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Term Report - Strategic Management

Institute of Business Management

Strategic Management at
Krispy Kreme Doughnuts
Inc.

Submitted to:

Mr. Abdul Qadir Molvi

Submitted by:

1) Zahra Ramzan Ali – 7926


2) Zarish Safdar – 6939
3) Maaz Shahid – 7837
4) Safura – 7626
5) Sahar Najam – 8141

Date: 15th December, 2010


LETTER OF TRANSMITTAL

Mr. AbdulQadir Molvi,


Professor Strategic Management,
Institute of Business Management, Karachi.

Dear Sir,

This is the term report on Krispy Kreme Case-study (Strategic Management


Concepts & Cases) that was assigned to us. This report presents a complete
overview of the company in terms of its strategic management. Besides the case
study in the book, several online journals, magazines and company’s website have
been used to conduct the research. All the information we gathered has been
analyzed using different matrices taught in the class and presented in this report.
Also the recommendations for improving the strategies have been offered
throughout the report whenever some strategy has been highlighted as weak. We
hope that our report is up to your expectations.

We would be pleased to answer any queries you may have regarding the report.

Thank you.

Sincerely,

Group Members

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LETTER OF ACKNOWLEDGEMENT

First and foremost, we would like to thank Allah Almighty, who gave us
knowledge and capability to carry out this research and compile the report to the
best of our abilities. Next, we would like to thank our professor, Mr. Abdul Qadir
Molvi, who very diligently taught us each and every concept related to strategic
management and assigned us this report which enabled us to see how everything
taught in class is being practiced by organizations in the corporate world.

It was truly an amazing experience getting to know about strategic management


processes and practices at Krispy Kreme Doughnuts Inc. and we are sure it will
help us gain a better understanding of strategic management at organization we
will work for in our future career.

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TABLE OF CONTENTS
Term Report - Strategic Management..............................................................................................1
Institute of Business Management...................................................................................................1
LETTER OF TRANSMITTAL.......................................................................................................2
LETTER OF ACKNOWLEDGEMENT.........................................................................................3
TABLE OF CONTENTS.................................................................................................................4
COMPANY OVERVIEW...............................................................................................................5
MISSION, VISION AND VALUES...............................................................................................6
INDUSTRY DEFINITION..............................................................................................................7
INDUSTRY ANALYSIS................................................................................................................7
COMPETITORS..............................................................................................................................8
PRODUCT LINE.............................................................................................................................9
BUSINESS SEGMENTS..............................................................................................................10
CORE COMPETENCIES..............................................................................................................11
MICRO ENVIRONMENT ANALYSIS.......................................................................................12
Value Chain Analysis................................................................................................................13
MACRO ENVIRONMENT ANALYSIS......................................................................................17
Porter’s 5 Forces Model.............................................................................................................17
Room for growth in the coffeehouse and snack chain industries..............................................17
Health Fads and Consumer Shift Toward Health Conscious Diets Affect Sales Environment of
Krispy Kreme.............................................................................................................................19
STRATEGIC OVERVIEW...........................................................................................................20
SWOT ANALYSIS.......................................................................................................................23
EXTERNAL FACTOR EVALUATION MATRIX (EFE)...........................................................25
INTERNAL FACTOR EVALUATION (IFE) MATRIX.............................................................27
WEIGHTED COMPETITIVE STRENGTH ASSESMENT........................................................28
I/E MATRIX..................................................................................................................................31
TOWS MATRIX...........................................................................................................................32
SPACE MATRIX..........................................................................................................................35
GLOBAL REVENUE ...................................................................................................................37
BUSINESS AND FINANCIAL METRICS..................................................................................37
First quarter of fiscal year 2011.....................................................................................................37
COMPARITIVE INCOME STATEMENT...................................................................................37
.......................................................................................................................................................39
KRISPY KREME’S FINANCIAL RATIOS ANALYSIS............................................................39
Key Ratios..................................................................................................................................40
5 Years Summary.......................................................................................................................41
Net Worth Analysis....................................................................................................................41
REFERENCES..............................................................................................................................42

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COMPANY OVERVIEW
Krispy Kreme is an international retailer of premium-quality sweet treats,
including its signature hot Original Glazed® doughnut. Headquartered in
Winston-Salem, NC, the company has offered the highest-quality doughnuts
and great-tasting coffee since it was founded in 1937 by Vernon Rudolph.
Today, Krispy Kreme and its one-of-a-kind Hot Light can be found in
approximately 649 locations around the world. Currently, Krispy Kreme can
be found in 20 countries, including the United States, Australia, Bahrain,
Canada, China, Dominican Republic, Indonesia, Japan, Kuwait, Lebanon,
Malaysia, Mexico, the Philippines, Puerto Rico, the Republic of Korea, Qatar,
the Kingdom of Saudi Arabia, Thailand, Turkey, the United Arab Emirates,
and the United Kingdom.

Market research indicates that Krispy Kreme’s breadth of appeal extends


across all major demographic groups, including age and income. In addition
to their taste, quality and simplicity, Krispy Kreme doughnuts are an
affordable, indulgent sweet treat. Many of its customers are accustomed to
purchasing our doughnuts by the dozen for their office, clubs and family.

The Krispy Kreme brand has several unique elements that have helped us
create a special bond with our customers. Their doughnuts, which are made
from a secret recipe that has been in the company since 1937, have a one-
of-a kind taste that generations of loyal customers have grown to love. The
Hot Doughnuts Now sign, when illuminated, is a signal to the customers that
the signature product, hot Original Glazed® doughnuts, is being made. The
Hot Doughnuts Now sign is a strong impulse purchase generator and an
integral contributor to the brand’s mystique. Krispy Kreme is also committed
to strong local community relationships. Their store operators support their
local communities through the popular fundraising programs and the
sponsorship of local events.

Their vertically integrated, automated system is designed to create high


quality, consistent doughnuts in an efficient manner. Quality control starts
with their manufacturing plant, which produces proprietary Krispy Kreme
mixes—their state-of-the-art laboratory runs quality tests on all key
ingredients and each batch of mix.

The approximate number of employees is Approx. 3,900.

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MISSION, VISION AND VALUES

Mission

To touch and enhance lives through the joy that is Krispy Kreme.

Vision

To be the worldwide leader in sharing delicious tastes and creating joyful


memories.

Values

They 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

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INDUSTRY DEFINITION
Krispy kreme as a whole is the part of restaurant industry but it can be
further categorized into Quick Service restaurant or fast food industry.

The industry is basically product based but the concept of service has
been widely integrated into it. By sector, it can be categorized into tertiary
industry and by size it is a global industry since the trend of fast-food has
been accepted and implied all around the world. Based on target market,
this is an international industry and it is fragmented.

