KRISPY KREME

I. CASE BACKGROUND

Company Background

Krispy Kreme had started operations as one doughnut shop in Winston-Salem, North Carolina in 1937 by
Vernon Rudolph. When Rudolph’s death in 1973, Beatrice Foods bought the corporate and expanded it
to quite 100 locations and introduced other products so as to vary the looks of stores. Joseph McAleer
had completed bought the corporate for $24 million in 1982 from Beatrice Foods. the corporate had
been success among year 1989 to year 1998 and therefore the number of stores had expanded in many
states and countries. Krispy Kreme Doughnuts generated revenues through four primary sources such
as on-premises retail sales at company-owned stores, off-premises sales to grocery and convenience
stores, manufacturing and distribution of product mix and machinery and franchisee royalties and
charges. However, when come to the year 2004, the company announced to investor that they expect
earnings will dropped 10% thanks to the low-carbohydrate diet trend within the United State. This had
affected the company’s wholesale and retail sale within the end result in the web income of the
corporate dropped badly in year 2004. during this food-service industry, Krispy Kreme has many
competitors which will hurt the sales of the Krispy Kreme like Starbucks, Panera Bread Company, CKE
Restaurants. one in every of the largest problems that Krispy Kreme have to face is that the company
grew too quickly. this is often thanks to the life variety of the community has changed. apart from this,
Krispy Kreme is tied to the expansion within the number of franchised stores because Krispy Kreme
highly relied on the high profit-margin requirement that needs franchisees to shop for every new store.

Krispy Kreme Doughnuts Inc. may be a specialty retailer of doughnuts that are made in franchised and
company owned stores. “Hot Doughnuts Now” neon sign had become ubiquitous. It shows that Krispy
Kreme Doughnuts Inc. is raising strong brand awareness within the UK. Krispy Kreme Doughnuts Inc. has
an intense rivalry in the doughnut business with existing chain operations, particularly from Dunkin
Doughnuts and to a point restaurant chains like Starbucks that serve doughnuts and pastries as a worth
added service effect. to extend the quantity of stores, Krispy Kreme Doughnuts Inc. is required to
compete with the industry leaders and need to take a position in great amount of capital. it's difficult for
Krispy Kreme Doughnuts Inc. to expand the shop network because of the cash reserves is low, cost
prohibitive and also the limited access to debt. This cause the Krispy Kreme Doughnuts is running into
problems because they're unable to manage costs effectively thanks to reasons they need focused too
heavily on expansion on increasing same store sales. Their expansion supported large and expensive
factory stores which require an oversized amount of fixed charge will cause the break-even points to be
high and force to closure of the stores. Krispy Kreme Doughnuts also having a tricky time matching what
the competitors can give customers because the quick-service restaurant sector of the economy is
extremely competitive. a number of the competitors, for instance McDonalds now are encroaching into
the breakfast market while Krispy Kreme Doughnuts is losing its advantage and position within the
market. Krispy Kreme Doughnuts has trouble to encroach into the breakfast market because they only
offer only doughnuts, coffee, and sweet treats.

Besides that, a social trend towards healthier is additionally one amongst the matter that faced by Krispy
Kreme Doughnuts Inc. When come to year 2004, more and more people claimed for the low-
carbohydrate diet trend. It influenced Krispy Kreme Doughnuts Inc. indicated that it had plans to shut
three of the recent Doughnut and Coffee Shops thanks to the falling wanting expectation. Additionally,
Krispy Kreme Doughnuts doesn't amortize the franchisee after they'd required the franchise rights.

Competition Analysis

Krispy Kreme competes in two distinct markets. The first, and most evident, is that the restaurant
industry, which is broken into three segments: alimentation, fast-casual, and full service. the primary
two are primarily separated by the standard of food and atmosphere. The company’s limited menu
offerings and store décor suggest its place within the victuals sector, but the standard of their
doughnuts is more in line with the standard of food served at fast-casual locations. This industry has
performed well within the last year, despite underperforming the broader market. Restaurants are
making the most of the recent trend aloof from at home dining: about half total food expenditures of
the last year were spent outside of the household, and the percentage is predicted to extend.

The coffee segment of nutrition and fast-casual restaurants is a crucial one. Currently, only 15% of Krispy
Kreme’s sales come from beverages, which is significantly less than the industry average. The company
sells a “premium” private label brand of coffee under the Krispy Kreme name, allowing the profit
margins on coffee to be much greater than the margins on doughnuts. Gotham Global encourages the
corporate to extend coffee sales. At the recent Annual Meeting, the thought of selling a doughnut and
occasional “combo” was suggested. Attaching coffee sales to already-healthy doughnut sales could be a
good idea and will be followed through. The increased target coffee sales will put the corporate up
against coffee chains like Starbucks and Caribou Coffee additionally to direct competitor Dunkin’ Donuts.
While these companies represent a strong market force, consumers in the fast food and fast casual
restaurant market have low switching costs, and the unique product mix of high-quality doughnuts and
premium coffees can attract customers from rival companies.

Direct competitors are:

• Dunkin Donuts - $2.7 Billion in sales (2002), 5200 outlets and 45% market shares.

