Krispy Kreme Doughnuts example essay topic

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 appears saturated, leading many smaller producers to exit the market due to poor profit margins. Krispy Kreme customers consist of people of all ages, races, and gender. The increasing domestic and world population provides significant opportunities for the doughnut industry to increase sales. Increasing work opportunities are resulting in continuous shifts in population to different geographical areas, both locally and globally. As the population is showing a growing trend from traditional ways of eating to more non-traditional ways, this gives rise to the growth in different needs and consumption patterns, especially in the populations approach towards fast foods.

This could be an encouraging sign for Krispy Kreme. In the doughnut industry very few organizations have tried to strengthen their competitive position with vertical integration. Krispy Kreme has established sizable cost savings, as well as alleviated the uncertainty of being dependent on suppliers for the crucial components needed to stay in business through backward integration. Their major competitors are all solely in the production and retail of coffee and baked goods. Many retailers in the doughnut industry have several distribution channels. The larger establishments, such as Krispy Kreme, Dunkin Donuts, and Tim Hortons have distribution centers that supply the stores with essential supplies in core areas of their business.

In addition, some retailers use supermarkets, convenience stores and other retailers as channels for distributing their products. When looking at the barriers to enter into this industry, I believe that there are moderate barriers that exist. Capital requirements to construct a retail operation or franchise territories can range as high as $5 million. Experience and proven organizational capabilities are necessary to compete in this industry. The globe is becoming smaller and smaller with every passing day thanks to technology. Technology has given many nations better standards of living, better businesses, and most importantly much healthier lives.

New and more innovative equipment is available for producing doughnut products. The implementation of the latest technology in all business aspects, e.g. manufacturing, administration, finance, marketing, gives this industry unlimited opportunities to enter new markets and meet the demand of both existing and new customers. The product characteristics in the doughnut industry are highly homogeneous. The products of different producers are essentially identical, where many buyers perceive little real difference from seller to seller. However, avid consumers of doughnuts tend to be brand loyalist and aware of product differentiations..