CASE ANALYSIS: KRISPY KREME DOUGHNUTS, INC.

COMPANY BACKGROUND:

It was in the year 1933 when Vernon Rudolf bought a doughnut shop in Paducah,

Kentucky from Joe Le Beau. His purchase included all the company’s assets, Krispy Kreme

name, and a secret yeast-raised doughnuts recipe that Le Beau had created in New Orleans. The

doughnut shop became popular with their “glazed” doughnuts that are serve fresh and hot.

Several years after, Rudolf and his partner moved their operations to Nashville, Tenesse in order

to look for a larger market. Other members of the Rudolf family joined the enterprise, opening a

doughnut shop in Charleston, West Virginia and Atlanta, Georgia.

In year 1937, Vernon Rudolf quit the family business and left Nashville. He moved to

Winston-Salem, North Carolina where he opened his first Krispy Kreme shop which quickly

became immensely popular with the customers. The business prospered and in 1950’s, over 10

other location were opened.

In 1976, Beatrice Foods bought Krispy Kreme and make changes including its recipe.

Beatrice Foods remodel the business, the recipe, and the script. The changes receive a negative

feedback from the consumers which resulted in the business declined. Then in 1982, a group of

franchisees bought the company from Beatrice Foods. They reinstated the original recipe, the

script, also the lettered sign of Krispy Kreme. During these years, revenues began to rise.

Revenues gradually rose to $117 million in 1989 and then stayed the same over the next six

years.
 As of 2001, the company has already 181 stores in 28 states which comprises of

franchising “associate” stores and company-owned stores. The company relied mainly on

franchising because it minimized capital requirements, provided an attractive royalty stream and

put responsibility for local store operations in the hands of successful franchisees who knew the

trends of operating multi-unit efficiently. In May 2001, the company had stopped accepting

franchise operations for U.S locations but accepting applications from interested franchisees for

international outlets.

In fiscal year 2001, Krispy Kreme reported sales of $301 million and profits of $14.7

million. Scott Livengood, President and Chief Operating Officer, stated that Krispy Kreme is a

natural to become a global brand.

I. TIME CONTEXT

The problem existed in the year 2001, when the company stopped accepting franchise

applications indicating that there were no open territories in U.S locations yet accepting franchise

applications from interested developers in franchising stores for international markets.

II. VIEWPOINT

Mr. Scott Livengood, President and Chief Operating Officer of Krispy Kreme Doughnuts

Inc. can solve the problem of the company.

III. CENTRAL PROBLEM

There is a need to improve Krispy Kreme Inc.’s marketing strategy in order for the

company to increase its market share in the doughnut industry in the United States, because of

the flawed or absent marketing research which resulted in store closings, openings and transfers

that are not backed up by market data that such investment would be feasible.

IV. OBJECTIVES

MUST- To be able to improve Krispy Kreme Inc.’s marketing strategy with in 1

year in order for the company to rise its market sharing and profitability.

WANT- To be able to increase market share and become the market leader in the

doughnut industry in the United States.

V. AREAS OF CONSIDERATIONS

Strength:

1. The company has 181 stores actively operating in 28 states.

2. Consistent expansion in different countries.

3. In 2001, sales climb exceeding 3.5 million doughnuts a day.

4. Products sold at thousands of supermarkets, convenience stores, and retail stores

through United States.

5. Krispy Kreme had developed a vertically-integrated supply chain which generated a

substantial fraction of both revenues and earnings as can be seen in its business

performance for years 1997-2001.

 6. The company had a chain of company-owned stores and franchisees’ stores which

were doing good in the business.

7. The company producing, marketing, and delivering fresh-made doughnuts to local

grocery stores.

8. The company had a great product which people delighted on. It also has a strong brand

name, highly-differentiated product, high-volume production capability and

multi-channel penetration strategy.

9. Affordable and high quality products.

10. The company had a state-of-the-art laboratory that tested all key ingredients and each

batch of mix produced.

Weaknesses:

1. The company only concentrates in the U.S territory and there are no international

market penetration.

2. The company had the model of selling in wholesale channels and less on brand which

contributed to stagnant sales.

3. Increasing operating expenses of company-owned stores.

4. No robust plan for marketing strategy.

5. The company’s organizational structure is so simple, thus they do not have a position

on international development.

6. Product line slows to expand.

7. Expansion was on a national scale only.

8. The company had spent very little on advertising and promoting their products to new

Markets.
Opportunities:

1. The company had potential to develop its products and be competitive with industry

leaders.