INDUSTRY ANALYSIS
In the United States, the QSR segment is the largest segment of the
restaurant industry and has demonstrated steady growth over a long period
of time. According to The NPD Group, which tracks consumer usage of the
foodservice industry, QSR sales have grown at an annual rate of 3% over the
past 10 years. The National Restaurant Association projected QSR sales to
rise 3% in calendar 2010 from the $160 billion posted in calendar
2009.Information Resources, Inc. data indicate that, during calendar 2009,
doughnut sales rose approximately 5% year-over-year in grocery stores and
rose approximately 3% in convenience stores in 2009.

In addition to retail doughnut outlets, the domestic doughnut market is


comprised of several other sales channels, including grocery store packaged
products, in-store bakeries within grocery stores, convenience stores,
foodservice and institutional accounts, and vending. Customer service,

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including frequency of deliveries and maintenance of fully stocked shelves, is
an important factor in successfully competing for convenience store and
grocery/mass merchant business. There is an industry trend moving towards
expanded fresh product offerings at convenience stores during morning and
evening drive times, and products are either sourced from a central
commissary or brought in by local bakeries. In the packaged doughnut
market, Krispy Kreme competes for sales with many sweet treats, including
those made by well-known producers, such as Dolly Madison, Entenmann’s
and Hostess, as well as regional brands.

COMPETITORS
Following are the direct and indirect competitors of Krispy Kreme:

Dunkin' Donuts is the world's largest coffee and baked goods chain,
serving more than 3 million customers per day. Dunkin' Donuts sells 52
varieties of donuts and more than a dozen coffee beverages as well as an
array of bagels, breakfast sandwiches and other baked goods.

LaMar’s Doughnuts’ strategy is to go to its customers by operating


neighborhood, bistro-style doughnut stores with gourmet espresso bars in
high traffic areas. Currently they operate 40 franchised and company owned
gourmet doughnut stores in seven states, and the goal is to open 1200
stores nationwide by 2010.

Tim Hortons (THI) is the largest fast food restaurant chain in Canada (and
the fourth-largest in all of North America) based on sales and number of
restaurants. Tim Horton's also has a food menu to complement its beverage
selection, offering doughnuts, sandwiches, and other food items.

Starbucks (SBUX) is an international coffeehouse that has built one of the


world's most powerful and recognizable brands upon high-quality coffee and
the unique "Starbucks Experience." Starbucks has sought to capitalize on its
growing popularity through expansion; the addition of over 1500 stores in
just over a year brought its total store count to over 16,600 in 2008.

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McDonald's (MCD) is the world's largest fast food restaurant chain with
over 32,000 locations in over 110 countries. McDonald's operates its own
restaurants and franchises its brand to local businesspeople (about 70% of
the world's McDonald's restaurants are franchised).

Wendy's International (WEN) is one of the world's largest restaurant


operating and franchising companies, with over 6300 Wendy's franchises in
North America and over 300 franchises abroad.

PRODUCT LINE

Krispy Kreme’s product line consists of the following:

1) Doughnuts
2) Coffee
3) Iced drinks and Kool Kremes

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BUSINESS SEGMENTS

Company Stores

The Company Stores segment is comprised of the doughnut shops operated


by the Company. These stores sell doughnuts and complementary products
through the on-premises and off-premises sales channels and come in two
formats: factory stores and satellite stores. Factory stores have a doughnut-
making production line, and many of them sell products through both on-
premises and off-premises sales channels to more fully utilize production
capacity. Satellite stores, which serve only on-premises customers, are
smaller than most factory stores, and include the hot shop and fresh shop
formats. As of January 31, 2010, there were 83 Company stores in 18 states
and the District of Columbia, including 69 factory and 14 satellite stores.

Domestic Franchise Stores

The Domestic Franchise segment consists of the Company’s domestic store


franchise operations. Domestic franchise stores sell doughnuts and
complementary products through the on-premise and off-premise sales

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channels in the same way and using the same store formats as in the
Company Stores segment. As of January 31, 2010, there were 141 domestic
franchise stores in 29 states, including 104 factory and 37 satellite stores.

International Franchise stores

The International Franchise segment consists of the Company’s international


store franchise operations. International franchise stores sell doughnuts and
complementary products almost exclusively through the on-premises sales
channel in the same way and using the same store formats as in the
Company Stores segment, and also using a kiosk format. A portion of sales
by the franchisees in the United Kingdom and in Australia are made to off-
premises customers. As of January 31, 2010, there were 358 international
franchise stores in 18 countries, including 95 factory and 263 satellite stores.

CORE COMPETENCIES
Eventhough Krispy Kreme has vertically integrated but their core
competency is still in the doughnut making business. Krispy Kreme has
strategic advantage over others because of forward and backward
integration. Its subsidiaries are

Principal Subsidiaries: Krispy Kreme Doughnut Corporation; Krispy


Kreme Distributing Company, Inc.; Krispy Kreme Coffee Company, LLC;
Krispy Kreme Mobile Store Company; HD Capital Corporation; HDN
Development Corporation; Montana Mills Bread Co., Inc.; Panhandle
Doughnuts, LLC; Oliver Acquisition Corp.; Krispy Kreme International Ltd.
(Switzerland); Hot Doughnuts Now International Ltd. (Switzerland); Krispy
Kreme Europe Limited (U.K.).

There are other big players in the industry such as Dunkin Donuts,
Winchell`s Donut House, Tim Hortons and LaMar`s Donut but the point that
differentiate Krispy Kreme from other players is the “HOT DOUGHNUT
EXPERIENCE” and the company owned stores that give a classic touch to the
donut experience which it termed as “Doughnut Theatre”

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Since the company has integrated vertically well and has also installed the
IVS (Integrated Virtual System), Integrated Visual System’s sole focus is to
deliver world class solutions to meet client’s warehouse management and
automated data collection (ADC) requirements. IVS supports ADC systems in
term of distribution. Effective management of these systems have enabled
Krispy Kreme to secure a strategic position and to focus on its core
competencies.

MICRO ENVIRONMENT ANALYSIS


The U.S Market for Doughnut was $10 billion. The Major portion of 45%
market share was held by Dunkin donuts. Dunkin Donut was the world`s
largest coffee and baked-good chain. In contrast to Krispy Kreme it
emphasize more on coffee and convenience. Dunkin Donut had threat from
Starbuck which the countered by adding a wider variety of hot-and cold-
coffee beverages, and beating Starbuck in time management. Quick and
consistence service was the Dunkin donut focus.

Winchell`s Donut house was also proposing itself as a fresh glazed


donut maker. It initiated program like WARM N FRESH and replacing donut
after every 15-20 minutes between certain times. It initiated several
promotional schemes to combat Krispy Kreme. It brought some innovation by
adding low-fat doughnuts, muffins and bagels.

Tim Hortons was another name in the market and it specialized in


coffee and baked doughnut. Eventhough half of its sales include coffee
without donut. Another point of difference was the 24 hour drive through at
Tim Hortons. Similarly LAMAR`s Donut was famous for its customized
product and its doughnut were of “artisan quality”. The biggest surprise with
respect to other companies was that “a day old donut were never sold at the
shops but were donated at day`s end to the needy”.

