Name: Neelam Lokwani

Madonna I’d: 236488

Course: Business Policy

Date: 10/14/2015

First Case Analysis

Case 12: Krispy Kreme Doughnuts

Introduction

Krispy Kreme Doughnuts is a global chain of doughnuts, coffee, sundaes and shakes that was

founded by Vernon Rudolph in Winton-Salem, US in the year 1937. Vernon Rudolph had bought

a yeast-raised doughnut recipe through Ishmael Armstrong, his uncle by a New Orleans French

Chef Ishmael knew and Vernon began selling doughnuts to grocery stores. The first product sold

by Vernon was the hot Original Glazed Doughnuts to customers on the sidewalk.

The first Krispy Kreme logo was designed by Benny Dinkins, a local architect. The first Krispy

Kreme bakery outside the South opened in Akron, Ohio in 1939

(https://en.wikipedia.org/wiki/Krispy_Kreme).

In the 1940s, doughnuts were sold on a display case showing a variety of doughnuts to choose

from, The Original Glazed doughnut was a signature doughnut of Krispy Kreme with no change

in the taste in the past or now.

In the 1950s Krispy Kreme expanded with the opening of new stores in the US and in 1955,

Krispy Kreme had a trademarked logo. The company also began fundraising for churches,
schools and other organizations. The company opened a unit dedicated for manufacturing and

distribution which by the 1960s entered into automation that led to the focus on planning and

timing of the doughnuts production.

In the year 1973, Rudolph died and by then Krispy Kreme had 60 chain stores. Later in 1976,

Krispy Kreme was acquired by Beatrice Foods Company in Chicago. Beatrice Foods was a well-

recognized back then and gained franchisees for Krispy Kreme in 1982 and in 1989 the first

retail store of Krispy Kreme was opened.

In the 1990s, Krispy Kreme rapidly expanded with opening its stores in New York and

California, after which they decided to go global by opening its first store outside the US in

Canada in the year 2001.

Further achievements of Krispy Kreme doughnuts were: the signature Krispy Kreme Coffee in

2011, launch of the hot light application on mobile phones, 500th international store opening in

2012, 75 years of existence of the company and also Tony Thompson was appointed as the

President and CEO of Krispy Kreme in the year 2014.

Today Krispy Kreme not only operates as chain stores but also in mega-chains like Walmart,

Target and major gas stations.

Existing Mission Statement:

Our mission is to touch and enhance lives through the joy that is Krispy Kreme.

Existing Vision Statement:

Our vision is to be the worldwide leader in sharing delicious tastes and creating joyful memories.
 Krispy Kreme’s Strategies & Objectives:

 To increase the number of company stores worldwide

 To produce and offer healthy doughnuts to Krispy Kreme customers
 To increase the company stock price in order to have higher shareholder value
 To increase sales specifically in the doughnuts section
 To initiate different types of marketing strategies for brand recognition and investment

strategies for on-store and off-store operations

 To realize new achievable and original standards for upcoming franchisers

Revised Mission Statement:

“To deliver the best quality doughnuts and coffee to its customers by innovating and giving

outstanding service in an exciting store atmosphere.”

Revised Vision Statement:

“To be the most loved and respected doughnut and coffee company internationally.”

External Opportunities of Krispy Kreme Doughnuts:

 Innovating its production line in the category of hot doughnuts

 Increasing stores at airports and petrol pumps in foreign countries
 Diversifying its product line in various categories, i.e., ice-creams, ice-cream cakes and

breakfast meals
 Expand domestically
 Increase in coffee consumption
 Improvement in automated operations
 Involvement in social media marketing

External Threats of Krispy Kreme Doughnuts:

  Health conscious customers
 Many competitors for example, Dunkin Donuts, McDonald’s and Tim Horton’s
 Changing tastes and preferences of customers, more preference towards organic markets

due to long term health issues like obesity and diabetes

 Local doughnut brand competitors

Competitive Profile Matrix (CPM):

