KRISPY KREME DOUGHNUT: IFE Matrix

Weight Rating Weighted Score

STRENGTHS      
1. High quality douhgnuts with strong visual and “one of a
kid taste” 0.10 4 0.40
2. Krispy kreme has a unique brand and variety of freshly
made doughnuts. 0.09 4 0.36
3. Krispy Kreme has a high capacity to make 4000-10000
doughnuts daily. 0.09 4 0.36
4. Krispy Kreme can offer customer to watch product being
made at the doughnut theater. 0.08 3 0.24
5. Consistent Expansion; Exposure in 10 foreign countries
with an on-going development of 200 additional stores in
the Middle East, Hong Kong, Macau, Tokyo, the
Philippines and Indonesia 0.08 3 0.24
6. Vertical integreation helps the quality of the product. 0.08 3 0.24
7. Hot Doughnuts sign encourages people outside the store
to make un impulse purchase. 0.07 3 0.21
WEAKNESSES    
1. Return on equity assets and investments all negative;
Skills of management is questionable. 0.10 1 0.10
2. Management states in struggling on how to make the
store profitable. 0.08 1 0.08
3. Product line slow to expand with nothing draw in health
concious customer. 0.04 2 0.08
4. Lack of advertisement in areas the where stores are
located. 0.03 2 0.06
5. Single product focus; no other stand out product 0.04 2 0.08
6. Competing against Starbucks and Dunkin Donuts
beverages. 0.04 2 0.08
7. Shareholders have not received dividends recently. Stock
price in state flux. 0.08 1 0.08
Total 1.00   2.61
 KRISPY KREME DOUGHNUT: EFE Matrix

Weight Rating Weighted Score

OPPORTUNITIES      
1. Industry stock price are improving 0.04 3 0.45
2. Dunkin Donuts does not have hot doughnuts to
sell. 0.05 4 0.20
3. Starbucks lacks a diversified and distinctive pastry
line. 0.11 3 0.24
4. Asian love sweets and are open to trying foreign
foods. 0.06 4 0.32
5. Families crave convenience because of busy
lifestyles. 0.09
6. Many children loves sweet treats 0.04
7. South America, Africa and south Asia are markets
to conquer 0.07
THREATS    
1. People are becoming more health conscious,
which does not bode well for high-sugar, high-fat
threats. 0.09 1 0.18
2. Dunkin Donuts presently dominates the doughnut
market domestically and internationally. 0.10 1 0.10
3. Starbucks has approximately 25 times the amount
of stores worldwide that krispy kreme donut has. 0.07 1 0.07
4. Cultural differences among countries make
operations and doughnut consumption varied,
which makes things difficult to control 0.04 2 0.08
5. Lower price is offered by the other doughnut
producing firms than that of Krispy Kreme donuts. 0.08 2 0.12
6. Shareholders may sell Krispy Kreme Donut stock
for lack of returns and dividends compared to
other similar firms in the industry. 0.08 1 0.08
7. Restricted Cash flow from banks and massive
layoffs have stifled the world economy decreasing
discretionary income. 0.05 2 0.10
Total 1   2.38
 KRISPY KREME DOUGHNUT: BALANCE SCORECARD

CUSTOMER PERSPECTIVE

Objective Measure Target

To add value to the Frequency of walk-ins At least 15% in 1

purchase and dining and improved customer year
experience feedback

To increase Number of franchise At least 2 stores

availability of product and satellite stores per month in 1
year

FINANCIAL PERSPECTIVE PROCESS PERSPECTIVE

Objective Measure Target Objective Measure Target

To have a ROE At least 10%
Positive ROE percentage in a year Venturing into e- Number of online At least 10% of the
commerce members area population in
To have a Percent ROE At least 10% in 1
To increase Positive net Atleast 10 % a 1 year
positive and year
the net income year
increasing ROE
income Intensive Number of ads At least 1 ad
marketing efforts launched campaign per
quarter

Objective Measure Target

Training of staff and Accomplishment Maximum of 2
crew for use of of training months
Internet tools and
software

Employing team Accomplishment At least once a

building activities of activity year

GROWTH / INNOVATION
MANAGEMENT LEARNING
PERSPECTVE
PERSPECTIVE
BALANCE SCORECARD ANALYSIS

To support the strategies in the balance scorecard, Krispy Kreme will utilize 25% debt and 75% equity. The
company shall undertake the following actions to improve its over-all performance:

Customers’ perspective

Krispy Kreme can boost customer experience and satisfaction by providing free newspapers,
magazines and other reading materials to dining customers. They will also introduce mobile feedback
systems where customers can send their feedbacks, comments, and suggestions through their mobile
phone or event through telephone. This can provide convenience to the customers since they do not
have to spend time filling up forms and can also benefit the company with cost savings for printing
papers.