All these companies had some portion of market since the size of
market was so huge that every company was doing good in its area of
expertise. Moreover, some small vendors were also happy since giants like
Krispy Kreme and others used to invest heavily on marketing and promotion
which was simply increasing awareness and size of the market

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Value Chain Analysis

Krispy kreme had developed a vertically integrated supply chain


whereby it manufacture mixes for its doughnuts at company plant in North
Carolina and Illinois and it also manufactured doughnut making equipment
for use in both company-owned and franchise stores.

The sales of mixes and equipment, was carried out by “KK


manufacturing and Distribution”. The company revamped the stores to
better attract the customer. The idea was to leverage the interest generated
in Krispy kreme products to secure supermarkets and convenience stores
accounts.

Krispy kreme soon became popular with Krispy Kreme coffee.


Beverage sales of Krispy Kreme accounted for 10 % of company`s sales out
of which coffee had half of the contribution. To Improve the efficiency,
caliber and appeal on its on-premise coffee and beverage offerings, aligning
it more closely with the hot doughnut experience in its stores. Krispy Kreme
acquired Digital java Inc., a coffee company the sourced and roasted
premium quality coffee and that marketed a broad line of coffee based and
non-coffee beverages.

Company-owned stores had a major role in catalyzing the products of


Krispy kreme. Each operation of company created a value for the customer,
the most important one being given the “Hot Doughnut experience”
depicting the freshness of the doughnut. The company did not sell the
doughnut rather it gave its customers the experience of Doughnut.

One other important perceived value for the customers was the
experience of watching doughnut being through a 40 feet glass window. The
company had drive through window and dining area that had enough
capacity of 50 people or more.

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The company had developed highly effective system for delivering
fresh doughnuts, both packaged and unpackaged, to area retail stores.
Route drivers had the capability to take customer orders and deliver product
directly to retail accounts. Krispy Kreme stores actively promoted sales to
school, churches, and civic group for fund-raising drives.

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MACRO ENVIRONMENT ANALYSIS

Porter’s 5 Forces Model

Room for growth in the coffeehouse and snack chain industries

According to a study by Market Force Information, there is still


considerable room for growth in the coffee house and snack chain industries.
According to a recent survey, most consumers visit a coffee shop around
once a week, with 70% reporting that they go to coffeehouses or snack
restaurants less than five times a month. Many reported that they use time
at a coffee or snack restaurant to reflect, or as an escape. That, coupled with

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the fact that just 4% of consumers reported trying a new coffeehouse or
snack restaurant in the last 30 days, indicates big room for growth for
chains.

When asked which coffeehouse or snack restaurants were their


favorites, Starbucks was cited by 36%, Dunkin’ Donuts by 28%, and Krispy
Kreme by 16%. However, when the number of locations is factored into the
results, Krispy Kreme wins wins 35% of the vote.

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Krispy Kreme also outscored competing coffee shops and snack chains on eight of 10
attributes (attributes included Quality of Food, Taste of Food/Coffee, Speed of Service, Friendly
Service, Cleanliness, Atmosphere, Accommodating, Overall Value, Healthy Choices,
Green/Sustainability). All other competitors clustered together with very little differentiation.

Health Fads and Consumer Shift Toward Health Conscious Diets


Affect Sales Environment of Krispy Kreme

One original Krispy Kreme glazed doughnut contains 200 calories and
12 grams fat. A glazed, raspberry filled doughnut contains 300 calories and
16 grams fat. One apple fritter contains 380 calories and 20 grams fat. An
increased level of health conscious people may hurt sales of Krispy Kreme
doughnuts. However, obesity in the United States remains high, and a shift
towards health conscious diets is not an immediate threat to Krispy Kreme's
bottom line.

In fact, Krispy Kreme's international locations are benefitting from a


drop in health conscious behaviors among consumers. For example, since
opening stores in Japan in 2007, Krispy Kreme saw strong sales in that
country. Food writer Mei Hojo says health-conscious eating remains a big
trend in Japan, but it has also produced backlash, especially for American-
style food.

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STRATEGIC OVERVIEW

Krispy Kreme’s ability to align strategy and execution with the brand’s
highest potential defines their capacity for vision and creativity. They place
having both brand value and internal cultural values as a key priority. Using
their brand as a platform, Krispy Kreme has developed strategies such as
linking everything they do by, understanding, protecting, and promoting
their brand, establishing the brand with the “Hot Doughnuts Now”
experience, penetrating complementary, off-premises channels of sales.
They are committed to building an organization based on common values of
integrity, authenticity, passion, learning, sharing, and positive expectations.
Their commitment to value serves as a stage for all policies and programs
that affect internal and external relationships. Developing a successful
strategy in standard cycle market proves to be relatively simple for Krispy
Kreme. However, if looked at too simply, a company will choose a strategy
that is too narrow or too broad based on the other factors of choosing a
strategy. Determining which customer needs to satisfy is an area where
choosing the incorrect strategy can result in a decreased competitive
advantage.

Currently Krispy Kreme implements a differentiation strategy,


attempting to distinguish their doughnuts based on taste, quality, and
simplicity.This seems to be the norm for the doughnut industry. Companies
in this industry choose to compete based on their unique tastes or variety of
flavors as potential competitive advantages, rather than cost. Krispy Kreme
chooses to emphasize its secret yeast raised doughnut recipe. However,
doughnut companies have also succeeded their cost position through vertical
integration, by having an automated system, designed to create high quality,
consistent doughnuts. Krispy Kreme manufactures their own custom
doughnut making equipment for all of their restaurants. Krispy Kreme
chooses not to segment its market, believing that their breadth of appeal
extends across all major demographic groups, including age and income.
Concentrating on a large market seems to be the norm among competitors
as well. Where they seem to fall behind the curve is in choosing an
appropriate corporate, cooperative, or international strategy. Perhaps, Krispy
Kreme’s most import asset is their brand name and taste. Their “Hot
Doughnut’s Now” sign, serves as their biggest signal to the freshest
doughnuts offered. Targeting consumer tastes is one area in which they

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succeed. They understand that consumers value freshness when it comes to
doughnuts.

Their Doughnut Theatre Experience combined with clever marketing,


creates a myth for consumers. Krispy Kreme executives understand that
relying on word of mouth is more credible than paid advertising. Before
Krispy Kreme enters a market they will flood that market with memorabilia
including T-shirts and hats, forming an unpaid loyalty base. However, their
strongest marketing focus is their charitable efforts through giveaways, and
wholesale charges to charities. By using this particular approach they
continue to emphasize their small town, southern hospitality, commitment to
the community, and brand value. Through a related diversification strategy,
Krispy Kreme should choose to offer a variety of other products that
doughnut eaters tend to enjoy. They currently offer beverages and places to
sit, but what they may have slightly overlooked in the past is that
frequenters of doughnut/coffee shops enjoy the atmosphere as much as the
sweetness of doughnuts.

