KRISPY KREME
INTRODUCTION
Krispy Kreme Doughnuts, Inc., began as a family-owned business back in 1937, as
an expansion of a pre-existing business, when Vernon Rudolph purchased a doughnut shop
along with the now-famous secret recipe for making yeast-raised doughnuts. His doughnuts,
which he delivered to grocery stores in the Winston-Salem, North Carolina area, quickly
became immensely popular with customers. So popular in fact, that he cut a hole in the wall
of his shop so that he could sell hot doughnuts to potential customers passing by on the street.
(Peter and Donnelly, 2009, Page 690). Who knows, but this may have been one of the first
“drive-thru/walk-up” windows in the restaurant business! And that is just one example of
Mr. Rudolph’s and his early partner, Mike Harding’s, forward-thinking marketing ideas for
that era. The idea of making all of the shops look the same, so that they would be recognized
by patrons wherever they traveled, as well as the viewing windows for watching the
doughnuts being made, were good examples of marketing promotional strategies. These
strategies are still considered by Krispy Kreme to be “Brand Elements” as reported in current,
annual financial reports. By keeping control of the recipe and the doughnut-making process,
they also maintained product standards and reduced, while not completely eliminating, the
competition through the uniqueness of their product. In fact, attempts to change the recipe, or
even the look of the shops, in later years met with negative reactions from customers and the
company quickly returned to the original taste and feel of the “original” Krispy Kreme.
The company and its doughnut became synonymous with a particular look, taste and feeling.
This emotion that became associated with Krispy Kreme, described as “a feel-good business”
and one that “created an experience” as opposed to just selling doughnuts (Peter and
Donnelly, 2007), became the core of the company’s marketing strategy, and just maybe, one
of the prime reasons for its subsequent struggles in the early 2000’s. Selling a “feeling” or
“experience” can be a successful marketing tool.
It is one of the 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 stores in United States, however it has favorably seen a net increase of 94
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?
STATEMENT OF THE PROBLEM
The primary, and most critical, problem area is the lack of a cohesive marketing
structure within or a strategic marketing plan for the organization. Flawed or absent
marketing research has resulted in store closings and or expansions that were not backed up
by market data or evidence that this investment would be feasible.It also resulted to sudden
and very large drop in the market value of equity for krispy kreme Doughnuts, Inc. associate
with series of announcements made in 2005.Those announcement caused investors to revise
their expectations about the future growth of krispy kteme which had been one of the most
rapidly growing American corporations in the new millennium.
The “Montana Mills” acquisitions was based on the CEO’s “feeling” that the services
for “flour-based”, short-shelf life products investment was a logical fit with their current
process of vertically integrating an services for “flour-based”, short-shelf life products.
Market research would have the identified the new trends toward reduced carbohydrate
consumption patterns in the general public. The company spent very little on advertising,
depending largely on word of mouth, and local publicity. Store openings were popular events
in the communities, so often newspapers and other media provided free publicity for the
events. This strategy seems to still work well for new store openings, but would not be
sufficient to generate continuing business. As a result, Krispy Kreme acquired a company in
2003 that by the end of fiscal year 2004, had lost $2 million dollars. While Krispy Kreme
later divested itself of the Montana Mills operation, this entailed a write-off of $34 million
initially; with further write-offs of $2-$4 million in subsequent quarters. This bad
investment, in addition to slumping sales resulting from the trend toward low carbohydrate
diets resulted in the company’s reporting a $24.4 million loss for the quarter of fiscal year
2005. This is evidenced by the fact that even while new stores are opening, older stores
within the same market have to close. In short, the company’s marketing strategy appeared
to consist merely of allowing its product to sell itself.
VISION
Our vision is to be the worldwide leader in sharing delicious taste and creating joyful
memories
MISSION
Our mission is to reach every culture throughout the world with our delicious
doughnut. We will provide quality service and product to everyone that walks through our
door.
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
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, Tim
United Kingdom, Japan and Spain Horton’s,Starbucks and other National
2. Manufactures all equipment internally in its Chains/Specialty Eateries.
Manufacturing and Distribution Department 2. Low-carb trend in eating preferences
3. Non-interactive website 3. Increasing cost of Ingredients
4. No online ordering capability 4. Increasing utility and fuel costs
5. Uncertainty of International markets 5. All-natural, organic, healthy eating
6. KKD snacks are not healthy (need to consider trends
low-calorie donut) 6. Krispy Kreme stores went up too fast
7. Perishability of product 7. Cultural differences in breakfast and
8. Limited product line (heavy reliance on snack foods
doughnut sales) 8. Increase in eating at full-service
9. Overextended (i.e., Montana Mills acquisition) restaurants combined with a decrease
10. Pricing in some locations in the use of fast-food restaurants
11. Bad Relations with Franchisees (cost of 9. Store locations too scattered
equipment, packaging, ingredients etc)
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
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.
INTERNAL FACTOR EVALUATION (IFE) MATRIX
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.
WEIGHTED COMPETITIVE STRENGTH ASSESMENT
Analysis of Weighted Competitive Strength Assessment:
Key Success Weight Krispy Dunkin Tim Starbucks McDonalds
Factor/Strength Kreme Donuts Horton’s
Measure
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
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 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.
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 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.