Management perspective
Moreover, employing team building activities at least once a year for employees will help boost their
morale and at the same time, update their employees with the current business processes and
policies. The employees are considered to be the first customer circle of the company; therefore,
once the inner circle is improved and empowered, they can easily create and strengthen relationships
with end consumers – the outer circle. This will make all customers – employees and end consumers
– feel that they are being valued by the company and can spread a great experience that other
doughnut companies could not provide.

Financial Perspective

Increase franchise stores in existing markets

To improve the company’s presence in the market they are currently serving, KKD will increase the
number of franchise stores, preferably satellite stores targeting at least two stores per month in a
year for both domestic and international areas. This increase in franchise stores will enable the
company to increase their revenues. Expanding in their existing markets will entail lesser cost than
expanding to other countries because they have already established their name and have already
done their research and analysis in the macro environment of these countries. More stores also
mean convenience for customers in seeking and purchasing Krispy Kreme doughnuts which can
increase customer satisfaction and revenues.

Process perspective

 Using e-commerce to increase brand popularity and possibly increase Market Share

The company can gain more sales and popularity through venturing into internet marketing and
selling. They can use the power of e-commerce which is available anytime, anywhere and removes
geographical boundaries to reach a significant number of customers at very low cost and shortest
time. Krispy Kreme can create a website that advertises and sells their products online to be done
through automatic and free membership registration. The company will aim to acquire memberships
of at least 10% of each area population in the U.S. and in foreign countries. Members with bulk
orders who are located within an estimated kilometer radius can enjoy free delivery. Otherwise, they
can simply order online and pick their orders up at the nearest stores without the hassle of lining up,
waiting for orders, and the possibility of stock-outs for their favorite flavors. With this convenience,
more people are being pulled to Krispy Kreme.

 Strengthening Brand Name through Marketing

KKD should strengthen and broaden its brand name by being more visible in their existing markets
domestically and internationally. Advertising through billboards, posters and other aggressive print
advertising using the different leading publications within those areas, word of mouth and
sponsorship of events are powerful tools for driving top-of-mind awareness of Krispy Kreme
products. The company will have to complete one advertising campaign per quarter.

 Billboard and Posters

KKD should put up billboards in populated areas like city capitals of their existing markets countries.
These advertisements will be placed outside major malls and popular places like parks and arcades or
gaming centers where families and young adults frequent to relax and to have fun. These
advertisements should highlight the distinctive taste of its doughnuts and the areas where they can
be bought.

 Print Advertising
For KKD to save on advertisement costs, the company should consider print advertisements rather
than TV advertisements where they will place their ads in newspapers or magazines available
nationwide for each of their geographic markets. This will be much affordable than advertising on
regional or international publications.

 Word of Mouth

To further save on advertisement costs, the company must capitalize on the power of word of mouth
and the six degrees of separation. With their continuous improvement of processes and customer
relations, KKD customers will turn into loyal customers and promote Krispy Kreme to their social
circles. The theory of six degrees of separation explains “that a very small number of people are
linked to everyone else in a few steps, and the rest of us are linked to the world through those special
few [ CITATION Mal00 \l 13321 ].” Word of mouth will help significantly increase the number of
customer visits and repeat transactions.

 Sponsorship of events

KKD will sponsor events especially those that are related to their target market such as parties and
launchings. This will enhance the company’s exposure to reach a larger customer base thus
increasing total revenues. In addition, Krispy Kreme will also co-sponsor events with businesses that
 are rapidly growing. This way, they can share the costs of pushing their products and at the same
time, they will be able to use the partner company’s image to increase Krispy Kreme’s own image.

