Philosophy Free Essays

A Case Study On Krispy Kreme Donuts

CASE FORMAT
KRISPY KREME DOUGHNUTS, INC. --- 2004
1. Title Page
a. Case title
b. Group Members
c. Class schedule
d. Term and school year
e. Date submitted
2. Content
a. 1-page Case Summary
b. Proposed Vision and Mission Statement for KKD
c. External Audit --- EFE Matrix
d. Competitors Analysis --- CPM
e. Financial Ratio Analyses
f. Internal Audit --- IFE Matrix
aveA Case Study on Krispy Kreme Doughnuts, Inc
A Case Study on Krispy Kreme Doughnuts, Inc
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1. A Case Study on Krispy Kreme Doughnuts, Inc
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 Kremes 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 Kremes 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 Winchells Donut House.
Krispy Kremes 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 Kremes 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 Kremes 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 Kremes failure to separate themselves from what the competitors were
selling caused the consumer to lose interest in the companys products. Krispy Kremes
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.
Marketing Mix
Product & Price
Krispy Kremes marketing mix concentrates on its product. The Hot Doughnut Now
concept intrigues customers. All the doughnut mix and equipment used in Krispy Kreme
stores was manufactured and supplied by the company in order to ensure consistent recipe
quality and doughnut making throughout the chain during the production process
(Thompson et al, 2004). These doughnuts were sweeter, bigger and at a slightly lower price
than most of its competitors, depending on the variety of doughnut.
Place
The companys choice of locations has been highly debated. A marketing analyst stated that
Krispy Kreme expanded too rapidly and never altered its product line to differentiate
themselves from their competitors. Also, the same analyst argues that the places where the
older buildings where placed are bad locations for retail sales (Barnes 2004).

Promotion Mix
Personal Selling, Product, Sales Promotion
The promotion mix was great going into the 21st century. There is not much personal selling
in Krispy Kreme. Instead, customers come in with the brand awareness of the doughnuts. The
store emphasizes its original glazed doughnuts but other than that not much personal selling
goes on. Product giveaways are held at grand openings to improve knowledge of Krispy
Kreme products. On certain occasions Krispy Kreme sells a special flavored doughnut for a
limited period of time. Currently, Krispy Kreme is offering a strawberry shortcake doughnut.
Advertising
Promotion was highly done by the word of mouth advertising of past customers. The media
also contributed to this type of promotion. Krispy Kreme spends very little, if anything, on
advertising (Thompson et al, 2004). Krispy Kreme strongly believes that the buzz created
from public relations, at a store opening, is enough to bring the customers to its doughnut
shops. This hurts them in the long run because as soon as a stores grand opening is over,
Krispy Kreme is old news. Customers lose the hype over the doughnuts and do not come
back. Also, grand openings of Krispy Kremes have promoted doughnut awareness through
media relations. This has helped increase sales of competitors. Something must be done to
keep those customers from going to competitors.
Public Relations
Krispy Kreme obtains excellent public relations when a store opens. An Austin, Texas store
opening was covered live by five TV crews and four radio stations, and at a San Diego
opening, five more TV crews and radio stations covering the lines outside the stores waiting
for the store to open (Thompson et al, 2004). Sales were at a peak during those openings.
Gradually, without advertising to keep Krispy Kreme fresh and new in the public eye, sales
declined.
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 Kremes 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 Kremes financial future may be in
jeopardy. Recently, the companys 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 Kremes shareholders have
filed class-action lawsuits claiming that they were deliberately misled about the companys
financial position.
Financial Ratios
After examining Krispy Kremes financial ratios, and what they indicate, Krispy Kreme
appears to be doing quite well.
Financial Speculation
Publicity, centered on Krispy Kremes current financial issues, has negatively affected the
companys image among investors and customers. This shows the downside to free publicity.
Krispy Kreme has gotten into legal trouble with lawsuits being filed against the company and
the United States Securities and Exchange Commission (SEC) looking into its accounting
methods. Demonstrating that Krispy Kreme is not as well-off as some people might have
believed. When Krispy Kreme repurchased one of its franchises, it did so in a way that
avoids the need to deduct their value gradually from future earnings (Barnes 2004). Krispy