Perhaps one of their biggest attractions is the doughnut making


theater, allowing customers to see the actual process of cooking and glazing
the doughnuts. They have recently begun updating the look of their stores to
capture the essence of their unique brand. In 2001, Krispy Kreme acquired
Digital Java, Inc to broaden their beverage offering to customers. With this
acquisition came the offering of different drip coffees, ranging from light and
smooth to deeper, more intense blends. It also now offers espresso
beverages, frozen coffee beverages, and other frozen beverages prepared
with a variety of proprietary flavors5. In addition to doughnuts, they sell
snack foods, real fruit pies, cinnamon buns, and mini-doughnuts3. Offering
more morning sweets or health conscious breakfast items such as low fat
bagels should be avenues they explore. Doughnuts are generally a morning
consumption item, so means to attract more customers during the day or
evening, other than freshness, sweetness, and the sign, should also be
investigated. They could choose to diversify into fresh baked breads for the
evenings, or deli type sandwiches throughout the day.

Another strategic decision of updating their extranet to a more


standardized, browser-accessible interface has proven to be a competitive
advantage for the company as well. The system let’s administrators assign
only those resources users require for their framework, and protect
important information from competitors. This is one of the problems of their

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former extranet. With the upgrade they can now quickly and securely deliver
applications and data to employees anytime, anywhere4. This allows Krispy
Kreme to operate more efficiently and stay one step ahead of the
competition. Even their cash register is an efficient low profile, space saving
design, which integrates keyboard and operating screen into an intelligent
compact terminal. By connecting reliable smart terminals to industry
standard open system components, they can avoid many of the high hidden
costs of technology ownership. Through their website, managers can log
onto “MyKrispyKreme” to monitor inventory levels, and consumers and
investors can log on to obtain information about the company, new and
upcoming openings, newsletters, and purchase collectibles.

Their website also features a “Friends of Krispy Kreme club” where


customers can sign up to be emailed regular newsletters about store
openings and new flavors. This alone will remove the excessive costs of
printing and distribution. Krispy Kreme has a thorough understanding of the
actions and focus needed to maintain a competitive advantage as they are in
their early stages of growth.

However as they continue to grow and enter new markets they may
want to consider alternatives in altering or expanding upon their current
strategy. A potential problem looming over Krispy Kreme executives is their
low inventory turnover ratio compared to that of the inustry. Management at
Krispy Kreme hope this problem will be solved by their new internet site, if
not this flaw in Krispy Kreme’s supply line will continue to cost the company
money and reduce future profits.

Although Krispy Kreme has done a successful job in securing their


position and maintaining a competitive strategy, it is critical that they
continually take strategic actions to stay ahead of the competition. Already,
other companies in the doughnut industry have begun to respond to some of
the successful actions by Krispy Kreme. One company has even begun to
compete head to head with what Krispy Kreme prides itself on most, taste
and quality. LaMar’s Doughnuts, perhaps the biggest prospective threat to
Krispy Kreme has held taste tests directly competing with a variety of Krispy
Kreme’s products. In one such contest, held in Springfield, Missouri, “Police
and sheriff department officers judged LaMar’s Doughnuts to be superior to
Krispy Kreme’s products in four of five categories: original glazed, glazed
sour cream, chocolate iced and Bavarian Crème filled, and cinnamon roll.
The doughnuts were judged according to taste and appearance. LaMar’s

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strategy is to go to its customers by operating neighborhood, bistro-style
doughnut stores with gourmet espresso bars in high traffic areas. Currently
they operate 40 franchised and company owned gourmet doughnut stores in
seven states, and the goal is to open 1200 stores nationwide by 2010.

As critics of Krispy Kreme’s strategy have thought, their success is in


large part due to the fact that they are the new kids on the block. They may
want to slow their growth in location to maintain the authenticity and
exclusiveness associated with high quality desired products of any kind, such
as a diamonds from Tiffany’s or a doughnut from Krispy Kreme. Everyone in
the bakery/sweets industry attempts to differentiate their product based on
quality and taste. It is only those with an entrepreneurial mindset and vision
who can provide an innovative, competitive advantage building idea or
capability. Krispy Kreme has achieved this with their doughnut theatre by
offering customers something they don’t see often, a first hand view of the
frying and glazing process. Cinnabon has realized the advantage of this
unique featured and copied the idea. They similarly represent themselves as
a “modern version of the traditional neighborhood bakery where people are
always welcome to stroll in, sample their unique product and delicious treats,
and linger a while to enjoy the entertaining baking process and warm,
friendly atmosphere.” Cinnabon offers an experience, much like the Krispy
Kreme experience. Of particular importance to Cinnabon’s strategy is their
Express Packs ™ they have designed packaging made to seal in the warmth
and freshness of their products until you get them home and are ready to
eat.

SWOT ANALYSIS
SWOT Analysis, which is based on thorough review of the business (corporation, product
category competition, customers and products), identities and evaluates the internal strengths and
weakness of the companies well as its external threats and opportunities. The marketing mix is
driven by the results of the SWOT analysis.

STRENGHTS: OPPORTUNITIES:
1. Strong Brand Recognition and Recall 1. Growth in two-income households will
2. Krispy Kreme makes it possible for different increase snack-food consumption
organizations throughout the community to use 2. Untouched domestic locations

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their product as a fundraiser. Fundraising 3. Increasing popularity of coffee shops
program has helped non-profit organizations and bakery cafes
raise millions of dollars in needed funds. 4. Customer receiving "Hot-Donut" now
3. Krispy Kreme has Strong Channel of instead of waiting
Distribution.Krispy Kreme is most popular in 5. All equipment and Uniforms are
grocery and convenience stores which gives supplied
customers easy access to the product. 6. Penetration into foreign/intl. Markets
4. Employees are better trained. and popularity of American foods and
5. Expanded assortment of offerings at KKD stores fashion in overseas markets
including beverages 7. Americans continue to experience
6. It has a unique brand and variety of freshly made time-starvation
donuts.Wide appeal of signature hot original 8. Acquisition of Atlanta Bread
glazed doughnuts 9. Expansion of new locations (Maine,
7. KKD can offer to have customers watch product Mass)
being made at the donut theater. 10. Entertaining opportunities moving
8. It has a high capacity to make 4,000 to 10,000 from home to work environment
donuts daily. 11. Channel expansion possibilities (i.e.,
9. Krispy Kreme Doughnuts prides themselves on Internet pre-ordering)
high customer satisfaction with fresh quality 12. Technological advancements (i.e.,
donuts. paperless ordering, predictive
10. It offers additional products through businesses modeling software, hand held
acquisitions. computers for delivery drivers)
11. Krispy Kreme offers a product that is second to 13. On-Premise sales royalties (3%).The
none, with regards to taste, freshness and the higher the sales, the more money
finest ingredients. It has a great desire for growth received
and success of people and company.
12. KKD has great service and innovation.
13. Krispy Kreme has Doughnut machine
Technology. It also has e-commerce which gives
owners access to real-time information.
14. KKD has a drive through window for sales.
15. It also has a new fall product line of donut
called Spice.
16. It is expanding into Dunkin Donuts territory.