KRISPY KREME DOUGHNUT: COMPETITIVE PROFILE MATRIX (CPM)

KRISPY KREME DOUGHNUT DUNKIN DONUT STARBUCKS

Critical success Factor Weight Rating Score Rating Score Rating Score

Advertising 0.11 0.2 0.22 4 0.44 3 0.33

Product Quality 0.15 4 0.60 3 0.45 3 0.45
Product Diversity 0.08 3 0.24 2 0.16 1 0.08
Price Competitiveness 0.08 3 0.24 3 0.24 2 0.16
Management
0.10 1 0.10 3 0.30 3 0.30
Financial Position
0.10 1 0.10 3 0.30 2 0.20
Customer loyalty
0.10 3 0.30 4 0.40 4 0.52
Global Expansion
0.13 4 0.52 3 0.39 4 0.52
Market Share
0.10 3 0.30 3 0.30 3 0.15
Sales Distribution
0.05 3 0.15 2 0.10 3 0.15

2.77 3.08 2.79

 KRIPY KREME DOUGHNUT: Strategy Formulation Matrix (SWOT Matrix)
OPPORTUNITIES
1. Industry stock price are
improving
2 Dunkin Donuts does not
have hot doughnuts to
sell.
3. Starbucks lacks a
diversified and distinctive
pastry line.
4. Asian love sweets and
are open to trying foreign
foods.
STRENGTHS
1. Affordable, high quality
douhgnuts with strong
visual and “one of a kid
taste”
2. Krispy kreme has a
unique brand and variety
of freshly made
doughnuts.
3. Krispy Kreme has a high
capacity to make 4000-
10000 doughnuts daily.
4. Krispy Kreme can offer
customer to watch
product being made at
the doughnut theater.
5. Consistent Expansion;
Exposure in 10 foreign
countries with an on-
going development of
200 additional stores in
the Middle East, Hong
Kong, Macau, Tokyo, the
Philippines and Indonesia
6. Vertical integreation
helps the quality of the
product.
7. Hot Doughnuts sign
encourages people
outside the store to make
un impulse purchase.
S-O STRATEGIES
Provide more special offerings
geared toward encouraging people
to purchase doughnut.(s1-3,s7-o2-
o3)
Increase stores in the international
market, especially in Asia.(s1,4,6-
o4,7)
Market penetration in the U.S.
market focusing on advertising
WEAKNESSES
1. Return on equity assets and
investments all negative;
Net loss for the past years.
2. Management states in
struggling on how to make
the store profitable; Skills of
management is
questionable.
3. Product line slow to expand
with nothing draw in health
concious customer.
4. Lack of advertisement in the
South east of US where
most stores are located.
5. Single product focus; no
other stand out product
and pricing in some
location.
6. Competing against
Starbucks and Dunkin
Donuts beverages.
7. Shareholders have not
received dividends recently.
Stock price in state flux.
W-O STRATEGIES
Aggressive ads demonstrating the
appeal of KKD hot doughnuts(w4,6-
o2,5)
Make doughnuts filled with
nutritious contents, develop a wide
variety of fresh fruits smoothies.
(w3,w5-o3)
Market penetration in the Asian
market focusing on stores opening.
 5. Families crave efforts and increasing the number of (w6,o4)
convenience because of franchised satellites (s5-o1)
busy lifestyles. Offers standardized, but best value
6. Many children loves Improve krispy kreme website and pricing compared to
sweet treats continue to nurture and expand competitors(w1,5,6-o3,4)
7. South America, Africa and distribution system(s3,6,70-o7)
south Asia are markets to Open small but profitable “hot
conquer shops” in the South America, Africa,
and Asia in order to expand globally.
(w3-o4,7)
THREATS S-T STRATEGIES W-T STRATEGIES
Check the feasibility of product Market penetration in the U.S.
1. People are becoming development focusing on creating a market focusing on aggressive
more health conscious, healthier doughnut line (s1,2-T1) advertising and close poor-
which does not bode well performing stores (W1-, T1, T2)
for high-sugar, high-fat
threats. Related diversification offering Conduct feasibility study on other
2. Dunkin Donuts presently sandwiches, bagels, etc for the foreign countries that are not
dominates the doughnut betterment of KKD. (S5, T1) currently being served to identify the
market domestically and most favorable to serve.(w1,T2)
internationally. Focus on a signature glazed
3. Starbucks has doughnuts as a competitive Expand product line with low-calorie
approximately 25 times advantage over competitors.(s2,47- foods(w3,T1,T4)
the amount of stores T2,3)
worldwide that krispy
kreme donut has.
4. Cultural differences
among countries make
operations and doughnut
consumption varied,
which makes things
difficult to control
5. Lower price is offered by
the other doughnut
producing firms than that
of Krispy Kreme donuts.
6. Shareholders may sell
Krispy Kreme Donut stock
for lack of returns and
dividends compared to
other similar firms in the
industry.
7. Restricted Cash flow from
banks and massive layoffs
have stifled the world
economy decreasing
discretionary income.
 Strategic Position and Action Evaluation Matrix (SPACE)

Financial Strength (FS) factors include:

Profit (+1); Sales Growth (+2); Cash Flow (+2); Return on Investment (+1)

1 + 2 + 2 + 1 = 6; 6/4 = 1.5

Competitive Advantage (CA) factors include:

Customer loyalty (-2); Product Quality (-1); Market Share (-5); Competitor’s Capacity Utilization (-4);
Technology know-how (-3); Control over Suppliers and Distributors (-4)

-2 + -1 + -5 + -4 + -3 + -4 = -19; -19/6 = -3.16

Environmental Stability (ES) factors include:

Barriers to entry into market (-4); Risk involved in business (-3); Ease of exit from Capital (-4); Demand
Variability (-4); Price range of competing products (-5)

-4 + -3 + -4 + -4 + -5 = -20; -20/5 = -4

Industry strength (IS) factors include:

Profit Potential (+2); Financial Stability (+1); Technological know-how (+4); Growth potential (+2)

2 + 1 + 4 + 2 = 9; = 9/4 = 2.25
KRISPY KREME DOUGHNUTS: SPACE Matrix

FS

Conservative +6 Aggressive

+5

+4

+3

+2

+1
CA
IS

-6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6

Defensive -2 Competitive

-3

-4

-5

-6

ES

For the SPACE Matrix, KKD’s financial strength and competitive advantage were compared against
competitors Dunkin Donuts and Starbucks while its environmental stability and industry strength were
compared to other industries. The directional vector is located in the defensive quadrant which suggests that
KKD should focus on rectifying its internal weaknesses and avoiding external threats. This may include
strategies like retrenchment, divestiture, liquidation or concentric diversification.
 KRISPY KREME DOUGHNUT: Financial Statement

Income Statement
Remar Remar Rema
fiscal 2008 fiscal 2009 fiscal 2010
ks ks rks
Total Revenues 484,254.75 5% 522,995.13 8% 575,294.13 10%
Cost of Revenue 401,060.37 3% 409,081.58 3% 425,444.84 4%
Gross Profit 83,194.38 113,913.55 149,849.80
Operating Expenses
Research &
5,000.00 5,000.00 5,000.00
Development
Selling &
51,303.00 5% 52,329.06 2% 53,375.64
Administrative 2%
Advertisement 5,000.00 5,000.00 5,000.00
Non-recurring 29,915.55 5% 31,411.33 5% 32,981.90 5%
Others 21,466.92 2% 21,896..06 2% 22,334.18 2%
Total Operating
112,685.47 113,636.65 118,691.72
Expenses
Operating Income (29,491.09) (1,723.10) 31,158.08
Income from Continuing
Operations
Total Other
8,078.40 20% 10,098.00 25% 12,622.50
Income/Expenses Net 25%
EBIT (21,412.69) 8,374.90 43,780.58
Interest Expense 20,944.02 3% 21,572.30 15% 22,219.47 20%
EBT (42,356.71) (13,197.40) 21,561.11
Income Tax Expense 1,223.11 1,406.58 1,687.90
Net Income from
(43,579.82) (14,603.98) 19,873.21
Continuing Op.
Non-Recurring - - -
Discontinued
- - -
Operations
Extraordinary Item - - -
Effect of Accounting - - -
Changes
Other Items - - -
Net Income (43,579.82) (14,603.98) (19,873.21)
Preferred Stock - - -
 NIAC (43,579.82) (14,603.98) (19,873.21)

KRISPY KREME DOUGHNUT : VALUE CHAIN ANALYSIS

On the primary activities of the value chain, Krispy Kreme has notable considerations in their operations,
specifically production and store count, and in marketing and sales.

Their current production capacity is at 4,000 to 10,000 dozens daily per factory store. Although factory stores
are reducing in number since fiscal 2005, the increase in satellite stores is not yet enough to take advantage
of this production. Factory stores still comprise 74.9% of the total number of stores system wide. It is good to
note that satellite stores by area developers increased to 286.4% from 2005 because not only can the
company save itself from the development and operations costs, but also area developers are contractually
required to develop a certain number of stores. Similar in the international scene, there has been an
increasing number of area developers which can offer the company better results and more stores to
operate.

As for the secondary activities, the general management of Krispy Kreme is relatively efficient. Their structure
complements their strategy with different executive heads for each important function. However, issues in
the human resources department may have been one of the numbers of factors that caused the failure of
their turnaround strategy. Employees may still have been demoralized after the recent layoff of employees by
31.8% and the retirement savings dispute back in 2005. Employer brand image may have decreased
significantly.