Kreme was trying to make its profits seem greater than they actually were because they were
not taking into account the fact that the value of those stores would decrease every year;
which would therefore decrease its profits. Stockholders were misled into believing that
Krispy Kreme was more financially sound then it actually was, causing more people to invest
then actually would have if they had more accurate information. Krispy Kreme violated its
legal and ethical responsibilities to its stockholders and as a result, stockholders have filed
lawsuits against the company.
Financial Future
Even if the company manages to battle the lawsuit and the SEC investigation, its name has
been brought down because of these situations and its stock price may continue to decline for
a long time. The company is not built for long-term success since it depends on a single
product line. Since every field of business encounters fierce competition, Krispy Kreme
might not be able to keep up with Dunkin Donuts and Starbucks. Krispy Kreme has been
unable to effectively offer the complete value package. All in all, the company seems to be
heading into rocky waters and may not be able to get themselves back to where they were in
the beginning.
Human Resources
Since Krispy Kreme is a fast-food restaurant, employees will probably tend to be motivated
only by extrinsic rewards. There is very little, if any, intrinsic rewards. Typically employees
in the fast food industry do not require a lot of education, knowledge, or expertise of any
kind. Krispy Kreme provides full-time employees with very good benefits. The one benefit,
which seems unusual for the fast-food industry, is to give employees a Profit Sharing Stock
Ownership Plan. It is questionable as to how many of the employees are eligible for benefits
and how many of those eligible actually take advantage of the benefits available to them. In a
typical Krispy Kreme store there are about 125 employees, of which 65 are usually full-time
employees. This means that 48% of the store employees are probably not eligible for those
benefits.
Employee Management
On the positive side, Krispy Kreme seems to have a good management program for it
employees. Krispy Kreme calls the management program Management 101. The
management course motivates employees and builds a sense of trust with store managers and
employees.
Marketing Environment
Sociocultural Factors
In 2003, Krispy Kreme was quoted as saying they do not believe the growing awareness of
nutrition and health was affecting its sales. Now, in 2005, major marketers are suggesting that
health awareness is affecting Krispy Kremes sales and Krispy Kreme has blamed its
financial problems on it (Barnes 2004).
Social Responsibility
Krispy Kreme recently ran a promotion where customers could buy a paper balloon for $1.
The money for the balloons was donated to the Childrens Miracle Network
(www.krispykreme.com).
Technological & Global Factors
Technologically, Krispy Kreme does have its own website where customers can get all of the
information they need regarding the companys background, nutritious values, and special

promotions. Globally, the company has entered the international atmosphere. Krispy Kremes
can be found in the United States, Canada, Mexico, Australia, Korea and the United Kingdom
(www.krispykreme.com).
Economic Factors
According to company research, Krispy Kreme targeted all demographics, including age and
income. This proved to be a significant weakness. They did not know specifically who its
customers where and what they wanted. Stores were opened in high traffic areas, but not
much other research was done to determine the best locations. Customers in America were
consuming ten to twelve billion doughnuts annually (Thompson et al, 2004). Individuals
willingness to buy doughnuts allowed for Krispy Kremes success early on.
Recommendations
Krispy Kreme has gotten itself into a lot of trouble. If they can escape the lawsuits and SEC
investigation without going out of business, some changes need to be made. [O]fficials are
too concerned with staying out of jail and need to come up with a clear plan for the company
(Barnes 2004). A mission, vision, plan for expansion, as well as long-term and short-term
goals need to be established. The mission, vision, and objectives need to be clearly stated,
precise, and to the point. The information should be easily accessible to both employees and
customers. Stores that are not successful need to be shut down to reduce unnecessary
expenses. The focus should be on making stores in the U.S. successful before worrying about
stores in other countries. An advertising campaign needs to be established to promote and
maintain awareness of the Krispy Kreme products. It is fine to sell products other than
doughnuts, but people need to know that they are available.
Major Competitors of Krispy Kreme Doughnuts, Inc.

Panera Bread

Starbucks

Dunkin Donuts (owned by Allied Domecq)

to develop, manufacture, market and distribute fresh doughnuts made from quality
ingredients that enhance their freshness.