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Krispy kreme doughtnuts (kkd)

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KRISPY KREME CASE ANALYSIS

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Group Member Wajahat Ali Mudassar Iqbal Ata Makhdoom Muhammad Qaswar TanveerAhmad

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ContentsContents IntroductionVision, mission and valuesKey factorsWays to raise fundBusiness operation Competitors Social responsible Stores LayoutAdvertisement/Marketing Distinguishing aspect Company Indicators

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Situational AnalysisSwot Analysis IFE,EFE,CPM and BCG Problem Found in Situational and Environmental

Analysis Conclusion Recommendation References

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IntroductionIntroduction

1937- Vernon Rudolph bought secret yeast recipe from a French chef in New Orleans

Expanded from local store to nation wide chain of storesHeadquartered in Winston Salem, North Carolina1940s – Small chain of stores, family owned.

Development of first distribution system.1950s – Improving and automating the doughnut

making equipment.1960s – Steady growth throughout the Southeast.

Consistent store designs.1973 – Founder Vemon Rudolph dies.

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Introduction (cont)Introduction (cont)

1976 – Company sold to Beatrice Foods and growth slowed.

1982 – Franchisees bought company back.1996 - Expands outside the Southeast region, first store

in New York.1999 – Other store in California, national expansion

underway.December 2001 – First international store in Canada.October 2003 – First store in Europe at England

(London)..

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Introduction (cont)Introduction (cont)

In 2003, a pilot project in Mountain View, California, to sell doughnuts through car windows and sunroofs at a busy intersection (with wireless payment) failed.

As of January 2008, the trans-fat content of all Krispy Kreme doughnuts was reduced to 0.5 of a gram or less.

In 2007 company total revenue is $461195 which is decrease to $31876 in 2008

And also In 2009 the company revenue decrease to 45335 .

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Introduction (cont)Introduction (cont)

In 2009 yahoo finance published a list of 15 firms that have a high probability of going bankrupt during the year. kkd was on the list.

650 stores worldwide in 18 countries93 company owned and 430 franchisees4500 full time employees

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Vision and MissionVision and Mission

Our Vision

To be the global leader in doughnuts and complementary products, while creating magic moments worldwide.

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Mission statement Mission statement

We create the tastes for good times and warm memories for everyone, everywhere. With our Original Glazed doughnut as our signature and standard, we will continually improve our customer's experience through:

Innovative ideasHighest quality, andCaring service

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Our ValuesOur ValuesOur Values 

(with acknowledgement to Founder, Vernon Rudolph) we believe...

Consumers are our lifeblood, the center of the doughnutThere is no substitute for quality in our service to

consumersWe must produce a collaborative team effort that is

unexcelledWe must cast the best possible image in all that we doWe must never settle for "second best"; we deliver on

our commitments

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Key FactorsKey Factors

Customers SuppliesWhole seller

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Case Study: Krispy Kreme Doughnuts, Inc.Case Study: Krispy Kreme Doughnuts, Inc.

Established in 1937.

Today has more than 290 doughnut stores (company-owned plus franchised) throughout the U.S.

Serves more than 7.5 million doughnuts every day.

Strong earnings and consistent sales growth. 15

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We generate revenues from three distinct sources. Company Stores.

On-premises sales. Off-premises sales.

Franchise. KK Supply Chain.

Mix manufacturing. Equipment. Distribution.

Business OperationsBusiness Operations

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4 WAYS TO RAISE FUNDS4 WAYS TO RAISE FUNDS

Traditional Doughnut SalesCertificatesPartnership CardsCoffee

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Krispy Kreme U.S.Krispy Kreme U.S.

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Krispy Kreme WorldwideKrispy Kreme Worldwide

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Store Layout/DesignStore Layout/Design

Freestanding: Most free-standing Krispy Kreme stores are constructed with a long window between the customer area and the kitchen, allowing customers to watch the operation of the doughnut-making machines.

Smaller Stores: Most of the smaller stores get their donuts from other locations rather than producing them on-site.

Atmosphere: Very welcoming, with bright lighting. Seating is limited but available. Factory tends to pull curious customers inside.

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Advertisement / MarketingAdvertisement / Marketing Free doughnut strategy – “Hot Now”; free doughnut while

waiting in line.

TV ad campaign

Gifts/Accessories – shirts, sweatshirts, hats, boxers, coffee, mugs, toys.

Fundraising – helped schools raise over $30 million last year (selling doughnuts, coffee, certificates, and partnership cards).

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Distinguishing AspectsDistinguishing Aspects Store Layout: Factory inside the store where you

can watch how the donuts are made. Reputation: Krispy Kreme has always been known

as and has had a reputation of being the best. Hot Now: When the Hot Now sign outside the store is

lit you can get hot and fresh original glazed donuts.