OBJECTIVES
To implement extensive marketing measures for its brand and products and
investment strategy for both on and off premise operations.
To increase sales and profitability in terms of its core business,which is selling
doughnuts.
To gradually gain back analysts’, investors’, and lenders’ trust confidence in the
company in the succeeding months.
To increase stock price to the previous levels and thereby increase shareholder value.
To correct inaccurate entries in the financial statements and to present a clean and
unbiased report.
ALTERNTIVE COURSES OF ACTION
1. Close unprofitable stores and focus on other domestic areas and global market
-increased capital from sold locations and properties.decreased loss
Develop new market
2. Create a cohesive strategic marketing plan for the organization.
3. Follow the general accepted accounting principles in preparing its financial reports
4. Downsize and focus expansion on global markets.
5. Expand the current product mix.
6. To conduct a corporate-wide financial and operational audit of random stores, both
company-owned and franchised to determine causes of negative ratio of revenues to
expenses.
7. To develop or enhance the marketing department
8. To conduct a cost-effectiveness analysis of the supply chain.
ANALYSIS
6. To conduct a corporate-wide financial and operational audit of random stores, both
company-owned and franchised to determine causes of negative ratio of revenues to
expenses.
The Quarterly Operating Performance (Peter and Donnelly, 2009) tables demonstrated
that from Fiscal Year 2004 to Fiscal Year 2005, performance declined in both venues.
However, this information does not detail either the reason for the decline, or why the report
indicated that the company-owned stores’ performance declined at a faster rate than did the
other franchisee operations. (Page 711). The benefit(s) of conducting this audit would be that
it would assist management in identifying causes of increased operating expenses in
corporate stores vs. the franchise operations. Another benefit would be in discovering the
accounting errors in existing systems that resulted in reduction of net income by from 2.7% -
8.6%. Management needs clear and accurate information in order to make appropriate
operating decisions for the company. By itself, the fact that this reduction had to be stated by
a percentage range, rather than a specific percentage, would indicate that accounting methods
are not accurate enough to provide this critical information. Finally, this independent audit
may serve to revitalize investor confidence in the company. Regardless of the struggles, if
the information put forth in the market is believed to be accurate, investors may be more
willing to take a chance in the company.
As discovered during the situational analysis, probably the primary, and most
critical, problem in the operational area is in the lack of a cohesive marketing
structure within or a strategic marketing plan for the organization. Flawed or
absent marketing research has resulted in store closings and or expansions that
were not backed up by market data or evidence that this investment would be
feasible. This is needs to be counteracted quickly by the development or
enhancement of the marketing department. This should be done by
recruitment of competent in-house marketing specialists to develop a
marketing plan and carry it out either through in-house efforts, or (preferably),
through the use of an external marketing firm. This marketing plan must
contain elements addressing appropriate marketing research of industry
environment and a marketing strategy addressing current and possible future
competition.
Secondary Sources for marketing research are often a good place to obtain
base-level data at minimum financial outlay. This kind of data for the
restaurant and food service industry can be obtained through online sources
such as “Market Research.com”. For example, the “2009 Restaurant, Food &
Beverage Market Research Handbook”, by Richard K. Miller & Associates,
can be downloaded for a nominal cost of $285. The benefit of this item is that
it could be used as a tool to assist senior management in understanding what
the marketing research plan will attempt to address and accomplish. It also
would provide a broad look at the industry environment and issues currently
faced. Other secondary sources, such as the “Restaurant Marketing Group™
(RMG)”should also be investigated. This firm has various methods that it
uses for conducting consumer research, one of which, the “Food Actually”
study is described as “...a measure of a consumer's perception of the
ingredients a brand uses.” Research for the study was conducted as an online
survey focused on each brand’s Food Actually® rating, the factors
contributing to the Food Actually® rating, and how significant Food
Actually® is in relation to other brand considerations. A Food Actually®
rating is given to each of the 128 brands included in the study using a ten point
scale to determine the consumer’s perception of, and confidence in, a brand’s
food. This report costs a mere $99, but could provide valuable insight into
consumer’s decision-making process.
However, in the case of Krispy Kreme™, secondary sources of data are not
sufficient for developing a cohesive marketing strategy. Primary data must be
obtained about the current industry, customers and competition, both current
and potential. While collection of primary data, could theoretically be done by
in-house marketing personnel, hiring an experienced marketing firm that
focuses on the restaurant and food service industry would be more effective
and efficient in the long run. The firm mentioned above also provides a
service called “Rapid Ad Feedback” which delivers a quantitative-qualitative
feedback on upcoming campaigns before they go “live” to ensure the message
is effective. This can tell the marketing department if potential consumers
understood the main message of the ad and if not, what was confusing. It can
also provide information on what respondents perceived about the brand
(based on what they saw in the ad and what might motivate them based on the
ad). A competent market firm should be able to provide all both quantitative
and qualitative data such as market research, customer profiling & loyalty,
focus group moderating, and local store marketing. This last item assists the
operation audit mentioned above by providing valuable primary data on an
ongoing basis. Of course, the firm mentioned above is just an example of the
type and services one would for in a marketing firm.
1. Create a cohesive strategic marketing plan for the organization.
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 the general accepted accounting principles in preparing its 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. Downsize and focus expansion on global 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 the current product 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.
