CASESTUDY:

KrispyKremeDoughnuts

ChristineLu
RivaDianneLubguban
Ma.NashraMangwag

Mr.RosewellCataylo
Management42Instructor
 February9,2017

INTRODUCTION

KrispyKremeDoughnuts,Inc.is anAmericanglobaldoughnutcompanyand

coffeehousechainthatwasfoundedbyVernonRandolphin1937inWinstonSalem,

NorthCalifornia.KrispyKremeDoughnutsoperatesaleadingchainofdoughnutoutlets

with more than 1,000 locations throughout the United States and in about 25 other

countries.Thecompanyownsandoperates114locationsandfranchisestherest. The

shopsarepopularfortheirglazeddoughnutsthatareservedfreshandhotoutofthe

fryer.Inadditiontoits original glazedvariety,KrispyKremeserves cake andfilled

doughnuts,crullers,andfritters,aswellashotcoffeeandotherbeverages.Thecompany

isknownformarketingnotjustthedoughnutitselfbutalsotheuniqueexperiencethat

customersgetfromeatingthem.However,inearly2009,KrispyKremewasoneofthe

15 firms listed to have a high probability of being bankrupt during the year. Such

probabilitywaslargelyduetothesignificantlossesthefirmhasexperiencedsincefiscal

year2005.ItwasobservedthatKrispyKremehasbeenexperiencinganetlossof20

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.SinceKrispyKremereportedthatitsfranchiseeshavegrownstronger,thefirm

considersthatitmayopen160morenewstoresinternationallyin2010andbeyond.

Althoughthefirmsdomesticfranchisesstillfacefinancialstrain,isthisanappropriate
move for the firm to pursue? How can the firm survive in this global market while

competingagainstseveralcompetitors?

PROBLEMSTATEMENT

CentralProblem

KrispyKremeneedsaclearstrategicmarketingplantosurvivethroughtheyears.

Subproblems

Lossofinvestorconfidence
Decreasingprofitability
Decreasingmarketvalueofequity
Lackofaloyalcustomerbase
Issueswithfinancialmanagementcausinginaccuratefinancialstatements
Disputewithsupplychain

ANALYSIS

EnvironmentalAnalysis

KrispyKremeDoughnutsispopularwithitshotglazeddoughnutsmakingita

majorcompetitoralsointherestaurantindustry.Soonastheirproductbecamepopularin

theUnitedStates,thecompanyrapidlyexpandedacrossUnitedStatesandalsotothe

Internationalmarkets.Intheendofyear2004,theeconomybeguntoslow,competitors

ofKrispyKremecrowdedthemarketandexpansionforKrispyKremehadtobescaled
backbecauseofthefallingsales.DietplanslikeAtkinshadbeenblamedforthedecline

insalesasthecustomerreducedcarbohydrateconsumption.

IndustryAnalysis

Intheindustryofsellingdoughnuts,constantthreatstonewandexisting

competitorsarechallengesthatarefacedbyKrispyKreme.DunkinDonutsalone

generatesworldwidesalesof$2.7Billion(2002),5200outletsworldwideandamarket

basedof45%ondollarsalesvolume.AnotherbigcompetitorisTimHortons,acompany

basedinCanadathatexpandeditsbusinesstotheUnitedStatesmarket.Inyear2002,it

generated$6500millionsalesthroughoutits160outletsinUnitedStatesand2300outlets

inCanada.Moreofitscompetitorshaveamajorstrategyinemphasizingtheircoffeethan

itsdonuts,likeDunkinDonuts.DunkinDonutsdrivethruservicemakesitconvenientto

itscustomertopickupacoffeeonthegoandmaybepickadonut,too.Thedoughnuts

theysellarealsohasbetternutritionalvaluesinceitislowerincalories,fatandsugar,

thisprovidedaproductthatsuitsthehealthconsciouspeople.

Starbucks,SeattlessBest,WinchellsDonutHouseandLaMarsDonutsarealso

fewofthechiefthreatstoKrispyKreme.Competitorsarecomingupwithsubstitute

productstoattractcustomers,likebagels,muffinsandsandwiches.Specialtyhotandcold

drinksarealwayspopularwithcustomerandathreattoKrispyKreme.KrispyKremeon

theotherhandalsohasitsstrategyofmanufacturingmixesfortheirdoughnutsandthe

donutmakingequipment.
SWOTANALYSIS
 InternalFactorEvaluationMatrix

Rating:15

KeyInternalFactors Weight Rating WeightedScore

Strengths
Brandelements:
Oneofakindtaste 0.08 4 0.32
DoughnutTheatre 0.05 3 0.15
HotKrispyKremeOriginalGlazedNowsign 0.05 3 0.15
Communityrelationships 0.08 3 0.24
Verticalintegrationensureshighquality 0.10 4 0.40
products
Consistentinternationalexpansion 0.10 3 0.30
Productsarealsosoldatsupermarkets, 0.08 2 0.16
conveniencestoresandretailoutletsintheUS.

