Krispy Kreme Hot Doughnut Machine example essay topic

Focus of the Proposal Krispy Kreme, a leading, well-established brand of high quality doughnuts, is still in a stage of astonishing growth potential. According to Dain Rauscher Wessels equity analyst David Gera ty, "Krispy Kreme has established itself as the quality leader in the doughnut industry and is positioned to become the dominant industry player, with 145 retail locations in 27 states, Krispy Kreme is expected to capitalize on the brand conscious consumer's demand for a consistent, high quality specialty food product" (Minneapolis 2000). Krispy Kreme has quickly risen to the top of the doughnut business in a short amount of time. The company's goal since its infancy has been to satisfy customers by providing a unique experience when visiting a Krispy Kreme outlet. This bold strategy has differentiated them from their competition and created a competitive advantage. Customers are allowed to see how the doughnuts are made, and then served the newly baked treats hot and fresh.

The bright neon light that shines from every Krispy Kreme location reads "Hot Doughnuts Now", is one of Krispy Kreme's key marketing strategies. When this sign is lit up, customers know that they will get fresh doughnuts that have just been made. Since going public in 2000, Krispy Kreme Doughnuts has posted strong growth in same-store sales each quarter, with a consistency that would make most competitors envious. According to the Krispy Kreme's most recent quarter, which ended August 3, 2003, it posted an 11.3 percents rise in system wide same-store sales, including 15.6 percents growth at company operated units (Peters, 2003). From the financial report of second quarter in 2003, it could foretell there would be more earnings growth in the future as long as Krispy Kreme finds more new markets in which to launch doughnut shops. Its average weekly sales are in large determined by newly opened stores.

This also demonstrates that the doughnuts specialist's soaring results and rise to the top echelon of industry performers can be attributed to successful expansion. Despite the fact that Krispy Kreme's same-store sales are increasing every quarter, the company is not in control of the specialty foods industry. Starbucks Coffee, Krispy Kreme's leading competitor, has been experiencing astonishing sales that surpass even Krispy Kreme's admirable numbers. Statistics from the National Restaurant News show that for the third quarter (which ended June 29) Starbucks' earnings jumped 23 percent and revenues increased to 24 percent. In addition, "Starbucks reported net income of $68.4 million, or 17 cents a share, compared with $55.7 million, or 14 cents a share, in the previous year's third quarter.

Revenues of one- billion dollars reflected the opening of new units and an 8-percent rise in same-store sales" (National Restaurant News, 2003). With its same store sales increasing twice as much as Krispy Kreme in the same year, Starbucks has the proof that it will not yield to Krispy Kreme. In order to surpass Starbucks, and the many other potent competitors, Krispy Kreme must devise new business tactics that rely on information technologies, because that is an aspect of business which Krispy Kreme has utilized very effectively in the past. As stated previously, Krispy Kreme's sales are very admirable, but are still, despite excellent growth, much lower then Starbucks Coffee.

With such a powerful rival, Krispy Kreme will need to devise strategies that fully utilize the potential that a well organized and operated IT infrastructure has. Several options exist that will be able to assist Krispy Kreme. Partnerships, for example, can take much of the pressure off certain sections of the company and allow the top tear managers to focus on more pressing concerns. With the recent upgrades in technology and computers, employees must be able to operate the new technology without experiencing problems that could damage consumer confidence in the company. In addition, since Krispy Kreme matures and expands rapidly, it becomes difficult for employees to communicate with stores that are located many miles away. This can be a disadvantage when new personnel must be taught specific skills, how to operate newly installed systems.

In addition to the problem of personal training, the process of production remains a major concern and eventual factor in Krispy Kreme's success. The Equipment used in producing the doughnuts in factory stores can be expensive, but is necessary in order to maintain the competitive advantage of having freshly served doughnuts. Recently a new "baking" technology has been developed that allows stores that currently do not possess the ability to bake fresh doughnuts to do so in a cheaper way. Leading managers are focusing on substantially increase the number of stores that possess this technology, which would allow them to feature its signature hot doughnut experience which they have lacked in the past. Utilizing the new equipment will allow Krispy Kreme to further understand and refine the technology. The company has dubbed this new machinery "Krispy Kreme Hot Doughnut Machine".

