strategic management - krispy kreme, is turnaround possible?

LI BoyaYE Zhirui

WANG YanyiCHENG Qiaomei

Providence KluganOgochukwu Chrystle Oguamanam

History

· 1933 creation by Vernon Redolph

· 1950s 29shops

· 1960 standardization of making process

· 1982 bought by Joseph Mcaleer

· 1990s aggressive expansion

· 2000Digital Java acquisition

· 2001-2004 rapid growth

· 2005 decline

· 2001 go public

Q1:

What are the chief elements of Krispy Kreme’s

strategy? Was it working?

Strategy in Growth stage

1990's --- 2004Cost-leadership

Economic scaleGrow capability

Aggressive expansionFranchising

Reduce advertisingGo public

Go international

Differentiation

Unique productAtmosphereExperience

Emotional leisureTrend & popularityBrand awareness

Combine with coffee

Mix strategy

Our MissionTo touch and enhance lives through the joy that is Krispy Kreme.

Our VisionTo be the worldwide leader in sharing delicious tastes and creating joyful memories.

Strategy in Mature Stage

Form 2004

Keep going expansionRely on customer loyalty

Strategy Innovation:

Acquisition Motana Mils(2003) – failedLow-carbohydrate diet(2004) – failed

Questionable acquisition seven-unit franchise

Q2:

Identify and explain the key elements of their

business model

Business Model

On-premise Business

Off-premise Business

Business 1: company-own

ed stores

Business 2: franchised stor

es

Business 3: doughnut mixe

d

Business 4: supermarket and convenience st

ore

Business Model

Krispy Kreme's business model involved generating revenues and profits from three sources

1. sales at company-owned storees

2. royalties from franchised stores and franchise fees from new store o

penings

• store in the 2,400 to 4,200-square-foot

• franchise fee: $20,000 to $40,000 for each store

pay 4.5% royalty fee and 1.0% of revenues

3. sales of doughnut mixes, customized doughnut-making equipment, a

nd coffees to franchised stores.

Q3:

What does a SWOT analysis reveal about Krispy

Kreme’s overall situation, including an evaluation

of their financial performance? Do a comparative

strengths and weaknesses assessment using

McKinsey.

Financial Performance

Dollar amounts in thousands

Year Jan.2000 Jan.2001 Jan.2002 Jan.2003 Jan.2004 Jan.2005 Jan.2006

Revenues 220,243 300,715 394,354 491,549 665,592 707,766 543,361

Growth Rate 36.54% 31.14% 24.65% 35.41% 6.34% -23.23%

Financial Performance

Year 2005 • Stock Price: -88%• Stores: -30

SWOT&TOWS

Strengths Quality Brand Awareness Market share Various products Vertically integrated

Weaknesses Communication Management & Control Cannibalization (erode) Financial practice

Opportunities New ways of selling New promoting concept Present menu offerings

SOMarketing

&Social network

WONew markets

&Improving management

Threats Health campaign Competition Increasing cost of ingredients Consumer’s habits change

STPromoting healthy

products&

Economic scale &

CSR

WT

Avoid developing existing markets by existing

products

Mckinsey 7S Model

1.Hard Elements1) Strategy (Mixed)2) Structure (Own stores & Franchises)3) Systems (Everyone contributes to the

value)

2. Soft Elements1) Shared values (Hot fresh magic

products)2) Skills (Baking skill, recipe)3) Style (Ineffective relationship)4) Staff (Inexperienced, lack of knowledge)

Q4:

On the basis of your assessment above,

what do you think of Krispy Kreme’s growth

prospects? Just how good are they?

GROWTH PROSPECTS

• Historical basic product with variations – KK is known for its doughnuts, let that be the basic product. Other products should be added to the menu based on customer demand.

• Vertical integration principle – at this stage, in order to reduce cost, increase revenues and subsequent profitability

GROWTH PROSPECTS

• Customer experience – make every doughnut a fun and adventurous experience for the customers. Let them feel and be involved

• Diversify the sales locations – open stores in strategic locations, with dense population

GROWTH PROSPECTS

• Franchise – maintain effective communications with franchises, ensure that they uphold the KK brand and quality and monitor them effectively

GROWTH PROSPECTS REALITY

• For KK, the growth prospects as at the end of 2005 seem quite bleak. Though they had optimistic projections for sales, revenues and store growth, the actual results were well below what was expected


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Average weekly sales


Changes in store sales

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-5

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GROWTH PROSPECTS - OTHER

• Porter’s five forces; though not a traditional model for assessing growth prospects of a company, the five forces can be used to determine the possibility for future growth for KK in this industry


• Competition and rivalry

• Substitutes (and complements)

• Bargaining power of suppliers

• Threat of new entrants

• Bargaining power of buyers


• Ansoff’s growth model

• Market penetration – existing products, existing market

• Market development – existing products, new markets

• Product development – new product, existing market

• diversification

Q5:

What major issues do you think that Krispy

Kreme management needs to address?

Major issues

• Low-carbohydrate diets Adversely impacted several food categories

“this phenomenon has affected us most heavily in our off-premises sales channels. "(Livengood, former CEO)

• Accounting and financial reporting obligations In late July 2004, SEC launched an inquiry into the compa

ny’s accounting practices regarding certain franchise buybacks.

In December 2004, KKD identified accounting errors related to its acquisition of two franchises

Major issues (cont’d)

• Weak senior management teamInappropriate tone at the top of the organization

Unqualified management ( GAAP)

• Too many stores in too little time

144

357

410

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450

2000 2004 2006

TOTAL

Q6:

What recommendations would you make to

Krispy Kreme management to improve upon the

strategy or otherwise sustain the company’s

growth and profitability?

RECOMMENDATIONS

• Develop stronger control of franchises recruitment in order to concentrate on succesful actual stores

• Adapt to consumers desires

• Enforce marketing strategies

• Establish regular control of the accounting records and hire qualified personel

• Be more precise in their mission and vision to reposition themselves (better long-term vision)

THANK YOU !!!!!