WEAKNESSES: THREATS:
1. Lack of more International locations in the 1. Competitors like Dunkin Donuts,
United Kingdom, Japan and Spain Tim Horton’s,Starbucks and other
2. Manufactures all equipment internally in its National Chains/Specialty Eateries.
Manufacturing and Distribution Department 2. Low-carb trend in eating
3. Non-interactive website preferences

Strategic Management at Krispy Kreme Doughnuts Inc. Page 24


4. No online ordering capability 3. Increasing cost of Ingredients
5. Uncertainty of International markets 4. Increasing utility and fuel costs
6. KKD snacks are not healthy (need to 5. All-natural, organic, healthy eating
consider low-calorie donut) trends
7. Perishability of product 6. Krispy Kreme stores went up too
8. Limited product line (heavy reliance on fast
doughnut sales) 7. Cultural differences in breakfast
9. Overextended (i.e., Montana Mills and snack foods
acquisition) 8. Increase in eating at full-service
10. Pricing in some locations restaurants combined with a decrease
11. Bad Relations with Franchisees (cost of in the use of fast-food restaurants
equipment, packaging, ingredients etc) 9. Store locations too scattered
12. No other Standout Products (Weak Menu)

EXTERNAL FACTOR EVALUATION


MATRIX (EFE)

EXTERNAL FACTOR EVALUATION (EFE) MATRIX OF Krispy Kreme


Doughnuts
Key External Factors Weight Rating Weighted
Score
Opportunities
1 Growth in two-income households will increase 0.14 4 0.56
snack-food consumption
2 Untouched domestic locations 0.09 3 0.27
3 Increasing popularity of coffee shops and 0.06 3 0.18
bakery cafes
4 Channel expansion possibilities (i.e., Internet 0.07 4 0.28
pre-ordering)
5 Penetration into foreign/intl. Markets 0.08 3 0.24
6 Technological advancements 0.05 3 0.15

Strategic Management at Krispy Kreme Doughnuts Inc. Page 25


7 Acquisition of Atlanta Bread 0.04 2 0.08
8 On-Premise sales royalties 0.04 2 0.08
Threats
1 Competitors like Dunkin Donuts, Tim Horton’s, 0.10 2 0.2
Starbucks and other National Chains/Specialty
Eateries.
2 Increasing cost of Ingredients 0.08 1 0.08
3 Store locations too scattered 0.07 2 0.14
4 Increase in eating at full-service restaurants 0.08 3 0.24
combined with a decrease in the use of fast-
food restaurants
5 Cultural differences in breakfast and snack 0.04 2 0.08
foods
6 All-natural, organic, healthy eating trends 0.06 1 0.06

TOTAL 1.00 2.64


Total weighted score for the Krispy Kreme external Factors is 2.64 whichindicates that
the business has above average ability to respond to external factors.

Strategic Management at Krispy Kreme Doughnuts Inc. Page 26


INTERNAL FACTOR EVALUATION (IFE)
INTERNAL FACTOR EVALUATION (IFE) MATRIX of Krispy Kreme Doughnuts

Key Internal Factors Weight Rating Weighted


Score
Strengths
1 Strong Brand Recognition and Recall 0.14 4 0.56
2 Wide appeal of signature Hot Original Glazed 0.08 4 0.32
Doughnuts
3 Strong Channel of Distribution 0.06 3 0.18
4 Customers watch product being made at the Donut 0.05 3 0.15
Theater

5 High customer satisfaction with Fresh Quality Donuts. 0.08 4 0.32


6 Doughnut machine Technology 0.09 3 0.27
7 Gained Reputation through various fundraising 0.05 3 0.15
programs
8 New fall product line of donut called Spice 0.04 3 0.12

Weaknesses
1 Lack of more International locations in the United 0.10 1 0.1
Kingdom, Japan and Spain

2 Limited product line (heavy reliance on doughnut 0.09 1 0.09


sales)
3 KKD snacks are not healthy (need to consider low- 0.06 2 0.12
calorie donut)
4 No online ordering capability 0.05 1 0.05

5 Bad Relations with Franchisees (cost of equipment, 0.06 2 0.12


packaging, ingredients etc)
6 Pricing in some locations 0.05 1 0.05

TOTAL 1.00 2.6


Total weighted score for the Krispy Kreme internal factor is 2.6 which is above average.So it
is internally strong and aggressive approach.

Strategic Management at Krispy Kreme Doughnuts Inc. Page 27


WEIGHTED COMPETITIVE STRENGTH
ASSESMENT

Key Success Weight Krisp Dunki Tim Starbuck McDonald


Factor/Strength y n Horton’ s s
Measure Krem Donuts s
e
Quality/Product 0.15 8/1.2 7/1.05 5/0.75 9/1.35 6/0.9
Performance
Reputation/image 0.10 8/0.8 9/0.9 4/0.4 8/0.8 5/0.5
Manufacturing 0.20 7/1.4 8/1.6 5/1 9/1.8 6/1.2
capability
Technological skills 0.05 7/0.35 6/0.3 4/0.2 8/0.4 7/0.35
Dealer 0.05 4/0.2 6/0.3 4/0.2 7/0.35 5/0.25
network/distribution
capability
New product 0.05 6/0.3 5/0.5 5/0.25 8/0.4 5/0.25
innovation capability

Financial Resources 0.05 5/0.25 6/0.3 4/0.2 5/0.25 3/0.15


Relative cost position 0.05 5/0.25 4/0.2 5/0.25 6/0.3 5/0.25
Customer Service 0.30 7/2.1 8/2.4 7/2.1 7/2.1 8/2.4
Capability
Sum of Weights 1.00
Weighted Overall 6.85 7.55 5.35 7.75 6.25
Strength rating

Analysis of Weighted Competitive Strength Assessment:

The Firm with the largest overall competitive strength rating enjoying the strongest
competitive position is Starbucks followed by Dunkin Donuts and then Krispy Kreme. Here
Krispy Kreme score exceeds Tim Horton’s and McDonalds. So Krispy Kreme is at net
competitive disadvantage against Starbucks and Dunkin Donuts.

Krispy Kreme attempts to win their market share through superior doughnut quality and
vertically integrating back into their company to generate sales in coffee and other beverages.The

Strategic Management at Krispy Kreme Doughnuts Inc. Page 28


strategic plan of Krispy Kreme Doughnuts is to produce hot, fresh doughnuts that a customer can
receive right off of the assembly line. They create business through sales at company-owned
stores, royalties from franchised stores along with franchise fees, and selling franchised stores
pre-made doughnut mixes and doughnut making equipment. They created sales volume from
both on-premise sales at Krispy Kreme stores and off-premise sales at supermarkets and
convenience stores.