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Social ResponsibilitySocial ResponsibilityGave away free donuts during

2008 Election if you voted

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CompetitorsCompetitors

Dunkin Donuts- Privately owned

Starbucks- coffee shop with 8,800 worldwide locations◦Over expanded- downsizing and consolidating◦Current products are too expensive for

consumers

Tim Hortons- fast food restaurant in USA and Canada◦Saturated market in Canada with 3,015 stores◦Expansion in US faces tough competition

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Dunkin DonutsDunkin Donuts

dunkindonuts.com

themarketingguy.wordpress.comto be◦Claims to be the “world’s largest coffee and baked goods chain.””

◦Serving 2.7 million customers per day

◦5,769 U.S. locations◦20 countries

Wholly owned private subsidiary

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(in thousands) 2003 2004 2005 2006 2007

Industry Revenue

$120,873,894 $127,892,600 $134,200,000

$142,745,100

$150,100,000

Industry Profits $3,626,217 $3,197,315 $3,623,400 $4,710,588 $5,403,600

Industry Profit Margin

3.0% 2.5% 2.7% 3.3% 3.6%

Dunkin’ Donuts Revenue

$3,200,000 $3,616,000 $3,800,000 $5,000,000 $5,220,000

Dunkin’ Donuts Profits

$277,360 $289,600 $311,600 $440,000 $475,020

Dunkin’ Donuts Profit Margin

8.7% 8.0% 8.2% 8.8% 9.1%

dunkindonuts.com

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Gourmet Coffee sales, Gourmet Coffee sales, 20082008

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StarbucksStarbucksWorld premier roaster and retailer of specialty coffee

◦8812 own stores◦7852 license stores in more than 50

countries◦Annual sale $10 million in 2010

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Tim HortonsTim HortonsTim Hortons was founded in 1964Quick service industry – Coffee and baked goods

3204 locations throughout Canada and the United States

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Company IndicatorsCompany IndicatorsSells over 20 types of doughnuts. Produces 5 million

doughnuts a day and 1.8 billion a year.Profit Margin: 7.67 % (2006)Revenue Growth: 35.40 % (2006) Earnings Growth: 70.50 % (2006)Sales Growth: 35.4% (2006)Sales (mil.): $665.6 (2006)Net Income (mil): $57.1 (2006)Net Income Growth: 70.4 % (2006)Total Employees: 6982 (2006)Employee Growth: 78.4 % (2006)CEO: Scott Livengood, paid $791.00 K (2006)

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Situational AnalysisSituational Analysis

EnvironmentThe OrganizationThe Marketing Strategy

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Environmental analysis Environmental analysis

Internal factorsStrong brand recognition

and recallWide appeal of signature

glazed doughnutsVertical integrationDevelopment in

international marketsStrong channel of

distributionQuality of productExpanded assortment of

offerings at KKD stores including beverages

External factors Increasing popularity of

coffee shops and bakery cafés

Popularity of American foods and fashion in overseas markets

Channel expansion possibilities (i.e., Internet pre-ordering)

Competitors like Dunkin Donuts and Starbucks

Low-carb trend in eating preferences

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Organization AnalysisOrganization Analysis

Strategy is focused on revenueorganizational structure In 2001, cash flow return on equity investment for

franchises was at 91%, In 2003, the company’s business strategy was to add

enough new stores strategies do not appear to be capable of maintaining a

competitive advantage July 2004 launching an inquiry into the

company’s accounting practices.December 2004, they announced still more

“accounting errors”

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Marketing StrategiesMarketing Strategies

little evidence of market research.Company spent very little on advertising. This strategy seems to still work well but would not be

sufficient to generate continuing businessNew stores are opening, close to the older stores within

the same market.Their training, facilities management and franchise

management is good strength of kk.

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Marketing Strategies Marketing Strategies (cont)(cont)

Vertical integration supply chain. Short-shelf life products.Failure to do appropriate and effective market research

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S.W.O.T AnalysisS.W.O.T Analysis

StrengthsAffordable, high-quality doughnuts with strong visual

appeal and "one-of-a-kind" tasteNeon "Hot Doughnuts Now" sign encourages people

outside the store to make an impulse purchaseMarket research shows appeal extends to all major

demographic groups including age and incomeHot shop" stores save money while keeping KKD

customer experience intact

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Strengths (cont)Strengths (cont)

Vertical integration helps ensure high quality product

Consistent expansion; now in 16 countries

Product sold at thousands of supermarkets, convenience stores, and retail outlets through U.S.

