A Case Study on Krispy Kreme Donuts

A Case Study on Krispy Kreme Donuts Essay Sample

Company Overview

Krispy Kreme is a company that despite its history dating back to 1937, has only started to experience rapidly increasing sales, expansion, and customer awareness in the last few years. Recently, however, the company has gotten into financial and legal trouble and is struggling to survive. This case is an evaluation of Krispy Kreme’s past and present business performance, internally and with regard to the external environment it is operating within. The study will conclude with both insights and recommendations Krispy Kreme should implement based on these evaluations and our SWOT Analysis.

Mission & Vision

One of Krispy Kreme’s main weaknesses is that it lacks a clear mission and vision statement. The only stated objective was to have a successful Krispy Kreme in every town in the United States. As a result, Krispy Kreme has suffered financial difficulties. Krispy Kreme tried to expand too rapidly and is now paying for it financially. Krispy Kreme made a good decision to shift its focus back to retail business rather than selling solely to wholesalers.

Company Structure

Krispy Kreme was originally a partnership, but now is a corporation. As a corporation, Krispy Kreme has limited liability, the ability to obtain finances for expansion, and a perpetual life. In addition, it has easily changeable ownership, attractiveness to potential employees, and the ability to obtain finances from outside sources other than management. An autocratic leadership style is used. Two-thirds of Krispy Kreme stores are franchises. The franchisees pay up to a $40,000 fee for each store they open and pay royalty fees.

Marketing

Although Krispy Kreme has no mission statement, its actions indicate its strategy is to differentiate themselves in the retail doughnut/coffee industry based on its experience in selling quality coffee and doughnuts. In the beginning, Krispy Kreme Doughnuts had the total product offer. The value package consists of delicious, hot doughnuts that are ready to buy. Krispy Kreme prides themselves in having speedy service, and ready to sell, hot doughnuts right off of the oven rack. The image created by all of the free publicity caused many people to come and experience the “Krispy Kreme Phenomenon.” Stores have a custom design appeal and some are open twenty-four hours a day making efficient use of all available time.

• Product Differentiation & Product Line

Krispy Kreme differentiates themselves with signature stores that have a green roof and open glass windows which allow customers to see doughnuts being made (Thompson et al, 2004). The facility layout of the stores allows for a unique customer experience, separating Krispy Kreme from such competitors as Dunkin’ Donuts, Tim Hortons and Winchell’s Donut House. Krispy Kreme’s product line already consists of over twenty-five different varieties of doughnuts.

A major push to sell coffee was made in hopes of keeping potential customers from going to Dunkin’ Donuts. In 2001, Krispy Kreme purchased Digital Java, Inc., in an effort to compete with other doughnut retailers beverage sales. Krispy Kreme increased its sales by 40% because it was able to expand its product offering and its quality (Thompson et al, 2004). Krispy Kreme’s coffee and beverage sales became more profitable, but did not produce as much sales as the competition did in the beverage area. Although, Krispy Kreme has started selling coffee, its primary focus has always been on selling doughnuts. Nothing was done to promote the coffee and other beverages, customers were expected to buy them when they saw they were available and to tell their friends about the new products.

One of Krispy Kreme’s downfalls in recent years is its inability to differentiate themselves from the product line of Dunkin’ Donuts and other competition. Doughnuts sold to wholesalers were no longer hot out of the oven and were not any different than any other doughnut. Krispy Kreme’s failure to separate themselves from what the competitors were selling caused the consumer to lose interest in the company’s products. Krispy Kreme’s competitors such as Dunkin’ Donuts and Starbucks have been successful because they are able to offer not just one product, but a number of things that attract both new and old customers while still bringing in a steady profit. After the consumer had the “Hot Doughnut” experience, they were left with nothing to come back for.

Financial Analysis

On paper, Krispy Kreme seems to be a company in which there is no end in sight. When it comes to making a hefty profit based solely on the idea of selling hot, delicious doughnuts, Krispy Kreme is excellent. Since this case was written, Krispy Kreme’s net income has increased from $14.5 million to $57.09 million in just three years (www.krispykreme.com). However, there seems to be evidence that Krispy Kreme’s financial future may be in jeopardy. Recently, the company’s first losses were reported. “The quarter that ended October 31 produced a $3 million net loss, compared to a $14.5 million profit a year earlier” (Barnes 2004). The stock was once at a high of $50, but nowadays the stock price is around $7.59 (www.krispykreme.com). To make matters worse, Krispy Kreme’s shareholders have filed class-action lawsuits claiming that they were deliberately misled about the company’s financial position.

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