Weaknesses
Netlossesforthepastthreeyearshavebeen 0.10 4 0.40
incurred
Stockpricesareinabadstatebecause 0.10 4 0.40
shareholdershavenotandwillnotlikelyreceive
dividendssoon
Productlineisnotexpanding,cannotreach 0.06 4 0.24
healthconsciouscustomers
Managementstrugglingwithcompany 0.06 2 0.12
profitability
Weakadvertisingschemes 0.05 2 0.10
Disputeswithfranchisees 0.03 2 0.06
Closingdownstoresthusunabletokeepupwith 0.06 2 0.12
competitorsgrowth

Total 1.0 3.16

ExternalFactorEvaluationMatrix

Rating:15

KeyInternalFactors Weight Rating WeightedScore

Opportunities
Convenienceattractscertainkindsofcustomers 0.09 4 0.36
Asiancustomersarefondofsweets 0.09 2 0.18
Starbucksdoesnothaveadistinctpastryline 0.11 2 0.22
DunkinDonutsdoesnotservehotdoughnuts 0.11 2 0.22
Totakeadvantageofthecustomerbasethat 0.08 3 0.24
enjoyssweetsthemost:kids

Threats
DunkinDonutspresentlydominatesthe 0.09 2 0.18
doughnutmarket
Increaseinhealthconsciouspeople 0.20 4 0.80
ShareholdersmaysellKKDstocksbecausethey 0.12 3 0.36
arenotgivendividends
Increaseincostofrawmaterials 0.11 3 0.33

Total 1.0 2.89

Exhibit1:ConsolidatedStatementofOperations
Exhibit2:ConsolidatedBalanceSheet
Exhibit3:ConsolidatedStatementofCashFlows
Exhibit4:ConsolidatedStatementofChangesinShareholdersEquity
ALTERNATIVECOURSESOFACTION
 1. Createacohesivestrategicmarketingplanfortheorganization.

Pros

Marketresearchcanprovidethecompanywithmorereliableinformationfor

whichtobasetheirdecisions
Assistthemanagementtomoreeffectivelyaddressissuesfaced

Cons

Largecostswillhavetobeincurredduetoemployingcompetitivestrategistsor

trainingpersonneltolearnmoreaboutstrategicplanning
Planstaketimetobemade

2. Followingthegeneralacceptedaccountingprinciplesinpreparingitsfinancial

reports

Pros

Preventserroneousrecordingoffinancialtransactions
Providesmorereliableandobjectivefinancialinformation
Maintainsinvestorsconfidence

Cons

Additionalcostswillbeincurred

3. Downsizeandfocusexpansiononglobalmarkets.

Pros

Operatingexpensesarereducedthusincreasingincome.
Newmarketcanbedeveloped.
Cons

Costforexpandingtonewlocationsishigh.
Marketinplaceswherestoresarecloseddownwillbelost.

4. Expandthecurrentproductmix.

Pros

Thiswillimprovethelackofdiversityintheirproductline.
Mayattractnewcustomers.

Cons

Newideasmaygivediscomforttooldcustomers.
Customersmightnotlikethenewproduct(s)thusthereisarisktheywillnotbe

sold.

RECOMMENDATIONS

Thegrouprecommendsthatthecompanyfollowthefirstandsecondalternative

coursesofaction:(1)createacohesivestrategicmarketingplanforthecompany&(2)

followthegenerallyacceptedaccountingprinciplesinfinancialreporting.

Creatingastrategicmarketingplanensuresthatthecompanyispreparedandwell

equippedforfutureendeavorsandchallenges.Implementingstrategiessuchas

advertisingthroughdifferentmeansofcommunication(TV,RadioandtheInternet)can

greatlyboostyourcustomerreach.Periodicresearchalsohelpsthecompanytostay
abreastandinwiththecurrenttrends.Researchanddevelopmentcanalsobeconsidered

aspartofastrategythataimstoconstantlyimproveproductdevelopment.

Followingasetofgenerallyacceptedaccountingprinciplesinfinancialreporting

helpsinvestorsgainconfidenceinthecompany.Thisinturnmayleadtoanincreasein

marketequity.

ACTIONPLAN

Theillustrationbelowidentifiestwoprimarysourcesbywhichfirmscanachieve

anadvantage:(1)costand(2)uniqueness.

Cost Uniqueness
BroadTarget CostLeadership Differentiation
NarrowTarget FocusedLowCost FocusedDifferentiation
 ConsideringthecompetitivescopeofKrispyKremeDoughnuts,Inc.,itservesa

broadorinternationaltargetmarket.Thus,thefirmshouldfocusoncostleadershipand

differentiation.Costleadershipisastrategythatcompaniesusetoachievecompetitive

advantagebycreatingalowcostpositionamongitscompetitors.Inotherwords,itsa

companys ability to maintain lower prices than its competitors by increasing

productivityandefficiency,eliminatingwaste,orcontrollingcosts.KrispyKrememust

alsogiveattentiononincreasingtheirsalesacrossallthreesectorsofthebusiness,not

justfranchisees.Thisshouldbedonebyfirstidentifyingandadheringtoeachsegmentof

theirtargetmarketskeybuyingcriteriaatthelowestpossiblecosttothefirm.Then

KrispyKremeshoulddecreasetheirpricesandadjustmarketingorsalesbudgetsand

expenditurestocreateasignificantandsustainablecostgap,relativetocompetitors,by

leveragingeconomiesofscale.

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.Adifferentiationstrategycallsforthedevelopmentofaproductorservicethat

offersuniqueattributesthatarevaluedbycustomersandthatcustomersperceivetobe

better than or different from the products of the competition. This may be achieved

through creative branding, improving the customer experience, introducing a new

product,orenteringexclusivepartnershipswithsuppliersordistributors.Webelievethat

ifKrispyKremeembracethecostleadershipdifferentiationbusinesslevelstrategythe

firm will see increased revenues and low cost, improve its existing operations, and

surviveinthiscompetitivemarket.