Krispy Kreme Doughnuts example essay topic

Written Assignment Krispy Kreme Doughnuts, IncI. Brief History Vernon Rudolph is the brains behind the Krispy Kreme name. He bought a doughnut shop in 1933 and all the assets came along with the purchase, including a secret recipe and name, Krispy Kreme. Rudolph moved to Winston-Salem, North Carolina, where he opened his first Krispy Kreme shop. The business prospered and in the 1950's over ten other locations were opened. The business was able to produce 500 dozen doughnuts an hour.!

SS Revenues grew from less than a million in 1954 to $58 millions in 1974. !" (C-280) The company was bought out in 1976 by Beatrice Foods. This hurt the name and image of Krispy Kreme. Revenues began to fall and customers were not satisfied with the new owner's changes to the image of the doughnut giant. Then in 1982, new buyers decided to go back to the original image of Krispy Kreme and revenues again began to rise. Revenues gradually rose to $117 million in 1989 and then stayed the same over the next six years.

II. External Analysis Economic Factors: studies were conducted to show that in the United States people consumed just about 10 billion doughnuts. Krispy Kreme is in a low cost industry, therefore a rise or fall in the market will not affect their revenues as significantly as higher priced luxury goods. Technological Factors: Krispy Kreme has a doughnut theater where the doughnut making process is showcased. This gives customers a unique experience where they are able to watch the doughnuts being made. Krispy Kreme has recently introduced!

SSMyKrispyKreme!" which is an internet based portal that connects management franchisees and Krispy Kreme vendors to each other. Societal Values and Lifestyles: As of 2001, the diet and eating healthy craze did not have that much of an impact on sales as many thought it would. People still buy doughnuts as a way of giving themselves a treat. Population and demographics: Krispy Kreme's corporate headquarters are located in Winston-Salem, North Carolina. They have 401 stores in operation. It is traded under KKD in the NYSE.

They currently employ 3,913 employees. Key Success Factors Krispy Kreme is as efficient as they are in the business because they go by the motto that! SS the key to expansion is to have control over each step of the doughnut-making process and be able to deliver hot doughnuts to customers as soon as they emerged from the frying and sugar-glazing process. !" (c-280) Krispy Kreme has done so well because they follow their beliefs that you must make the customers happy. Krispy Kreme went from being a wholesale baker to a specialty retailer. They used their marketing skills by stressing the! SShot doughnut experience!" that customers knew them by.

It was known that by changing the company's traditions and style as was done when Beatrice Foods took over in the 1970's that customers do not take a liking to change. Krispy Kreme knows that they always have to look to see what the customers want and appeal to them. Krispy Kreme spends very little on advertising. They rely on word of mouth of their customers, local media publicity, and product giveaways.

Technology speaking the company made the size of the doughnuts bigger. They also looked at the size of the stores and realized that it was not cost efficient to have the large stores so they began to make smaller ones. Krispy Kreme has built-in supply chain where it manufactures the mixes for the doughnuts at company plants located in North Carolina and Illinois. They also manufacture proprietary doughnut-making equipment for use in both company-owned and franchised stores. The company receives a substantial amount of their revenues and earnings, which are attributable to!

SSKK manufacturing and distribution!" , which is the sale of mixes and equipment. II. Industry Analysis One of the dominant economic features of Krispy Kreme is that the doughnuts are affordable and nice treats. The market size is relatively small. The major competitor in the market is Dunkin! | Donuts who controls over 70% of the market share.

The market is concentrated. This is due to Dunkin! | Donuts controlling most of the market. Krispy Kreme controls 24.6% of the market share in the doughnut industry. Porter's 5 Forces The Rivalry among competing sellers in the industry is medium to high. KK highest competitor is Dunkin!

| Donuts who controls most of the doughnut making market. KK must do everything in their power to remain in the position they are in or to move up. New competitors can enter the market at any time. Mom and Pop shops open all the time that sell doughnuts and breakfast products. The barriers to entry in the doughnut market are small. Doughnuts are simple to make and anyone could make them if they wanted to.

However, mass production of doughnuts takes a little more effort and money. KK is able to compete in a market that has many large competitors as well as Mom and Pop shops. When analyzing the affect of substitute products you must take into effect the lifestyle of Americans. We live in a world that is on-the-go and fast pasted. People eat in fast food constantly. The fast food industry is constantly being threatened from substitute products.

There is little bargaining power of sellers in the doughnut industry. If one company is selling their product at a higher price than another one there is no way to know if the customers will buy the cheaper product. There are also substitute products that can be eaten instead of doughnuts. The ingredients in doughnuts are simple. Anyone can go buy the supplies necessary to make doughnuts. The amount of suppliers in the industry limits the power of suppliers greatly.

Therefore, the bargaining power of suppliers is low.. Internal Analysis Strengths"X Minimized capital requirements due to franchising providing an attractive royalty stream which puts responsibility for local store operations in hands of successful franchisees who know the ins and outs of operating multi-unit chains". X They use a vertical supply-chain, which means that manufacturing and mixing for the doughnuts are done by Krispy Kreme". X Sales of mixes and equipment! SSKK manufacturing and distributing!" generated a substantial fraction of revenues and earnings".