Krispy Kreme strategic plan changed store operations to showcase their superior product
and allow flexibility of new store sizes. Every Krispy Kreme store is designed as a doughnut
theater which allowed customers to see the entire doughnut process take place. After doughnuts
were produced, stores turned on neon signs saying HOT DOUGHNUTS NOW. The major
strength of Krispy Kreme is their product, and people come here because this is the only place
that you can receive a fresh hot doughnut. Krispy Kreme has also started to alter store sizes
because some markets do not require the standard 7,000 square-foot store.

Another major advantage to Krispy Kreme is the vertical integration that took place with
Digital Java Inc. Now Krispy Kreme can control the sourcing and roasting of their own coffee
which ensures that the company has strict quality standards and consistency. They have also
created Krispy Kreme Manufacturing and Distribution that has produced sales to their
franchisees by providing equipment to their stores.

One of the problems with Krispy Kreme is that the U.S. is becoming more health
conscious. Although they have provided low-calorie alternatives, people eat doughnuts for the
taste, especially Krispy Kreme doughnuts. When former owners Beatrice Foods bought Krispy
Kreme in 1976 and changed the recipe, there was a public outcry and sales declined. It is
believed that the low-calorie market will not be lucrative for Krispy Kreme because people
associate us with a certain taste of a hot, fresh doughnut.
The supermarket sales may also affect brand image. Although 50% of company revenue is due to
supermarket and convenience stores,these stores do not create the same taste that is associated
with Krispy Kreme.Doughnuts will have sat out all day and dried up creating a different taste
from what Krispy Kreme is about. This could create negative customer opinion about the product
and led to lost customers.

Strength of Krispy Kreme is how many different ways they have created income. Krispy
Kreme creates 66% of their 665,592,000 annual income from company store operations, 4%
from franchising operations, and 30% from KK manufacturing and distribution in 2004. Strength
of Krispy Kreme is store operations. Since customers come to Krispy Kreme for the warm
doughnuts, they have created a 40-foot glass window that allows customers to view the entire
doughnut making process. Krispy Kreme uses their strategic plan of superior, hot, fresh
doughnuts to their advantage by allowing all customers to view the creation process.

Strategic Management at Krispy Kreme Doughnuts Inc. Page 29


A weakness of Krispy Kreme is that it continues to try and grow when all financial data
indicates that franchisees are competing with each other rather than rivals. When stores are
located near each other, they affect the sales volume of the other store. When the first Krispy
Kreme is put up in a new market, obsessed consumers camp outside for days to be the first to
have a fresh doughnut. As more and more stores are introduced into an area, this frenzy fades
and the craze dies out.

Krispy Kreme could explore is further expansion into the global market. The majority of
Krispy Kreme sales come from cult-like followers that will do anything for a Krispy Kreme
doughnut. This following could be extended into other foreign markets besides Canada and
England. There are opportunities to expand their coffee company, Digital Java Inc., and create
new ways to provide fresh doughnuts to the public.

Threats that Krispy Kreme faces are competitive pressure from Dunkin Donuts and
increase interest in low-calorie and low-carbohydrate diets. Americas recent health interest has
had a major impact on companies such as Krispy Kreme. Analysis of Krispy Kreme shows that
although there is a strong loyalty towards the product, there could be a drop in revenues due to
the recent craze.

After quantitatively analyzing the current market with a weighted competitive strength
assessment, it can be concluded that Dunkin Donuts has a few distinct advantages over Krispy
Kreme that will allow more lasting power for Dunkin Donuts. Although Krispy Kreme
outperforms DunkinDonuts in taste and freshness, Dunkin Donuts sweeps all of the other
categories. They have greater manufacturing capabilities, distribution capabilities, customer
awareness, lasting power, and coffee taste. Dunkin Donuts has expanded their market to all areas
of the U.S. which has led them past Krispy Kreme in customer recognition. Krispy Kreme has
focused the majority of their stores in the south east of the U.S. Although Krispy Kreme provides
superior taste, this taste can only be provided at in-store locations. Winchell Donut House is able
to compete with Krispy Kreme in taste and freshness, but all other aspect are lacking.

It can be recommended that Krispy Kreme Donuts backs out of some of their current
markets. Consumers come to Krispy Kreme to receive a warm, fresh donut that is created right
before their eyes. Only so many consumers are interested in this type of donut and Krispy Kreme
stores rivaling each other. Stores are competing against each other for the same market share
which is having an adverse effect on the overall company. Krispy Kreme seizes expansion into
current U.S. markets. This will allow Krispy Kreme to see the strengths of each market, in order
to decide if expansion and contraction is the possible solution to Krispy Kreme problems.

Krispy Kreme must also restore shareholder loyalty in order for stock prices to turn
around. When Scott Levingood and his management team were controlling Krispy Kreme, many

Strategic Management at Krispy Kreme Doughnuts Inc. Page 30


accounting errors took place that led to customer dissatisfaction and disloyalty of the
shareholders. For Krispy Kreme to turn around, the customer and shareholder loyalty is restored.

The final issue that should be addressed is the possible withdraw from supermarkets.
Although this accounts for 50% of revenue for Krispy Kreme Donuts, they are destroying
product identification. Consumers expect to taste a certain donut every time they bite into a
Krispy Kreme glazed donut. When these donuts have been sitting out for 15 hours, this is not the
same warm, fresh taste the people relate to. Krispy Kreme should either withdraw their product
from supermarkets or change the process in order to provide freshness with every donut.

I/E MATRIX

Strategic Management at Krispy Kreme Doughnuts Inc. Page 31


So as the V quadrant suggests a defending approach, Krispy Kreme is suggested to adapt the
hold and maintain strategy that concerns mainly with market penetration and product
STRENGTHS WEAKNESSES

1. Strong brand recognition and recall Perishability of product

2. Wide appeal of signature glazed doughnuts Limited product line (heavy


reliance on doughnut sales)

3. Vertical integration Overextended (i.e., Montana


Mills acquisition)

4. Development in international markets Lack of locations in some areas

5. Strong channel of distribution Pricing in some locations


development.