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Weaknesses

Return on equity, assets, and investments all negative in the trailing twelve months; skill of mgmt. is questionable

Shareholders have not received dividends recently, and are not expected to in near future; stock price in state of flux

Closing stores when stores should be opening globally at steady rate to keep up with competitors' growth

Management states in recent 10-K that it is struggling with how to make stores profitable

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Weaknesses (cont)Weaknesses (cont)

Product line slow to expand with nothing outside "sweet treats" to draw in health-conscious customers

Advertising not aggressive enough to appeal to areas outside southeast of U.S. where most stores are

Revenues down, net losses in each of past three years

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Opportunities

Development into diversified product markets Detection of the problem occurring in the management

of the business and thus the fall in business and profitability

Develop the social outreach programs to promote the doughnuts and to promote the customer based objectives and mission of the organization

Reaching the market to really know what the customers want and then to develop the marketing and strategic policy in accordance to that.

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Opportunities (cont)Opportunities (cont)

Asians love sweets and are open to trying foreign foodsStarbucks lacks a diversified and distinctive pastry lineDunkin' Donuts does not have hot doughnuts to sellMany children love sweet treats

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Threats

Tough competition and increasing global recognition of Starbucks and Dunkin Donuts.

Global presence of the competitorsMore health conscious customer baseDevelopment of organic marketsStarbucks has approximately 25 times the amount of

stores worldwide that Krispy Kreme Donut has

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Threats (cont)Threats (cont)Restricted cash flow from banks and

massive layoffs have stifled the world economy, decreasing discretionary income

Europeans prefer their local brands of doughnuts

Shareholders may sell KKD stock for lack of returns and dividends compared to other similar firms in the industry

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I.F.EI.F.E

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E.F.EE.F.E

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C.P.MC.P.M

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(BCG)(BCG)

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Problems Found in Situational, Problems Found in Situational, Environmental AnalysisEnvironmental Analysis

the lack of a cohesive marketing structure within or a strategic marketing plan for the organization.

Flawed or absent marketing research has resulted in store closings and or expansions that were not backed up by market data or evidence that this investment would be feasible.

The company spent very little on advertising depending largely on word of mouth, and local publicity.

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As a result, Krispy Kreme acquired a company in 2007 that by the end of fiscal year 2008, had lost $25 million dollars.

The second problem is using a vertically integrated supply chain

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ConclusionConclusionThe food industry has been affected by a recent trend

toward quick eating habits. Krispy Kreme has capitalized on this trend by positioning doughnuts as a popular, on-the-go food.

Krispy Kreme’s success has hinged on consistency throughout its locations and by delivering a high quality product.Future growth opportunities include expanding franchises as well as penetrating alternate distribution channels.

As Krispy Kreme analyzes potential growth opportunities within alternate distribution channels such as convenience stores and grocery chains, it must determine whether doing so will sacrifice brand equity and product quality.

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It is believe that Krispy Kreme can be successful in launching its product in new markets without establishing physical locations. Alternative channel distribution will help bring the Krispy Kreme product to millions of potential customers who have yet to experience the taste of America’s best doughnut.

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RecommendationsRecommendationsReduce operating expenses

Change entire manufacturing and distribution strategy –Implement par baked manufacturing operation.

to allow individual stores to decrease in size, thus lowering per store operating costs to a more appropriate level for sales volume

Increased efficiency – smaller workforce per store, par-bake allows for minimal waste – inventory as needed (important b/c fresh goods – low shelf life

Par bake will allow for “hot doughnuts now” all of the time.

Implications of transition to par bake operation

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New Plant Equipment – freezers, production equipment, freezer trucks for distribution/delivery.

Store Equipment – freezers, oven for various par baked goods, fryers for doughnuts.

R&D for unique par bake operation

Recommendation (cont)

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Recommendations (cont)Recommendations (cont)

2- Develop stronger relations and control of franchisees

Short-term period of one year – postpone new franchise agreements/new store openings

Implement Franchise Support SystemsCommunication – between corporate and franchiseesSupport – training, advertisingUtilize recommendation #1 in order to lower operating

expenses for franchisees.

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Implement Marketing StrategiesAdvertising – national television and radio advertising

campaign based on “hot doughnuts now”.Marketing research – periodic research to stay abreast of

trends.R&D – product development

Strengthen Competitive AdvantageStrengthen Competitive Advantage through differentiation

in products and services.Continue to utilize “hot doughnuts now”Expand product line

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ReferencesReferences

www.krispykreme.comen.wikipedia.org/wiki/Krispy_Kremewww.krispykreme.co.uk/store-locator/www.youtube.com/user/KrispyKremeDoughnutsStrategic management 13 edition

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