Professional Documents
Culture Documents
Strategic Management at
Krispy Kreme Doughnuts
Inc.
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We would be pleased to answer any queries you may have regarding the report.
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Sincerely,
Group Members
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.
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.
Mission
To touch and enhance lives through the joy that is Krispy Kreme.
Vision
Values
They believe...
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.
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.
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.
PRODUCT LINE
1) Doughnuts
2) Coffee
3) Iced drinks and Kool Kremes
Company 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
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”
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
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.
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.
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.
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.
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
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
Weaknesses
1 Lack of more International locations in the United 0.10 1 0.1
Kingdom, Japan and Spain
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
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.
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
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
TOWS MATRIX
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
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
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
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.
SPACE MATRIX
Internal Strategic Position External Strategic Position
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.
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
5 Years Summary
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
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/