TOWS MATRIX

Strategic Management at Krispy Kreme Doughnuts Inc. Page 32


OPPORTUNITIES SO STRATEGIES WO STRATEGIES

1. Increasing popularity of coffee 1. Development of bakery cafés 1. Increase products offered in


shops and bakery cafés locations (i.e., coffee, sandwiches)

2. Popularity of American foods 2. Development of store locations in overseas 2. Develop Montana Mills in a way
and fashion in overseas markets markets that fits the mission of KKD

3. Growth in two-income 3. Increase locations to be convenient for busy 3. Increase locations


households traffic areas in several markets

4. Americans continue to 4. Provide special offerings geared towards 4. Offer standardized, but value pricing
experience time-starvation encouraging people to bring doughnuts to compared to Starbucks
work

5. Entertaining opportunities 5. Continue to be innovative in technological


moving from home to work applications that can improve efficiency
environment

THREATS ST STRATEGIES WT STRATEGIES

1. Competitors like Dunkin Donuts 1. Focus on signature glazed doughnuts as a 1. Develop new product offerings
and Starbucks differentiating advantage over competitors

2. Increase in eating at full-service 2. Offer nutritional information with an 2. Offer value-based and consistent
restaurants combined with a emphasis on new low-carb, low-calorie, or pricing
decrease in the use of fast-food organic offerings
restaurants

3. Low-carb trend in eating 3. Develop low-carb doughnuts


preferences

4. All-natural, organic, healthy 4. Develop doughnut made with organic


eating trends ingredients

Tows Matrix Analysis


After doing the analysis of Krispy Kreme in terms of its strengths,
weaknesses, opportunity and threats we were able to figure out that Krispy
Kreme's major strength is its strong brand recognition. Customers are well-
aware of signature glazed doughnuts which makes it a trademark for Krispy
Kreme. It also has a strong channel of distribution which makes it easily
available to its customers. However, the problem area for Krispy Kreme is
basically its limited product line; it relies too much on the sales of its
doughnuts. It needs to come up with innovative products as its competitors
can always have a fair chance of stealing away Krispy Kreme's customers. In
order to retain its customer base, it is really important that Krispy Kreme

Strategic Management at Krispy Kreme Doughnuts Inc. Page 33


should try to diverse its product lines. Another major problem lies with the
absence of its stores in some areas, while the pricing of its products in the
other areas. The management needs to analyze the products demand and
the potential in various areas, and based on the analysis it must open the
branches wherever suitable. it also needs to take care of the pricing of the
products and it should see the products should not be over-priced in some
areas where the customer cannot afford to spend much on the food items.

Krispy Kreme can see its major opportunities lying in the fact that
there is an increase in the popularity of coffee shops and bakery cafes and
its has become a hotspot for youngsters as well aged-population where
people can come to relax and have an informal meeting with their
colleagues. So it should make use of this opportunity and should come with
better ideas to cater the market.

Some of the recommendations we can come up with after analyzing


Krispy Kreme's strengths, weaknesses, opportunity and threats would be
that it must development of bakery cafés, it must development of store
locations in overseas markets, it should also Increase locations to be
convenient for busy traffic areas in several markets and it should provide
special offerings geared towards encouraging people to bring doughnuts to
work
Krispy Kreme in order to overcome its weakness and avail the
opportunities needs to increase products offered in locations (i.e., coffee,
sandwiches) and offer standardized, but value pricing compared to
Starbucks.

Kripy Kreme needs to focus on signature glazed doughnuts as a


differentiating advantage over competitors, it must Offer nutritional
information with an emphasis on new low-carb, low-calorie, or organic
offerings besides it must also develop low-carb doughnuts. Doing all this can
significantly help it develop a competitive edge over its rivals.

SPACE MATRIX
Internal Strategic Position External Strategic Position

Strategic Management at Krispy Kreme Doughnuts Inc. Page 34


Financial (FS) Environmental (ES)
+6 best, +1 worst -1 best, -6 worst
+_1_ Return on investment -3_ Stage of technological life cycle
+_1_ Leverage -3_ Rate of inflation
+_3_ Liquidity -2__ Demand variability
+__1 Working capital -2__ Price range of competing offerings
+_1_ Cash flow -1__ Barriers to entry into market
+_1_ Ease of exit from market -4__ Competitive pressure __-0.87__
+__4 Risk level of business -3__ Price elasticity of demand y-coordinate
+ __1.7_ average -2.57___ average (FS + ES)
Competitive (CA) Industry (IS)
-1 best, -6 worst +6 best, +1 worst
-3__ Market share +3__ Stage of industry/alliance evolution
-2__ Price/quality ratio +3__ Growth potential
-3__ Product life cycle +4__ Profit potential
-2__ Customer loyalty +4__ Financial stability
-2__ Competition's capacity utilization +4__ Technological know-how
-2__ Technological know-how +4__ Resource utilization
-3__ Bargaining power +3__ Capital intensity __1.14__
-2.43____ average +3.57___ average x-coordinate
(CA + IS)

Vector magnitude: square root of (y2 + x2) =


_1.44____ versus maximum 7.07 = ___weak______(strong, medium, weak)

SPACE Matrix Analysis

FS
Aggressive Conservative
Intensive Integration +6 Intensive,
Diversification +5 concentric
+4 diversification
+3
+2
+1
v = 1.44 0

+6 +5 +4 +3 +2 +1 0 -1 --2 -3 -4 -5 -6
-1
IS -2 Retrenchment, CA
-3 divestiture,
-4 liquidation,
-5 concentric
-6 diversification
Integration,
Intensive

Defensive
Competitive
ES

The framework of space matrix recommends that Krispy Kreme pursue an integration as well as
an intensive strategy albeit we have more confidence in the intensive strategies. The strategy that
seems to make the most sense is the product development as it will create the most economic
value added, i.e. the build – a – burger aisle or a healthy fare menu.

Strategic Management at Krispy Kreme Doughnuts Inc. Page 35


GLOBAL REVENUE

BUSINESS AND FINANCIAL METRICS


First quarter of fiscal year 2011

Krispy Kreme reported revenues decreased 1.4% to $92.1 million from


$93.4 million during the first quarter of 2010. Excluding the effects of
refranchising Company stores, revenues rose 0.4%. Company same store
sales rose 3.4%, the sixth consecutive quarterly increase. Operating income
increased 4.8% to $6.1 million from $5.8 million. Net income was $4.5
million, or $0.06 per share diluted, compared to $1.9 million, or $0.03 per
share diluted in the first quarter last year. The Company ended the first
quarter of fiscal 2011 with a total of 616 Krispy Kreme stores systemwide, a
net increase of 34 locations since January 31, 2010.

COMPARITIVE INCOME STATEMENT

Strategic Management at Krispy Kreme Doughnuts Inc. Page 36


2009 2008 2007 2006 2005

Strategic Management at Krispy Kreme Doughnuts Inc. Page 37


Revenue 383.98 429.32 461.2 543.36 707.77
Total Revenue 383.98 429.32 461.2 543.36 707.77

Cost of Revenue, Total 345.01 380.01 389.38 474.59 598.28


Gross Profit 38.98 49.31 71.82 68.77 109.49

Selling/General/Administrative
23.46 26.3 48.86 67.73 55.3
Expenses, Total
Research & Development 0.0 0.0 0.0 0.0 0.0
Depreciation/Amortization 8.71 18.43 21.05 28.92 31.93
Interest Expense (Income), Net
0.0 0.0 0.0 0.0 0.0
Operating
Unusual Expense (Income) 0.55 57.34 28.49 90.9 163.39
Other Operating Expenses,
1.5 0.01 1.92 -1.74 0.0
Total
Operating Income 4.76 -52.78 -28.5 -117.03 -141.14

Interest Income (Expense), Net


0.0 0.0 0.0 0.0 0.0
Non-Operating
Gain (Loss) on Sale of Assets 0.0 0.0 0.0 0.0 0.0
Other, Net 2.82 -2.97 -0.45 0.0 -0.4
Income Before Tax -3.56 -64.73 -41.03 -136.54 -147.38

