FAILURES IN

FRANCHISING
1

PRESENTED BY,
SUJAI JAILAL THOMAS
JERIN THOMAS
HARIKRISHNA R KURUP

DEFINITON
2

A type of license that a party (franchisee) acquires to

allow them to have access to a business's (the
franchisor) proprietary knowledge, processes and
trademarks in order to allow the party to sell a
product or provide a service under the business's
name. In exchange for gaining the franchise, the
franchisee usually pays the franchisor initial start-up
and annual licensing fees.

FEATURES OF FRANCHSING
3

The franchisor is involved in securing protection for

the trademark, controlling the business concept, and
securing know how.
The franchise is obligated to carry out services for
which trademark has been prominent or famous.
There has to be a great deal of standardization
required.
The place of service has to bear franchise logos, signs
and trademarks in a prominent place.
The service has to be in accordance wit the pattern
by franchisor in successful franchise operations.

FAILED FRANCHISE ANALYSIS

5

Founded on July 13, 1937 by Vernon Rudolphin.

Headquartered in Winston-Salem, North Carolina,

United States
First Franchise: 1982
Has 2.1% of the U.S. coffee and snack shop market
(Starbucks:36%, Dunkin Donuts: 25%)

20 different Donuts, Sale of Donuts: 88% of total

retail sale
141 Domestic Franchise Stores in 29 states, 358
International Franchise Stores in 18 countries
83 Company stores in 18 states and the District of
Columbia

THE FRANCHISE MODEL

START UP COSTS
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Royalty fee: 4.5% of their total sales plus

2% to for brand development and public relations
costs
Start-up cost: $25,000 $50,000
Total investment: $933,000 $1,888,250

AVAILABLE MARKET
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USA: Chicago, Buffalo/Rochester, Harrisburg,

Lancaster, York, Houston
ASIA: India, China, Taiwan, Singapore
EUROPE: Russia, Poland, Hungary, Czech Republic,
Bulgaria, Romania, Spain, Portugal, France,
Germany, Belgium, Norway, Holland, Sweden,
Finland, Greece, Italy Canada, Mexico, Puerto Rico,
Australia

CORE FEATURES
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Passionate about the Krispy Kreme brand and

products proven track record of running a successful
business (retail/ restaurant industries)
Highly committed to providing great customer
service
Strong Understanding of the local culture

FINANCIAL RESOURCES
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Financial Liquid Capital Required: $1,000,000

(initial investments range from $928,000 to

$1,883,250)
Minimum Net Worth : $5 million

WHY DID THEY FAIL

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1. Aggressive Growth
Attempt to sell its brand everywhere and anywhere,
from gas stations to kiosk (dilutes appeal of core
product)
Allow franchise locations that are too close in
proximity (new store may offer additional revenue to
the home office, but the overall result is less profit
for each individual store owner)
E.g. 2003 2004: second quarter revenues
increased by 15% same store revenues only by 1%

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2. Market Oversaturated
Distance to actual key product by new introduction
of product lines (line of high-carb, high-calorie
frozen drinks, or "drinkable donuts, sugar-free
donut, large coffee section, sausage rolls)

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3. Profit over Growth mistake

Channel Stuffing": Stores received twice the
inventory at the end of quarter so corporation could
bolster its reported profits
Questionable transactions and self-dealing
accusations over the buybacks of franchisees

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4. Accounting scandal 2005

Franchisees are forced to purchase
equipment/supplies from headquarters with extreme
markups (greedy short-term profit generating
solution)
Result: 31% percent of sales were generated for
required mix and doughnut-making equipment.

CONCLUSION
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KRISPY KREAM have a strong royalty stream that is

based solely on store sales Company looks to own
profit rather than profit of all franchisees as it has
gone public and trades stock shares on the public
market, which forced company to produce high
profits at the parent-company level, while its outlets
struggled