath, & Beyond made the mistake of offering a 20% off

coupon during difficult financial times. Bed, Bath, & Beyond continued to offer these coupons
every month. Now, the firm continues to lose money to this promotion because customers wait

for the next 20% off coupon before they make a purchase at Bed, Bath & Beyond knowing that

another coupon will be in their mailboxes within a month.

The marketing department at Krispy Kreme will craft the doughnut giveaway. The most

effective approach would be to place coupons within newspaper advertisements, so that

customers could clip the coupon themselves. The website could also feature a printable coupon.

These coupons should be valid for no more than two weeks, as we want to give people enough

time to use them, but not enough time to abuse them. This type of promotion should not be

offered more than twice a year. The costs involved with this type of promotion could vary

greatly. The advertisement space must be purchased in each market that Krispy Kreme operates,

which is a fixed cost. The variable cost depends on how many people actually use the coupons

and how much revenue is lost due to giving away product.

The financial objectives are ultimately derived from the marketing objectives and actions

programs. As stated earlier, Krispy Kreme intends to grow at an annual rate of 70% in the short-

term. For purposes of this analysis, short-term is one year. Long-term, Krispy Kreme's goal is

an annual growth rate of 15%. With financial objectives firmly in place, Krispy Kreme’s profit-

and-loss picture can start to surface. While only estimates of future performance, analyzing both

the revenue and expense sides of the equation further supports the action plan proposed. With an

aggressive goal of 70% growth in the first year and 15% going forward, Krispy Kreme will reach

nearly $2 billion in sales within five years.

The estimated marketing cost to implement our actions programs is approximately 6% of

sales. The budget must allow for this significant amount of funding in order to implement the
proposed actions programs. As covered earlier, Krispy Kreme has three main revenue streams:

Company Stores, Franchise Operations, and KKM&D.

There are risks and uncertainties with Krispy Kreme's rapid growth that could cause our

actual results, performance or financial condition to differ from the expectations of future results,

performance or financial condition. Factors that could contribute to these differences include:

Krispy Kreme’s ability to continue and manage growth; delays in store openings; the quality of

franchise stores, including joint venture, operations; the price and availability of raw materials

needed to produce doughnut mixes and other ingredients; changes in customer preferences and

perceptions; risks associated with competition; risks associated with fluctuations in operating and

quarterly results; compliance with government regulations; and other factors discussed in Krispy

Kreme’s periodic reports, proxy statement and other information statements filed with the

Securities and Exchange Commission. (KKAR)

 References

American Institute of Baking, Doughnut Statistics and Trends, [available at

http://www.aibonline.org/resources/statistics/doughnut.html]

Fox, Courtney, Krispy Kreme Doughnuts, Inc. Expanding Globally by Changing the

Product,[available at http://www.smu.edu/ecenter/discourse/CourtneyFox2.htm]

Horovitz, Bruce, USA Today, Jumping Jelly! Doughnuts Dominate Dining Growth.

[available at http://www.usatoday.com/money/industries/food/2003-05-27-doughnut-

growth_x.htm]

Krispy Kreme Annual [available athttp://www.krispykreme.com/investorrelations.html

Peters, James, Sugar rush: Krispy Kreme rises, challenges segment. [available at

http://www.findarticles.com/cf_dls/m3190/28_35/76561330/p1/article.jhtml]

Phoenix Coyotes http://www.phoenixcoyotes.com/promotions/krispy_kreme.php]

Rusch, Robin, Krispy Kreme on the Rise. [available at

http://www.brandchannel.com/features]

Sheridan, Margaret, Restaurants & Institutions, Consumer Favorites:

Doughnuts/Cookies/Coffee [available at

http://www.keepmedia.com/pubs/RestaurantsandInstitutions/2003/03/01]