THE STRATEGY-FORMULATION

ANALYTICAL FRAMEWORK
KRISPY KREME DOUGHNUTS, INC.

Gusti Ray Kamandanu 1711011012

Nanda Desyanti 1711011088
Atika Putri Dianti 1711011108

ECONOMICS AND BUSINESS FACULTY

UNIVERSITY OF LAMPUNG
2019
Krispy Kreme Doughnuts, Inc.

Headquartered in Winston-Salem, North Carolina, Krispy Kreme Doughnuts (KKD) serves doughnuts
and coffee as well as other snack items. The company has locations in 23 different countries. Many
Krispy Kreme shops are factory shops where customers can watch doughnuts being made and purchase
fresh hot doughnuts as well. The factory stores are responsible for servicing local grocery stores and
convenience stores. The KK Supply Chain p rovides raw materials for both franchise and company-
owned stores in the doughnut- making process. Krispy Kreme storeowners must purchase all materials
from KK Supply Chain. Krispy Kreme reported total revenues in fiscal year end February 2015 of $490 m
illion (up from $460 million the prior year) with about 90 percent of revenues d erived from the
United States. For the fiscal first quarter (Q1) of 2015, Krispy Kreme’s revenue rose 9 percent yearover-
year to $132.5 million, driven almost entirely by a 17.3 percent increase in Krispy Kreme’s store count.
For that quarter, the company’s domestic same-store sales rose 5.2 p ercent, but its international franchise
same-store sales declined 1.7 percent. Overall for Q1 of 2015, the company’s adjusted net income was
$16.6 million, or $0.24 per share. The company’s EPS number was up at least by the KKD buying back
391,300 shares of its stock for $7.4 million.

History
Krispy Kreme traces its roots back to 1933 when Vernon Rudolph bought a doughnut shop in Paducah,
Kentucky. After selling doughnuts in Kentucky, Tennessee, and West Virginia, the store known today as
Krispy Kreme was moved to Winston-Salem. Krispy Kreme doughnuts were sold to grocery stores at
first, but became so popular with customers that they requested the option to buy the doughnuts fresh and
hot from the store, thus launching the doughnut factory retail store and selling directly to the public.
Krispy Kreme grew quickly over the next four decades before being sold to Beatrice Foods Company in
1976. Shortly after the purchase by Beatrice, in 1982, several Krispy Kreme franchisees purchased the
company back from Beatrice Foods and quickly established the current Doughnut Theater style of factory
stores where by customers can watch doughnuts being made. It was not until 1996 that KKD finally
expanded outside the Southeast by opening a store in New York City, followed in 2001 by opening its
first store outside the United States, in Canada. The company went public with its IPO launch in April
2000. In the United Kingdom, KKD just concocted a single, gigantic box that holds 2,400 doughnuts. The
box (11.4 feet by 3 feet) was filled with doughnuts and required eight KKD employees to deliver it to 360
Resourcing Solutions. The box was part of a promotion for the new “Krispy Kreme Occasions” division
that customizes doughnut offerings for corporate events or special occasions such as weddings and other
celebrations. The division sells doughnut “towers” for special events or even personalized doughnuts with
customized, chocolate nameplates or corporate logos. The company has no plans to create another box,
but it is happy to sell 100 of the so-called double-dozen boxes for about $2,600. Krispy Kreme opened its
first store in India in 2013 in Bangalore, Karnataka, and now there are seven in that city. Also in 2013,
KKD began opening stores in Colombia, with a total of 25 planned, as the first South American country
for the company. In late 2013, KKD opened its first store in Taipei, Taiwan. In 2014, KKD opened its
first shop in Chennai in southern India.