Dunkin Donuts McDonald’s Tim Horton’s

Critical Success Weight Ratin Score Rating Score Rating Score

Factors g
Product Quality 0.10 3 0.30 3 0.30 4 0.40

Product Diversity 0.08 2 0.16 4 0.24 2 0.16

Advertising 0.03 4 0.12 4 0.12 1 0.03

Price 0.10 4 0.40 3 0.30 2 0.20
Customer Loyalty 0.08 3 0.24 3 0.24 4 0.24
Financial Status 0.05 2 0.10 4 0.20 3 0.15
Global Expansion 0.13 4 0.52 4 0.52 4 0.52
Sales 0.11 3 0.33 3 0.33 4 0.44
Market Share 0.15 2 0.30 3 0.45 4 0.60
Total 1 2.47 2.7 2.74

External Factor Evaluation (EFE) Matrix:

Key External Factors – Opportunities Weight Rating Weighted Score

1. Asians have a sweet tooth for Western brands 0.06 3 0.24
2. Children like sweet treats 0.09 4 0.36
3. Starbucks is more concentrated on coffee than 0.05 3 0.15
bakery items
4. Dunkin’ Donuts don’t sell hot glazed 0.04 4 0.40
doughnuts
5. McDonald’s is more concentrated on coffee 0.08 3 0.24
and shakes than doughnuts
6. Tim Horton’s are yet to expand globally 0.11 3 0.33

Key External Factors – Threats Weight Rating Weighted Score

7. Doughnut market dominated by Dunkin’ 0.14 4 0.56
Donuts
8. Health conscious customers 0.10 3 0.30
9. Krispy Kreme has less stores compared to 0.10 2 0.20
Starbucks and Dunkin’ Donuts
10. European culture prefer local brands 0.09 2 0.18
11. European follow certain etiquettes 0.06 2 0.12
12. Due to lack of returns and dividends, 0.08 1 0.08
shareholders had to sell KKD stocks
Total 1 3.16

Internal Strengths of Krispy Kreme Doughnuts:

 Signature original hot glazed doughnuts

 Brand recognition
 Produces quality products
 Existing worldwide with 395 stores locations
 Sold at mega-chains like Walmart and Target and also at gas stations
 Sells 20 varieties of doughnuts, other bakery items and coffee
 Affordable price

Internal Weaknesses of Krispy Kreme Doughnuts:

 Lack of returns and dividends to shareholders due to reduction in stock price

 Doughnuts are considered high-calorie and unhealthy
 Not much focus on advertising campaigns
 Strong competitors are Dunkin’ Donuts and Starbucks
 Limited product line
 Poor company management
 The company has faced downfall in revenues and loss in the past 3 years
 Conflicts with franchisees
 Internal Factor Evaluation (IFE) Matrix:

Key Internal Factors – Strengths Weight Rating Weighted Score

1. Affordable price and standard quality 0.09 4 0.36
2. Customers are of all ages and incomes 0.08 4 0.24
3. Attracting customers with the “Hot 0.07 3 0.21
Doughnuts Now” sign board
4. Globally expanding; recently in 16 foreign 0.10 3 0.30
countries
5. Product conveniently available at mega- 0.09 2 0.18
chains and gas stations
6. Vertically integrated products 0.08 2 0.16

Key Internal Factors – Weaknesses Weight Rating Weighted Score

7. Lack of returns to shareholders 0.10 2 0.20
8. Lack of dividends to shareholders 0.07 2 0.14
9. Lack of advertising 0.07 1 0.07
10. Closure of franchisees due to conflicts 0.06 1 0.06
11. Doughnuts are considered high-calorie and 0.08 1 0.08
unhealthy
12. Downfall in revenues and loss in the past 3 0.06 2 0.12
years
13. Poor company management 0.05 2 0.10
Total 1 2.22
 Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix:

Strengths Weaknesses
1. Brand recognition 1. Doughnuts are considered high-calorie
2. Produces quality products and unhealthy
3. Sells 20 varieties of doughnuts, other 2. The company has faced downfall in
bakery items and coffee revenues and loss in the past 3 years
4. Sold at mega-chains like Walmart and 3. Lack of returns and dividends to
Target and also at gas stations shareholders due to reduction in stock
5. Existing worldwide with 395 stores price
locations 4. Not much focus on advertising
6. Affordable price campaigns
7. Signature original hot glazed doughnuts 5. Strong competitors are Dunkin’ Donuts
and Starbucks
6. Conflicts with franchisees
7. Limited product line
8. Poor company management

