Krispy Kreme Doughnuts, Inc. is a branded specialty retailer of premium quality doughnuts. The doughnut retailer started its operation in 1937 when Vernon Rudolph, the company founder, realized the opportunities that existed in the thriving local economy of the developing southeastern city of Winston-Salem. Today, Krispy Kreme has its headquarters in Winston-Salem and sells approximately 3. 5 million doughnuts daily. It has expanded its operations outside the southeast to many metropolitan markets receiving a flurry of excitement from customers with each new store opening.
With its stock prices 70 times projected 2002 earning per share the company's executive management realizes the need for strong strategies and high growth potential. Krispy Kreme has a vertically integrated company structure that supports and profits from high-volume production and sale of high quality doughnuts and coffee products. The company's business is driven by two complementing business units: store operations, both company and franchise, and Krispy Kreme Manufacturing and Distribution (KKM&D). The company's revenue is derived from the sale of doughnuts produced and distributed by company owned stores and franchise store operations. Krispy Kreme's unique business model is comprised of the company's retail stores, which are high automated and produces high-volumes of doughnut products sold through multiple sales channels. KKM&D has developed important operating competencies and capabilities that are used to support the company's stores by providing strong product knowledge and technical skills, and by maintaining control of all critical production and distribution processes.
When determining a long-term direction or a strategy, it is imperative that the executive management of Krispy Kreme analyze their industry's dominant economic traits. These traits will help frame the window of strategic approaches Krispy Kreme can pursue. The impact that these traits can exhibit on a chosen strategy could prove to be significant, and therefore, they need to be considered in the infancy of strategic planning. Krispy Kreme is competing in a $4. 7 billion doughnut industry, with Americans consuming 10 billion doughnuts annually (statistics from 1998 and 1999).
The industry is dominated by Dunkin' Donuts, which has proven to be Krispy Kreme's main competitor. Dunkin Donuts dominated the industry in 1999, possessing nearly 77 percent of the U. S. market and pulling in $2. 1 billion in total U. S.
sales. No other doughnut chain had as much as 10 percent of the market share at this time. Krispy Kreme's competitive rivalry is worldwide. Of its chief competitors, Dunkin Donuts and Winchell's Donut House have chains globally. Dunkin Donuts has 5, 200 stores worldwide with 3, 600 in the U.
S, while Winchell's has just 600 stores located in 10 states west of the Mississippi and in countries such as Guam and New Zealand. Tim Hortons are located in both the U. S. and Canada. There are 1, 900 Tim Hortons stores in Canada and only 120 locations in the U. S.
LaMar's Donuts is a small rival with 29 locations only in the U. S. With its purchase by Franchise Consortium International in 1997, there are plans in the works to open 500 new stores by late 2004. When looking at the product life cycle of the doughnut for this industry, I believe that the doughnut is in the mature stage of its life cycle.
It seems as if its sales have stabilized and that survival will be for those retailers who can differentiate their product and brand image. Price wars and intense competition are present in the industry and the market.