Input Stage
The input tools require strategists to quantify subjectivity during early stages of the strategy formulation
process. Making small decisions in the input matrices regarding the relative importance of external and
internal factors allows strategists to more effectively generate, prioritize, evaluate, and select among
alternative strategies.
For the input stage, we need to know what the vision and mission of the company, therefore we can
derived the strategy formulation.
For KKD, actually they are not published what exactly the vision is.
But actually, the mission is as follows :
Consumers are our lifeblood, the center of the doughnut
There is no substitute for quality in our service to consumers
Impeccable presentation is critical wherever Krispy Kreme is sold
We must produce a collaborative team effort that is unexcelled
We must cast the best possible image in all that we do
We must never settle for “second best;” we deliver on our commitments
We must coach our team to ever-better results.
(Source: Company documents)

Knowing that determinants, we see there are some spectrums categorized as External Factor and Internal
Factor. On how KKD put the customer are their priority, they need to have external factor to build the
strategy, to manage consumer loyalty for instance. Comparatively under the Internal Factor, they have the
bettermen of their team, in which internal things would be something important and should analyze to
make it clear and strategic.
The Matching Stage
1. SWOT Matrix
Strength :
a. Exist since 1933
b. Have a lot of alternatives in distribution
c. Provide Doughnut Theater
d. Hot and fresh
e. Philanthropic business
f. Advance technology
g. Revenue increase 6% from 2013 – 3014
h. Retail sales resulted 49 revenues
Weakness :
a. Insignificant revenue of domestic franchisee
b. 31% wholesales of KKD
c. The increase of liability

Opportunity :
a. Global market and free market trade
b. Increase number of franchisee
c. Additional revenue

Threats :
a. Giant competitor (Dunkin Donuts, Tim Hortons, Starbucks)
b. The narrative of eating healthy
c. The fluctuation of coffee prices

Strategy formulation
 SO strategies
- Promotion strategy under the age of the business (Sa,Oa)
- Manage the liability well (Sg, Wb)

 WO strategies
- Maximalize budget to promote the wholesales (Wb, Oc)
- Promote international franchisee to decrease the liability (Wc, Oa)
  ST strategies
- Do research to compete the competitor (Sf,Ta)
- Distribute the invention due to eating healthy narrative (Sb,Tb)
- Optimalize the retail sales (Sh,Ta)

 WT strategies
- Optimalize the franchisee (Wa,Ta)
- Set the effective price (Wc,Tc)

2. SPACE Matrix

The SPACE Matrix of KKD is like this :

Note the SPACE vector for KKD’s is located in the Competitive Quadrant (lower right), based
primarily on three factors:
1. The company’s $1.5 billion in long-term debt,
2. Intense competition within the giant competitor, and
3. Offering products that are generally not a healthy food choice.
 KKD’s should consider adding a line of salads to their menu to shift the SPACE vector into the
Aggressive Quadrant (upper right); adding salads would likely benefit KKD’s financially, thus
moving the SPACE point on the vertical (y-axis) up.

3. BCG Matrix

Based on the data in books, we get like this :

The data shows the division of KKD which creating the revenues. We can transform the data into BCG
Matrix to get the projection. Retail sales create bigger presentation of the revenue from KKD. While the
other is coming from wholesales.

For fulfilling the projection, the guideline might be like this :