Opportunities SO Strategies WO Strategies

1. Innovating its 1. Do marketing on social 1. Producing and
production line in the media about their 20 innovating healthy
category of hot
different varieties of doughnuts made of
doughnuts
2. Increasing stores at doughnuts. (S3, O7) fruits, nuts, proteins
airports and petrol 2. Expand further
and fruit smoothies.
pumps in foreign domestically apart
countries (W1, O1)
3. Diversifying its from the 395 stores 2. Gain profits by
product line in various world wide. (S5, O4) expanding
categories, i.e., ice- 3. Innovate its doughnut
domestically and
creams, ice-cream and coffee range by
globally (W2, O4)
cakes and breakfast
continuing to offer on 3. Increasing product line
meals
4. Expand domestically affordable prices (S6, by diversifying. (W7,
5. Increase in coffee O1) O3)
consumption 4. Get more customers 4. Resolve disputes with
6. Improvement in
automated operations for coffee consumption franchisees by
7. Involvement in social by offering at improving its
media marketing convenience stores and operations. (W6, O6)
5. Do aggressive
 mega-chains. (S4, O5) advertising in order to
5. Due to recognition in
compete with Dunkin’
the market, they can
Donuts and Starbucks.
diversify their product
(W5, O7)
line. (S1, O3)

Threats ST Strategies WT Strategies

1. Health conscious 1. Comparing with 1. Introduce healthier and
customers competitors with the low-calorie product
2. Many competitors for
example, Dunkin signature hot glazed line in order to keep up
Donuts, McDonald’s doughnuts and their with changing
and Tim Horton’s cold doughnuts. (S7, preferences of
3. Changing tastes and
preferences of T2) customers. (W1, T3)
customers, more 2. Providing better
preference towards quality products
organic markets due to compared to local
long term health issues
brands in the country.
like obesity and
diabetes (S2, T4)
4. Local doughnut brand
competitors
 Strategic Position and Action Evaluation (SPACE) Matrix:

Financial Position (FP) Rating Stability Position (SP) Rating

Return on investment 2 Product quality -1
Profit 1 Demand variability -2

Net Income 3 Competitive pressure -3

Leverage 3 Risk involved in business -5
Cash flow 2 Barriers to entry into market -5
Average 2.2 Average -3.2
Y-axis -1
Competitive Position (CP) Rating Industry Position (IP) Rating
Market share -6 Growth potential 3

Product quality -1 Profit potential 1

Technological know-how -3 Financial stability 2
Consumer loyalty -4 Ease of entry into market 2
Average -3.5 Average 2

X-axis -1.5

Directional Vector Coordinates: y-axis= -1, x-axis= -1.5

 7

0
-1.20
-1

-2

-3

-4

-5

-6

-7

Krispy Kreme Doughnuts should follow a Defensive strategy as a result of the SPACE Matrix.

The strategies they should follow are:

 To introduce healthier and low-calorie options to their menu

 Innovate and diversify product line
 Gain back the confidence of shareholders by showcasing the company’s true potential

and strength to grow in such a competitive market

 Start using updated technology for production
Boston Consulting Group (BCG) Matrix:
 BCG Matrix - KKD
15%

10%

5%

0%
0.16 0.15 0.14 0.13 0.12 0.11 0.1 0.09
-5%

-10%

-15%

-20%

Strategies and long-term objectives:

1. KKD should indulge in marketing and advertising campaigns in order to attract

customers towards their signature product line of hot glazed doughnuts which they

are well known for.

2. The company should focus on expansion in the US because of recognition and

resolve disputes among franchisees and they can begin their franchising again.
3. Social media is a strong way to achieve customers mainly the teens and young crowd.

The brand should provide discounts and promotions through the internet.
4. As KKD is a well recognized brand worldwide, the company can involve in related

product diversification by introducing ice-creams, cakes, healthy options like fruit

smoothies, etc.
5. Further the company can also opt market development and product development

strategies in order to achieve market growth and innovate a variety of products to

offer to its customers.