The Hot Doughnut Machine is designed to finish cooking and glazing doughnuts that have been prepared to a certain point at a factory store, and deliver them to a store employing this cheaper technology. As Krispy Kreme's chairman, president and Chief Executive Officer, Scott Liven good commented, "Stores that utilize the Hot Doughnut Machine technology will complement, not replace our traditional factory stores. This technology provides us with the versatility we need to enter market areas which before were not practical, including certain urban location, small markets, and confined locations such as airports and malls" (PR Newswire, 2001). This new technology enables Krispy Kreme to take advantage of existing stores' production capacity, creating efficiencies and greater profitability.

It also can offer multiple varieties of hot doughnuts throughout the day. This new system solves the problem of not being able to serve fresh products in confined areas, but with the addition of new technology, workers will have to be trained to use it correctly. In almost every case, when the people operating technology are experts at it, the result is very formidable. For Krispy Kreme to improve the efficiency of their IT infrastructure, they must be able to train employees at an astonishing rate, and at the same time maintain the ability to produce fresh doughnuts without losing profit due to high costs. Why has Krispy Kreme been so successful recently?

The answer is that they have expanded with astonishing levels of excitement and anticipation generated from customers at each new store. Although thus far the growth has been smooth and successful, Krispy Kreme will encounter many indirect and direct competitors as it continues to increase its market share across the globe. The company is attempting to compete with trendy chains, such as Tim Hortons and Starbucks, as well as mom and pop coffee shops all over the country. Krispy Kreme has been in the business since 1937 and has faced competition throughout its existence, but not to the level it will be confronted with as it expands. Maintaining awareness of the direct and indirect competition already established in these new markets is vital to future achievement. In some situations, expanding too quickly can lead to problems throughout a business.

For example, communication, along with the distribution of production technology and needed ingredients to each individual store can be difficult. Preserving order will be possible only through identifying certain technologies that will assist in the process of distribution and communication. Despite the fact that the process of expansion is proceeding very smoothly, and recent improvements in IT have reduced mistakes in distribution and lowered the amount of computer malfunctions, there is still room for improvement. Krispy Kreme executives have proven that they are able to responsibly utilize technology effectively. In some ways, this has become part of the advantage they hold over their competitors. In the recent future, however, the company will need to make decisions of which direction to take the business.

For example, they will have to continue to supply the baking technology to their new factory stores which will be costly. Efficient ways of making doughnuts would greatly lower the pressure to sell by making it cheaper to produce. However, research shows that more financial capital will have to be directed at researching new production methods if this change is possible. Should Krispy Kreme rely on itself to devise these methods, or is outsourcing necessary? Solving these problems is the key to Krispy Kreme's continued success. Finally, many people are exposed to Krispy Kreme doughnuts from very early ages, but others (who are not in the area of a store) do not know very much about the product until they encounter one.

Due to this, it is rare that one who has not seen a Krispy Kreme advertisement, or heard from a friend about the quality of a product will seek out an opening store. Advertising is important for most businesses in the specialty foods industry because of the high competition. Starbucks is at a level where they have become a household name. It is not uncommon to see Starbucks logo's in movies or television shows, because it is a symbol of quality. Recognition as well-built as this does not happen through natural marketing evolution. It takes great effort to become a company that is on the tip of consumers tongue when discussing certain products.

The goal of Krispy Kreme is to be the world wide doughnut name. Unfortunately, without the power of a cross country campaign, this status will be difficult to achieve. Successful advertising can be achieved by using technological mediums such as the internet to generate consumer interest in places it does not yet exist. In order for Krispy Kreme to become the leader of its industry, it must identify the threats that it faces and use IT to transform these into opportunities.