Based on each division’s respective (x, y) coordinate, each segment can be properly positioned (centered)
in a BCG Matrix. Divisions located in Quadrant I (upper right) of the BCG Matrix are called “Question
Marks,” those located in Quadrant II (upper left) are called “Stars,” those located in Quadrant III (lower
left) are called “Cash Cows,” and those divisions located in Quadrant IV (lower right) are called “Dogs.”
The following list describes the four BCG quadrants.
• Question Marks—Divisions in Quadrant I (upper right) have a low relative market share position,
yet they compete in a high-growth industry. Generally these firms’ cash needs are high and their cash
generation is low. These businesses are called question marks because the organization must decide
whether to strengthen them by pursuing an intensive strategy (market penetration, market development, or
product development) or to sell them.
• Stars—Divisions in Quadrant II (upper left) represent the organizations’ best long-run
opportunities for growth and profitability, and are therefore called stars. Divisions with a high relative
market share and a high industry growth rate should receive substantial investment to maintain or
strengthen their dominant positions. Forward, backward, and horizontal integration; market penetration;
market development; and product development are appropriate strategies for these divisions to consider,
as indicated in Figure 8-7.
• Cash Cows—Divisions in Quadrant III (lower left) have a high relative market share position but
compete in a low-growth industry. Called cash cows because they generate cash in excess of their needs,
they are often milked. Many of today’s cash cows were yesterday’s stars. Cash cow divisions should be
managed to maintain their strong position for as long as possible. Product development or diversification
may be attractive strategies for strong cash cows. However, as a cash cow division becomes weak,
retrenchment or divestiture can become more appropriate.
• Dogs—Divisions in Quadrant IV (lower right) have a low relative market share position and
compete in a slow- or no-market-growth industry; they are dogs in the firm’s portfolio. Because of their
weak internal and external position, these businesses are often liquidated, divested, or trimmed down
through retrenchment. When a division first becomes a dog, retrenchment can be the best strategy to
pursue because many dogs have bounced back, after strenuous asset and cost reduction, to become viable,
profitable divisions.

19% in convenience
stores

49% in retail

31% in mass merchants

1% in other
 4. Internal-External Matrix

49% in retail

31% in mass merchants 1% in other

19% in convenience
stores

5. Grand Strategy Matrix

This is also an important matrix of strategy formulation frame work. Grand strategy matrix it is
populartool for formulating alternative strategies. In this matrix all organization divides into four
quadrants. Any organization should be placed in any one of four quadrants. Appropriate strategies for an
organization to consider are listed in sequential order of attractiveness in each quadrant of the matrix.It is
based two major dimensions :
1. Market growth
2. Competitive position
All quadrant contain all possible strategies
Quadrant-1 contains that company’s strong having competitive situation and rapid market growth. Firms
located in Quadrant I of the Grand Strategy Matrix are in an excellent strategic position. These firms must
focus on current market and appropriate to follow market penetration, market development and products
development are appropriate strategies.

Qurdant-2 contains that company’s having weak competitive situation and rapid market growth. Firms
positioned in Quadrant II need to evaluate their present approach to the marketplace seriously. Although
their industry is growing, they are unable to compete effectively, and they need to determine why the
firm's current approach is ineffectual and how the company can best change to improve its
competitiveness. Because Quadrant II firms are in a rapid-market-growth industry, an intensive strategy
(as opposed to integrative or diversification) is usually the first option that should be considered.
Qurdant-3 contains that company’s weak competitive situation and slow market growth. The firms fall in
this quadrant compete in slow-growth industries and have weak competitive positions. These firms must
make some drastic changes quickly to avoid further demise and possible liquidation. Extensive cost and
asset reduction (retrenchment) should be pursued first. An alternative strategy is to shift resources away
from the current business into different areas. If all else fails, the final options for Quadrant III businesses
are divestiture or liquidation.
Qurdant-4 contains that company’s strong competitive situation and slow market growth. Finally,
Quadrant IV businesses have a strong competitive position but are in a slow-growth industry. These firms
have the strength to launch diversified programs into more promising growth areas. Quadrant IV firms
have characteristically high cash flow levels and limited internal growth needs and often can pursue
concentric, horizontal, or conglomerate diversification successfully. Quadrant IV firms also may pursue
joint ventures As above figure there are four quadrants in grand matrix that further contain various set
strategies.
We realized that Krispy Kreme is in Qandant 4 which means Krispy Kreme Donuts beauces KKD made
their store in other store such as convenience stores, gas station, and KKD mane some aggreement with
Keurig Green Mountain Coffee to create both decaf and regular Krispy Kreme Coffee for Keurig coffee
makers. So, it means that KKD is in Slow Market Growth and Strong Copetitive Position