 6. When franchising, the company can evaluate it’s to be franchisees by knowing

whether they have been an experience under food establishments or franchised food

chains.
7. Increase the company’s strengths in order to present the company’s potential to be a

part of the stock market and gain back the confidence of its shareholders.
8. To use the vertical integration arrangement of supply chains in order to help cater to

the needs of the health conscious people as well leading to an increase in profits and

sales.
9. To develop culture oriented products in order to attract customers of all ages and

incomes, for example, McDonald’s – The brand has customized its products

depending on the culture from country to country.

10. Several other recommendations would be re-designed of packaging materials,

innovation in existing products, including doughnuts for the festive or a particular

theme based.

Strategies planned by Krispy Kreme:

All stores are required to have a specific point of sale (POS) system. In addition to providing the

ability to manage on-premises sales, the POS system provides headquarters and permits stores to

communicate with each other.

Krispy Kreme also has an enterprise resource planning (ERP) system that supports both the

financial and operating needs of the organization. Embedded within the ERP system is a data

warehouse that also supports the Company Stores and KK Supply Chain.

To ensure high quality, the following has been instituted:

1. To ensure freshness, truckloads of the main ingredients are received on a regular basis

2. Each incoming shipment of ingredients is tested

3. Each batch of mix is tested.

4. Krispy Kreme also produces the primary doughnut-making equipment. Franchisees are required

to use such equipment. (Fred David, Strategic Management Concepts and Cases, 13th Edition).

Implementation of recommended strategies:

1. Stores can be rapidly expanded by opening them in convenient areas where most of the

crowd is found i.e., malls, airports, petrol pumps, etc.

2. Choosing a well experienced candidate for franchising.
3. Because of the brand recognition, KKD can initiate advertising campaigns on the social

media, TV, radio and newspapers.

4. Producing theme based or festive season doughnuts and changing the packaging after

every few months.

5. Selling their doughnuts at the mega-chains worldwide would be a good opportunity to

expand, for example, Walmart, Carrefour, Waitrose, etc.

FORECASTED BALANCE SHEET FOR THE YEAR 2016, 2017

February 1, February 2,

2017 2016

(In thousands)

ASSETS

CURRENT ASSETS:
Cash and cash equivalents $ 65,900 $ 53,900

Receivables 29,499 26,450

Receivables from equity method franchisees 989 840

Inventories 20,264 18,550

Deferred income taxes 24,545 24,500

Other current assets 7,210 6,330

_______________ ________________

Total current assets 148,407 130,570

Property and equipment 124,800 103,200

Investments in equity method franchisees - -

Goodwill and other intangible assets 33,000 28,156

Deferred income taxes 68,000 79,600

Other assets 12,800 12,425

________________ __________________

Total assets $ 238,600 $ 223,381

________________ __________________

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Current portion of lease obligations $ 401 $ 388

Accounts payable 16,000 16,450

Accrued liabilities 30,300 28,423

__________________ __________________

Total current liabilities 46,701 45,261

Lease obligations, less current portion 9,945 3,900

Other long-term obligations and deferred credits 22,600 22,500

Commitments and contingencies

SHAREHOLDERS’ EQUITY:

Preferred stock, no par value; 10,000 shares authorized; none issued and outstanding - -

Common stock, no par value; 340,900 339,400

Accumulated other comprehensive income - -

Accumulated deficit (39,800) (69,000)

_________________________________

Total shareholders’ equity 380,346 342,061

___________________________________
Total liabilities and shareholders’ equity $ 363,500 $ 342,061
References:

Textbook reference:

Strategic Management Concepts and Cases, 13th Edition by Fred R. David

Website reference:

http://d1lge852tjjqow.cloudfront.net/CIK-0001100270/7182db60-a56d-439d-957a-

8ded83120cb5.pdf

http://www.nasdaq.com/symbol/kkd/financials?query=income-statement

http://www.wikiwealth.com/swot-analysis:kkd

https://prezi.com/y_8bizxu7lct/copy-of-krispy-kreme-case-analysis/

https://www.krispykreme.com/

https://en.wikipedia.org/wiki/Krispy_Kreme