X By sending out an IPO they raised enough capital to completely pay off all long-term debt". X They have very good customer loyalty and brand recognition"X Krispy Kreme offers a variety of products-20 different types of doughnuts"X Acquired Digital Java- a small Chicago based coffee and non-coffee based Beverage Company". X Technologically enhanced-online training courses Weaknesses"X The performance and or financial condition of KK are dependent on their franchisees to execute its store expansion strategy, supply issues, and compete in the market". X Known as being the! SS unhealthy!" doughnut"X There niche competitors are quick to offer new products for customers"X Focused on opening new stores instead of increasing current performance"X Marketing based solely on reputation-no advertisements Opportunities"X When Krispy Kreme took off in 1997 they were in the infancy of their growth and they hope to expand into the market"X KK would like to expand into colleges and universities, businesses and industry facilities, sports and entertainment complexes".

X Looking for more franchisees to open up stores worldwide"X Internet access, larger food menu and other services via internet"X Premium drinks such as cappuccinos, mocha, espresso etc". X Diet or low fat products"X Co-branding and product diversification Threats"X Diet craze had increased over the years-Obesity scare, high cholesterol, Atkins diet, South Beach diet, etc. are still factors that need to be considered"X Other Quick Service restaurants are serving coffee and desserts"X Competitive market- Dunkin! | Donuts / Baskin Robbins alliance IV. Financial Analysis Krispy Kreme's net sales have increased steadily from 2000-2004.

System wide sales has increased by 26.5% from the last fiscal year. As well as, an increase of 45% in net income. The Inventory turnover ratio is important also. Krispy Kreme's inventory turnover is 19.06, which means that they are able to sell their inventory in about 19-20 days on average. Return on assets is the key indicator in this line of business to evaluate how profits are being generated from operations. Krispy Kreme's ROA is 14.6.

This means that for every dollar in total assets Krispy Kreme is able to produce $14.60 in net income. The special skills and know how that Krispy Kreme possesses is shown by having the name franchised out to franchisees all over the United States. It is cost efficient to do this because it! SS minimizes capital requirements, provides an attractive royalty stream and it puts the responsibility in the hands of the franchisees who know the ins and outs of operating multi-chains efficiently!" . (c-282). IV. Competitive Analysis Krispy Kreme is a part of the Specialty Eatery restaurant.

It is traded on the New York Stock Exchange under the symbol KKD. Their SIC codes are 2051 for the bread, cake, and related products and 5812 for eating places. They are in a concentrated market where they control 24.6% of the doughnut industry. Their leading competitors are Dunkin! | Donuts!

|, Starbucks, Winchell's, Tim Horton's and Cinnamon to name a few. Krispy Kreme has the ability to align their strategy and execute their brand with high potential which categorizes their aptitude for vision and creativity. Two of their key priorities are brand value and internal culture. By making sure that their employees are satisfied and keeping up with the! SSHot Doughnuts Now!" slogan they remain in line with their strategic vision. Krispy Kreme implements a differentiation strategy.

This means that they want to distinguish their product from other in the industry. They do this by distinguishing the taste, quality, and simplicity of their product. Other competitors in the market tend to use to same strategy because a competitive advantage of taste is better than cost. Another advantage that KK has is their vertical integration that sets them apart from their competitors. They manufacture their own custom doughnut and makes equipment for all of their restaurants. One of KK greatest assets is their brand name and taste.

By targeting consumer tastes they succeed in the business. They are also known for their marketing efforts through charitable organizations. They do not spend much money of direct marketing through advertisements but they offer free doughnuts to market themselves. Another one of KK strategies is their doughnut theater which sets them apart from their competitors. Customers enjoy being able to see how and where their doughnuts are being made. They get the feel of freshness and enjoy the atmosphere.

KK acquired Digital Java a coffee beverage company in 2001. they did this to broaden their products and diversify. Competitors such as Dunkin Donuts! | and Tim Horton's provide other products other than doughnuts. Tim Horton's is the doughnut giant in Canada. They are known for their other baked goods as well as doughnuts.!

SSMyKrispyKreme!" allows the company to monitor inventory and investors can log on to obtain information about the company and news about the industry. One thing Krispy Kreme needs to work on is diversifying their product. Competitors, such as Dunkin! | Donuts! |, offer bagels, low-fat products, premium coffees, and newly cinnamon sticks. They offer these products to go with the changing times of the market. They remain to be the top competitor in the market because they are constantly changing their product line to suit their customers. V. Recent News Krispy Kreme will close outlets it has in Wal-Mart stores.

The move was discussed on March 23, 2005. the reports say that the move is not due to KK financial's. Sources say that Dunkin! | Donuts! | will be opening up in various Wal-Mart outlets throughout the United States in the future. There is also news that Krispy Kreme owes millions of dollars for their credit line. They were given an extension of time to pay off their debt before the company goes into bankruptcy.