2. Krispy Kreme can expand their market in other places/ countries given a proper

marketing plan.

3. Doughnuts were a popular item in supermarket groceries, with many customers finding

it more convenient to eat.

4. Increasing number of franchisees, investors, and developers.

5. Company research indicated that Krispy Kreme’s appeal extended across all major

demographic groups.

Threats:

1. Compared to the company’s products, products of industry leader Dunkin Donut put

more emphasis on coffee and convenience or add-on products and services.

2. Overall growth in doughnut sales have been quite small in the past 5 years.

3. Competitors were already operating and known internationally and have already

acquired markets abroad.

4. People are becoming more health conscious, they prefer foods with less sugar and less

transfat.

5. The company was faced with stiff competition from industry leader Dunkin Donut and

other competitors.
VI. ALTERNATIVE COURSES OF ACTIONS (ACA’s)

ACA # 1. MARKET DEVELOPMENT- Introducing present products or services into

new geographic area.

Advantages:

1. Offshore expansion will increase market distribution

2. Fast and Effective way for growth in achieving desired

3. Increase sales volume.

4. Establishes goodwill in quick-service doughnut shop industry in foreign markets.

5. Contribute to the increase of the country’s foreign currency earnings.

Disadvantages:

1. Large amount of capital needed.

2. Stiff competition with other quick-service doughnut shops.

3. Need sophisticated monitoring/ trucking system.

ACA # 2. MARKET PENETRATION- Seek to increase Market share for present

product in present markets through greater marketing efforts.

Advantages:

1. Can increase economies of scale.

2. Increase gross sales and revenues.

3. Giving importance to products and services

Disadvantages:

1. Needs a thorough evaluation and marketing research.

2. Promotional activities will require additional cost.

 3. Risky if consumer adopt into one new improve products.

ACA # 3. PRODUCT DEVELOPMENT. Develop a new product that could attract the

taste of the customers. Seeking increased sales by improving present products

or developing new ones.

Advantages:

1. Offer an innovative products for the changing market preferences.

2. The company will also have a competitive advantage through lower prices of its

products because it manufactures and delivers its own products.

3. Gain market share and distribution.

Disadvantages:

1. Large venture to support the marketing and Research and Development program.

2. No assurance of acceptance.

3. The company will be constantly researching on product development which is costly.

VII. RECOMMENDATION

After thorough analysis and evaluation, I therefore recommend ACA #1 Market

Development to be use to solve the problem. Through Market Development, it can increase the

market share and profit of the company. They will become more competitive and a market leader

in doughnut industry.

VIII. DETAILED PLAN OF ACTION

ACTION PLAN: ACA #1 Market Development

KEY AREA: Research Development Department

OBJECTIVE: Creation of a strong Marketing Development Team to enumerate the

 scope of the research.

ACTIONS TO BE TAKEN:

1. Call for an experienced Marketing Specialist

2. Train and instruct the team on how to perform the strategy effectively.

TIME FRAME: 1 month to 2 months

EXPECTED OUTPUT: Well-trained Marketing Team

KEY AREA: Marketing Department

OBJECTIVE: To reassure proper execution of the strategy

ACTIONS TO BE TAKEN:

1. Make proper selection of distribution channels.

` 2. Create a service program per customers.

TIME FRAME: 1 month to 2 months

EXPECTED OUTPUT: Increased in Sales Volume. Profit of not less than 25% per year

KEY AREA: Finance Department

OBJECTIVE: Provide funds needed for the implementation of the strategy.

ACTIONS TO BE TAKEN:

1. Determine and calculate the sources of funds.

2. Reassure the availability of funds to be use.

3. Make a different control measures for proper usage/handling of funds.

4. Generate sales and operating data.

TIME FRAME: 2 months

EXPECTED OUTPUT: Make the required budget available for the operation.
VIII. PLAN OF ACTION

1. The Research and Development Department must create a strong marketing

development team to enumerate the scope of research.

a. Call for an experienced Marketing Specialist

b. Train and instruct the team on how to perform the strategy effectively.

2. The Marketing Department must reassure proper execution of the strategy to increase

in Sales and Profit of not less than 20% per year

a. Make proper selection of distribution channels.

` b. Create a service program per customers.

3. The Finance Department must provide funds needed for the implementation of the

Strategy and make the required budget available for the operation.

a. Determine and calculate the sources of funds.

b. Reassure the availability of funds to be use.

c. Make a different control measures for proper usage/handling of funds.

4. Generate sales and operating data.