The Decision Stage

For the decision stage, we use Quantitative Strategic Planning Matrix(QSPM). Quantitive Strategic
Planning Matrix is a high-level strategic management approach for evaluating possible strategies.
Quantitative Strategic Planning Matrix or a QSPM provides an analytical method for comparing feasible
alternative actions. The QSPM method falls within so-called stage 3 of the strategy formulation analytical
framework.
STRATEGIC ALTERNATIVES
1) Discontinue company stores 2) Continue slow and steady
and concentrate solely on growth of Company Store and
building Franchise via "hot Franchise business segments
shop" stores through traditional business
model (without "hot shops")
Key Factors Weight AS TAS AS TAS
Opportunities
1. Families crave 0.08 --- ---
convenience because of
busy lifestyles
2. Asians love sweets and 0.05 --- ---
are open to trying foreign
foods
3. Starbucks lacks a 0.10 --- ---
diversified and distinctive
pastry line
4. Dunkin' Donuts does not 0.07 4 0.28 3 0.21
have hot doughnuts to sell
5. Many children love 0.03 --- ---
sweet treats
6. Tim Hortons has yet to 0.04 4 0.16 3 0.12
expand beyond the U.S. and
Canada, and its product line
does not appear to be
competitive
7. South America, Africa, 0.09 3 0.27 2 0.18
and Southern Asia are
markets to conquer
Threats
1. Dunkin' Donuts presently 0.12 3 0.36 1 0.12
dominates the doughnut
market, particularly in
northeastern U.S.
2. People are becoming 0.08 --- ---
more health-conscious,
which does not bode well
for high-sugar, high-fat
treats
3. Starbucks has 0.08 2 0.16 1 0.08
approximately 25 times the
amount of stores worldwide
that KKD has

4. Restricted cash flow 0.06 --- ---

from banks and massive
layoffs have stifled the
world economy, decreasing
discretionary income
5. Europeans prefer their 0.05 --- ---
local brands of doughnuts

6. Britons tend not to have 0.06 --- ---

cars, which inhibits drive-
thru customers, and their
eating habits and office
etiquette differ from
Americans
7. Shareholders may sell 0.09 2 0.18 1 0.09
KKD stock for lack of
returns and dividends
compared to other similar
firms in the industry
1.00
Strengths
1. Affordable, high-quality 0.09 --- ---
doughnuts with strong visual
appeal and "one-of- a-kind"
taste
2. Neon "Hot Doughnuts Now" 0.06 4 0.24 3 0.18
sign encourages
people outside the store to
make an impulse purchase
3. Market research shows 0.08 --- ---
appeal extends to all major
demographic groups including
age and income
4. "Hot shop" stores save 0.07 4 0.28 1 0.07
money while keeping KKD
customer experience intact
5. Vertical integration helps 0.07 --- ---
ensure high quality product
6. Consistent expansion; 0.08 --- ---
now in 16 countries
7. Product sold at thousands 0.06 --- ---
of supermarkets, convenience
stores, and retail outlets
through U.S.

Weaknesses
1. Return on equity, assets, 0.10 3 0.30 1 0.10
and investments all negative
in the trailing twelve months;
skill of mgmt is questionable
 2. Shareholders have not 0.07 --- ---
received dividends recently,
and are not expected to in
near future;
stock price in state of flux

3. Closing stores when stores 0.06 3 0.18 1 0.06

should be opening globally
at steady rate to keep up with
competitors'
growth
4. Management states in 0.07 4 0.28 1 0.07
recent 10-K that it is
struggling with how to make
stores profitable
5. Product line slow to 0.04 --- ---
expand with nothing outside
"sweet treats" to draw in
health-conscious customers
6. Advertising not aggressive 0.03 --- ---
enough to appeal to areas
outside southeast of U.S.
where most stores are
7. Revenues down, net losses 0.08 3 0.24 1 0.08
in each of past three years

8. Per 10-K, continued 0.04 1 0.04 2 0.08

disputes with franchisees
could hurt future business

Total 1.00 2.97 1.44

From this table, we know the decision that KKD do is Discontinue company stores and concentrate solely
on building Franchise via "hot shop" stores