• Tim Horton - $651 million in sales (2002), 2460 outlets

Indirect competitor such as:

• Starbucks, (coffee)

• Seattle’s Best (coffee)

• Winchell’s Donut House (bakery)

• LaMar’s Donut (bakery)

Krispy Kreme also sells their donuts to supermarkets, gas stations, and retailers (including Wal-Mart) for
resale. during this market of pre-packaged doughnuts, the corporate faces competition from the likes of
Little Debbie, Hostess, and Entenmann’s. These companies have a good range of product offerings,
extending beyond doughnuts to snack cakes, cookies, and pastries. Krispy Kreme’s offerings are less
spread out than its competitors, so promoting the initial Hot Glazed™ and other strong sellers during
this market would leverage the facility of the company’s reputation towards competitive sales.
Financial Performance

Krispy Kreme may be a major competitor within the restaurant industry, known primarily with
doughnuts. Near the end of 2004 and therefore the beginning of 2005, the economy began to slow.
Other business in competition with Krispy Kreme began to crowd into its market and expansion plans
that Krispy Kreme had projected had to be scaled back because of falling sales. Consumer interest in
reduced carbohydrate consumption, including, but not limited to the interest in and recognition of low
carb diet are blamed for declining sales in pre- package (grocery store) doughnuts. Krispy Kreme’s
Business strategy is targeted on revenue from their company owned store, royalties and franchise fees,
and sales of mixes, specialty coffee and donut making equipment. They felt strongly that the franchising
was the simplest thanks to go, because it involves little risk for the, provided income and at the identical
time, put more responsibility on the franchise holder.

In 2003, the company’s business strategy was to feature enough new store to extend sales enough to
achieve 20% annual revenue and 25% annual growth in earnings per share. However, they didn't invest
in development as their product were easy to duplicate sufficiently for many customers. As a matter of
fact, many of their competitors consider Krispy Kreme entry as advantage, because it brought attention
to donuts, which resulted in increasing their own sales.

In the financial report made by CSI Market, in 2017, Krispy Kreme Doughnuts Inc reported Revenue
growth of three.03% year on year within the half-moon, to $ 136.48 millions, this can be less than Krispy
Kreme Doughnuts Inc's recent average Revenue growth of 6.75%. Fast forward to today, Statistica.com
indicated that the sales of Krispy Kreme within the u. s. from 2001 to 2019 amounted to 887 million U.S.
dollars within the u. s. in 2019, up from 805 million U.S. dollars the previous year – significantly doubled
compared to the sales within the previous decade.

II. SWOT ANALYSIS

1. STRENGTHS
 Neon “Hot Doughnuts Now” sign encourages people outside the store to make an impulse
purchase.
 Market research shows appeal extends to all major demographic groups including age and
income.
 Hot shop “stores save money while keeping KKD customers experience intact.
 Vertical integration helps ensure high quality products.
 Consistent expansions, now in 16 countries.
 Product sold at thousands of supermarkets, convenience, stores, and retail outlets through U.S
 Recognizable brand name
2. WEAKNESSES
 Return on equity, assets, and investments all negative in the trailing 12 months; skills of mgmt.
Is questionable
 Shareholders have not received dividends recently, and are not expected to in near future; stock
price in state of flux
 Closing stores when stores should be opening globally at steady rate to keep up with
competitor’s growth
 Management states in recent 10-k that it is struggling with how to make stores profitable
 Product line slow to expand with nothing outside “Sweet treats” to draw in health-conscious
customers
 Advertising not aggressive enough to appeal areas outside southeast of U.S where must stores
are
 Revenues down, net losses in each of past three years

3. OPPORTUNITIES
 Development into diversified product markets
 Detection of the problem occurring in the management of the business and thus the fall in
business and profitable
 Develop the social outreach programs to promote the doughnuts and to promote the customer-
based objectives and missions of the organization.
 Reaching the market to really know what the customers want and then to develop the
marketing and strategic policy in accordance to that.
 Asians love sweets and they are open to try foreign foods
 Starbucks lacks a diversified and distinctive pastry line
 Dunkin Donuts does not have hot doughnuts to sell
 Many children love sweet threats.

4. THREATS
 Tough competition and increasing global recognition of Starbucks and Dunkin donuts
 Global presence of the competitors
 More health-conscious customer base
 Development of Organic markets
 Starbucks has approximately 25 times the number of stores worldwide than Krispy Kreme donut
has
 Restricted cash flow from banks and massive layoffs have stifled the world economy,
decreasingly discretionary income
 Europeans prefer their local brands of doughnuts
 Britons tend not to have cars, which inhibits drive thru customers, and their eating habits and
office etiquette differ from Americas
 Shareholders may sell KKD stock for lack of returns and dividends compared to other similar
firms in the industry
III. ACTION PLAN

1. The company's board of directors approves the innovation and development of the products
and menus with healthy options.
2. The CEO prepares plan of action including the following:
 Each branch or stores conduct a research of what products does the shoppers want/ doesn't
want by distributing survey forms to every customer.
 Sort and examine the menu. Remove the products that are less sold by the shoppers.
 Hire the simplest nutritionists for help in making the healthy options within the menu.
 Start innovating some products.
 Review the pricing of the products and therefore the quality of the products.
 Submit the plan of action to the board of directors.
 Implement the plan.