One of the distinctive competencies of krispy kreme is their automated doughnut-making equipment which
gives them the capacity to produce up to 10,000 dozens daily. This technological innovation has given them
the opportunity for notable economies of scale.
KRISPY KREME DOUGHNUT: ORGANIZATION CHART

CEO
James Morgan

Director
Andrew Schindler

Director
Lynn Crump-Caine
Director
Stephen Lynn

Director
Charles Blixt
Director
Lizanne Thomas

Director
Robert McCoy

Director
Michael Sutton

Director
Togo West
CFO
Douglas Muir
Supply Chain
BW
Marketing
GDC

International
Jeffrey Welch
US Stores
SL
 Risk Management & Off-Premis...
TM
Company Store Operations
CB
Legal & Assistant Secretary
DM

Human Resources
Kenneth Hudson

KRISPY KREME DOUGHNUT : ORGANIZATIONAL CHART

 KRISPY KREME DOUGHNUT: Balance Sheet
fiscal Rem fiscal Rem fiscal Rem
 
2008 arks 2009 arks 2010 arks
ASSETS
Current Assets
39,866. 42,656. 46,069. 8%
Cash
2 10% 83 7% 38
 Short-term - - - - - -
Investments
Net Accounts 67,438. 70,810. 75,767. 7%
Receivable 35 5% 28 5% 00
26,946. 28,294. 29,708. 5%
Inventory
86 3% 20 5% 91
5,446.3 5,718.6 6,118.9 7%
Others
5 5% 7 5% 8
139,697 147,47 157,66 -
Total Current Assets
.76 - 9.98 - 4.27
6,391.5 8,948.1 13,422. 50%
Long-term Investments
0 50% 0 40% 15
Plant, Property, 185.519 204,07 224,47 10%
Equipment .40 10% 1.34 10% 8.47
30.903. 33,375. 36,713. 10%
Goodwill
40 10% 67 8% 24
4,495.4 40%
Intangible Asset 2,470 3,211
30% 30% 0
Accumulated
- - -
Amortization
10,148. 11,163. 12,279. 10%
Other Assets
60 10% 40 10% 81
Deferred Long-term 6,092.9 6,824.0 7,506.4 10%
Asset Charges 0 10% 5 12% 5
381,223 8.32 415,07 8.15 456,55 9.08
TOTAL ASSETS
.56 % 3.60 % 9.79 %
LIABILITIES
Current Liabilities
`153,7 138,39 10%
Accounts Payable 146,454
10% 76.70 5% 9.03 dec.
120 3,996.3 30%
Current Debt 3,806 5,709
% 50% 0 dec.
Others - - - - - -
159,48 142,39 -
Total Current Liabilities 150,260
- 9 - 5.33
100,667 5%d 93,620. 7%d 88,938. 5%d
Long-term Debt
.70 ec. 96 ec. 95 ec.
24,373. 5%d 21,935. 10% 15,355. 30%
Other Liabilities
20 ec. 88 dec. 12 dec.
Deferred Long-term 20% 3,068.8 5%d 2,761.9 10%
3,230.4
Liabilities Charges dec. 8 ec. 9 dec.
Minority Interest - - - - - -
Negative Goodwill - - - - - -
278,531 - 278,11 - 249,45 -
TOTAL LIABILITIES
.30 0.72 1.39
SHAREHOLDERS’ EQUITY - - - - - -
Misc Stocks - - - - - -
Redeemable Preferred - - - - - -
Preferred Stock - - - - - -
Common Stock 326,489 5% 342,81 5% 359,95 15%
 .10 3.56 4.24
(220,29 - (202,0 - (148,7 -
Retained Earnings
6.84) 00.68) 25.84)
Treasury Stock - - - - - -
Capital Surplus - - - - - -
Other Shareholders’ - - -
3500 3,850 4,120
Equity
TOTAL SHAREHOLDERS’ 102,692 - 136,96 - 207,10 -
EQUITY .26 2.88 8.40
TOTAL LIABILITIES & - - -
381,223 415,07 456,55
SHAREHOLDERS’
.56 3.60 9.79
EQUITY

KRISPY KREME DOUGHNUT: Key Financial Ratios and Their Trends

Ratios 2008 2009 2010
LIQUIDITY
Current Ratio 93% 92% 111%
 
DEBT MANAGEMENT
Debt-to-Equity Ratio 73% 203% 120%
 
PROFITABILITY
Gross Profit Margin 17% 8% 10%
Return on Asset -11% -4% 4%
Return on Equity -42% -11% 10%
Sales growth 5% 8% 10%