CASE STUDY: Krispy Kreme Doughnuts
Christine Lu Riva Dianne Lubguban Ma. Nashra Mangwag
Mr. Rosewell Cataylo Management 42 Instructor
February 9, 2017 INTRODUCTION
Krispy Kreme Doughnuts, Inc. is an American global doughnut company and coffeehouse chain that was was founded by Vernon Randolph in 1937 in Winston-Salem, North California. Krispy Kreme Doughnuts operates a leading chain of doughnut outlets with more than 1,000 locations throughout the United States and in about 25 other countries. The company owns and operates 114 locations and franchises the rest. The shops are popular for their glazed doughnuts that are served fresh and hot out of the fryer. In addition to its original glazed variety, Krispy Kreme serves cake and filled doughnuts, crullers, and fritters, as well as hot coffee and other beverages. The company is known for marketing not just the doughnut itself but also the unique experience that customers get from eating them. However, in early 2009, Krispy Kreme was one of the 15 firms listed to have a high probability of being bankrupt during the year. Such probability was largely due to the significant losses the firm has experienced since fiscal year 2005. It was observed that Krispy Kreme has been experiencing a net loss of 20 stor stores es in Unit United ed Stat States es,, howe howeve verr it has has favo favora rabl bly y seen seen a net net incr increa ease se of 94 new new international stores. Expanding in areas with favorable demographics, relatively high levels of sweet consumption, and the acceptability of Western brands are now their concern. Since Krispy Kreme reported that its franchisees have grown stronger, the firm considers that it may open 160 more new stores internationally in 2010 and beyond. Although the firm’s domestic franchises still face financial strain, is this an appropriate
move for the firm to pursue? How can the firm survive in this global market while competing against several competitors?
PROBLEM STATEMENT Central Problem
Krispy Kreme needs a clear strategic marketing plan to survive through the years.
Sub-problems • • • • • •
Loss of investor confidence Decreasing profitability Decreasing market value of equity Lack of a loyal customer base Issues with financial management causing inaccurate financial statements Dispute with supply chain
ANALYSIS
Environmental Analysis
Krispy Kreme Doughnuts is popular with its hot glazed d oughnuts making it a major competitor also in the restaurant industry. Soon as their product became popular in the United States, the company rapidly expanded across United States and also to the International markets. In the end of year 2004, the economy begun to slow, competitors of Krispy Kreme crowded the market and expansion for Krispy Kreme had to be scaled
back because of the falling sales. Diet plans like Atkins had been blamed b lamed for the decline in sales as the customer reduced carbohydrate consumption.
Industry Analysis
In the industry of selling doughnuts, constant threats to new and existing competitors are challenges that are faced by Krispy Kreme. Dunkin Donuts alone generates worldwide sales of $2.7 Billion (2002), 5200 outlets worldwide and a market based of 45% on dollar do llar sales volume. Another big competitor is Tim Hortons, a company based in Canada that expanded its business to the United States market. In year 2002, it generated $6500 million sales throughout its 160 outlets in United States and 2300 outlets ou tlets in Canada. More of its competitors have a major strategy in emphasizing their coffee than its donuts, like Dunkin Donuts. Dunkin Donuts’ Donu ts’ drive thru service makes it convenient to its customer to pick up a coffee on the go and maybe pick a donut, too. The doughnuts they sell are also has better nutritional value since it is lower in calories, fat and sugar, this provided a product that suits the health conscious people. Starbucks, Seattles’s Best, Winchell’s Donut House and LaMar’s Donuts are also few of the chief threats to Krispy Kreme. Competitors are co ming up with substitute products to attract customers, like bagels, muffins and sandwiches. Specialty hot and cold drinks are always popular with customer and a threat to Krispy Kreme. Krispy Kreme on the other hand also has its strategy of manufacturing mixes for their doughnuts and the donut making equipment.