Income Tax - Total 0.5 2.32 1.21 -0.78 9.67


Income After Tax -4.06 -67.05 -42.24 -135.76 -157.05

Minority Interest 0.0 0.0 0.0 0.0 0.0


Equity In Affiliates 0.0 0.0 0.0 0.0 0.0
U.S. GAAP Adjustment 0.0 0.0 0.0 0.0 0.0
Net Income Before Extra.
-4.06 -67.05 -42.24 -135.76 -157.05
Items

Total Extraordinary Items 0.0 0.0 0.0 0.0 -41.29


Accounting Change
Discontinued Operations
Net Income -4.06 -67.05 -42.24 -135.76 -198.34

Total Adjustments to Net


0.0 0.0 0.0 0.0 0.0
Income
Preferred Dividends
General Partners' Distributions

Strategic Management at Krispy Kreme Doughnuts Inc. Page 38


Basic Weighted Average
65.94 63.81 61.87 61.81 61.63
Shares
Basic EPS Excluding
-0.06 -1.05 -0.68 -2.2 -2.55
Extraordinary Items
Basic EPS Including
-0.06 -1.05 -0.68 -2.2 -3.22
Extraordinary Items

Diluted Weighted Average


65.94 63.81 61.87 61.81 61.63
Shares
Diluted EPS Excluding
-0.06 -1.05 -0.68 -2.2 -2.55
Extrordinary Items
Diluted EPS Including
-0.06 -1.05 -0.68 -2.2 -3.22
Extraordinary Items

Dividends per Share -


0.0 0.0 0.0 0.0 0.0
Common Stock Primary Issue
Gross Dividends - Common
0.0 0.0 0.0 0.0 0.0
Stock
Interest Expense, Supplemental 10.68 9.8 20.33 20.21 6.88
Depreciation, Supplemental 8.1 17.8 20.3 27.9 30.91

Normalized EBITDA 14.02 22.99 21.04 2.78 54.18


Normalized EBIT 5.31 4.56 -0.01 -26.14 22.25
Normalized Income Before
-3.01 -7.39 -12.53 -45.64 16.01
Tax
Normalized Income After
-3.7 -29.78 -23.72 -76.68 -50.85
Taxes
Normalized Income Available
-3.7 -29.78 -23.72 -76.68 -50.85
to Common

Basic Normalized EPS -0.06 -0.47 -0.38 -1.24 -0.83


Diluted Normalized EPS -0.06 -0.47 -0.38 -1.24 -0.83
Amortization of Intangibles 0.61 0.63 0.75 1.02 1.03

KRISPY KREME’S FINANCIAL RATIOS


ANALYSIS

Strategic Management at Krispy Kreme Doughnuts Inc. Page 39


Key Ratios

Growth Rate % Krispy Kreme Industry


Sales (qtr vs year ago qtr) -11.40 5.00
Net Income (YTD vs YTD) NA 34.70
Net Income (qtr vs year ago qtr) 59.40 30.20
Sales (5 years annual average) -9.97 6.20
Net Income (5 years annual average) NA 14.37
Dividens (5 years annual average) NA 24.05
Price ratio
Current P/E Ratio NA 17.3
P/E Ratio 5 Years High NA 6.7
P/E Ratio 5 years Low NA 3.8
Price/Sales Ratio 0.74 2.35
Price/ Book Value 4.26 6.29
Price/Cash Flow Ratio 35.60 11.60
Profit Margin %
Gross Margin 13.9 35.3
Pre-tax Margin 0.3 5.1
Net Profit Margin -0.3 13.6
5 Years Gross Margin (Average) 13.4 36.3
5 Years Pre-Tax Margin (Average) -15.6 15.1
5 Years Net Profit Margin (Average) -16.1 10.6
Financial Condition
Debt/Equity Ratio 0.81 2.16
Current Ratio 1.5 1.0
Quick Ratio 1.2 1.0
Interest Coverage 0.9 25.6
Leverage Ratio 2.8 4.2
Book Value/Share 0.90 11.94
Investment Return %
Return on Equity -1.6 54.2
Return on Assets -0.5 12.5
Return on Capital -0.7 14.9
Return on Equity (5 Years Average) -55.5 27.8
Return on Assets (5 Years Average) -21.7 9.8
Return on Capital (5 Years Average) -29.7 12.2
Management Efficiency

Strategic Management at Krispy Kreme Doughnuts Inc. Page 40


Income/Employee -254 10,444
Revenue /Employee 91,067 98,255
Receivable Turnover 17.1 49.5
Inventory Turnover 18.7 97.5
Assets Turnover 1.9 1.1

5 Years Summary

Date Average P/E Price/Sales Price/Book Net Profit Margin (%)


02/09 -51.30 0.24 1.62 -1.1
02/08 -6.20 0.43 3.34 -15.6
01/07 -13.10 1.73 10.22 -9.2
01/06 -3.00 0.61 3.03 -25.0
01/05 -7.60 0.75 2.22 -22.2

Date Book Value/Share Debt/Equity ROE ROA (%) Interest


(%) Coverage
02/09 $0.86 1.30 -7.0 -2.1 0.4
02/08 $0.87 1.35 -118.5 -33.1 -5.4
01/07 $1.26 1.36 -53.5 -12.1 -1.4
01/06 $1.76 1.13 -124.9 -33.0 -5.8
01/05 $3.90 0.61 -65.2 -32.7 -20.5

Net Worth Analysis

1. Stockholder’s Equity + Goodwill 81.62


2. Net Income -4.06
3. Share Price = EPS x Net Income 0.24

Strategic Management at Krispy Kreme Doughnuts Inc. Page 41


4. Number of Shares Outstanding x Share Price 16.20
Method Average 94

REFERENCES

http://krispykreme.com

http://www.spokesmanreview.com/allstories-news-story.asp?date=051304&ID=s1519337

http://www.businesspundit.com/krispy-kreme-part-ii-a-bad-strategy/

http://www.businesspundit.com/krispy-kreme-and-wal-mart/

http://www.allbusiness.com/marketing-advertising/branding-brand-development/4675339-1.html

http://www.philly.com/inquirer/business/20101114_Krispy_Kreme_back_in_Philly_with_new_b
usiness_recipe.html

http://abcnews.go.com/Business/story?id=87804&page=2

http://www.morebusiness.com/franchise-risks

Strategic Management at Krispy Kreme Doughnuts Inc. Page 42


http://www.abc.net.au/unleashed/40808.html

http://www.wikiswot.com/SWOT/backup.php?
id=krispy_kreme_going_global&time=1289774917

http://www.angelfire.com/indie/dannydiab/fin821kkd.htm

http://www.redorbit.com/news/business/1107290/by_2011_the_global_fast_food_market_is_for
ecast_to/

Strategic Management at Krispy Kreme Doughnuts Inc. Page 43