SWOT ANALYSIS
Internal Factor Evaluation Matrix Rating: 1-5 Key Internal Factors
Weight
Rating
Weighted Score
0 .0 8 0 .0 5 0 .0 5 0. 0 8 0.10
4 3 3 3 4
0 .3 2 0 .1 5 0. 1 5 0 .2 4 0. 4 0
0 .1 0 0.08
3 2
0. 3 0 0. 1 6
Net losses for the past three years have been b een incurred Stock prices are in a bad state because shareholders have not and will not likely receive dividends soon Product line is not expanding, cannot reach health-conscious customers Management struggling with company profitability Weak advertising schemes Disputes with franchisees Closing down stores thus unable to keep up with competitor’s growth
0.10
4
0. 4 0
0.10
4
0. 4 0
0.06
4
0. 2 4
0.06
2
0. 1 2
0 .0 5 0.03 0.06
2 2 2
0. 1 0 0 .0 6 0. 1 2
Total
1.0
Strengths
Brand elements: One-of-a-kind taste Doughnut Theatre “Hot Krispy Kreme Original Glazed Now” sign Community relationships Vertical integration ensures high quality products Consistent international expansion Products are also sold at supermarkets, convenience stores and retail outlets in the US. Weaknesses
3.16
External Factor Evaluation Matrix Rating: 1-5
Key Internal Factors Opportunities
Weight
Rating
Weighted Score
0 .0 9 0 .0 9 0. 1 1 0.11 0.08
4 2 2 2 3
0.36 0. 1 8 0 .2 2 0. 2 2 0. 2 4
Dunkin’ Donuts presently dominates the doughnut market Increase in health-conscious people Shareholders may sell KKD stocks because they are not given dividends Increase in cost of raw materials
0.09
2
0. 1 8
0 .2 0 0.12
4 3
0 .8 0 0. 3 6
0 .1 1
3
0. 3 3
Total
1.0
Convenience attracts certain kinds of customers Asian customers are fond of sweets Starbucks does not have a distinct pastry line Dunkin’ Donuts does not serve hot doughnuts To take advantage of the customer base that enjoys sweets the most: kids Threats
Exhibit 1: Consolidated Statement of Operations
2.89
Exhibit 2: Consolidated Balance Sheet
Exhibit 3: Consolidated Statement of Cash Flows
Exhibit 4: Consolidated Statement of Change’s in Shareholder’s Equity
ALTERNATIVE COURSES OF ACTION
1. Create a cohesive cohesive strategi strategicc marketing marketing plan plan for for the organiza organization. tion.
Pros •
Market research can provide the company with more reliable information for
•
which to base their decisions Assist the management to more effectively address issues faced
Cons •
Large costs will have to be incurred due to employing competitive strategists or
•
training personnel to learn more about strategic planning Plans take time to be made
2. Following Following the general general accepted accepted accountin accounting g principles principles in preparing preparing its its financial financial reports
Pros • • •
Prevents erroneous recording of financial transactions Provides more reliable and objective financial information Maintains investors’ confidence
Cons •
Additional costs will be incurred
3. Downsi Downsize ze and focu focuss expansi expansion on on global global markets markets..
Pros
• •
Operating expenses are reduced thus increasing income. New market can be developed.
Cons
• •
Cost for expanding to new locations is high. Market in places where stores are closed down will be lost.
4. Expand Expand the current current product product mix. mix.
Pros
• •
This will improve the lack of diversity in their product line. May attract new customers.
Cons
• •
New ideas may give discomfort to old customers. Customers might not like the new product(s) thus there is a risk they will not be sold.
RECOMMENDATIONS
The group recommends that the company co mpany follow the first and second alternative courses of action: (1) create a cohesive strategic marketing plan for the company & (2) follow the generally accepted accounting accoun ting principles in financial reporting. Creating a strategic marketing plan ensures that the co mpany is prepared and well equipped for future endeavors and challenges. Implementing strategies such as advertising through different means of communication (TV, Radio an d the Internet) can greatly boost your customer reach. Periodic research also helps the company to stay
abreast and in with the current trends. Research and development can also be considered as part of a strategy that aims to constantly improve product development. Following a set of generally accepted accounting principles in financial reporting helps investors gain confidence in the company. This in turn may lead to an increase in market equity.
ACTION PLAN
The illustration below identifies two primary sources by which firms can achieve an advantage: (1) cost and (2) uniqueness. Cost Broad Target Narrow Target
Cost Leadership Focused Low Cost
Uniqueness
Differentiation Focused Differentiation
Considerin Considering g the competitive competitive scope of Krispy Krispy Kreme Doughnuts, Doughnuts, Inc., it serves a “broad” or international target market. Thus, the firm should focus on cost leadership and differentiation. Cost leadership is a strategy that companies use to achieve competitive advantage by creating a low-cost-position among its competitors. In other words, it’s a compan company’ y’ss abil abilit ity y to main mainta tain in lowe lowerr pric prices es than than its its compe competi tito tors rs by incr increa easi sing ng productivity and efficiency, eliminating waste, or controlling costs. Krispy Kreme must also give attention on increasing their sales – across all three sectors of the business, not just franchisees. This should be done by first identifying and adhering to each ea ch segment of their target market’s key buying criteria at the lowest possible cost to the firm. Then Krispy Kreme should decrease their prices and adjust marketing or sales budgets and expenditures expenditures to create create a significant significant and sustainabl sustainablee cost gap, relative relative to competitor competitors, s, by leveraging economies of scale. In addition to focusing on cost leadership with their low margin products or services, the firm should strive to further differentiate their high margin products or services. A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition. competition. This may be achieved through through creati creative ve brandi branding, ng, improv improving ing the custom customer er experie experience, nce, introd introduci ucing ng a new product, or entering exclusive partnerships with suppliers or distributors. We believe that if Krispy Kreme embrace the cost leadership – differentiation business level strategy the firm will see increased revenues and low cost, improve its existing operations, and survive in this competitive market.
