Krispy Kreme Doughnuts Inc. Strategic Management

Business Management 3A

Strategic Management Concepts and Cases

(BMG310A)

ASSIGNMENT 1

KristÐ"Ñ-f TamÐ"ÐŽsi

Student в„- 284485

21st APRIL 2006

DAMELIN DEGREES AT A DISTANCE

Introduction

Krispy Kreme Doughnuts Inc. is a restaurant services company that specialises in doughnuts. The company is a branded specialty retailer, and produces around 7,5 million doughnuts a day. In addition to its Krispy Kreme stores, the company sells its doughnuts in supermarkets, convenience stores and other retail outlets throughout the United States. The company also serves premium coffee and espresso drinks. Krispy Kreme is headquartered in Winston-Salem, North Carolina, USA.

Krispy Kreme has been in the doughnut business for almost 70 years. Founded by Vernon Rudolph in 1937, Krispy Kreme has been a specialty retailer for doughnuts from the very beginning. In the early stages of the company, Rudolph had rented a building to make the doughnuts and had a delivery truck that took the doughnuts to grocery stores to be sold. As the company grew, Rudolph launched a small chain of stores that were mostly family-owned, which all were making their own doughnuts. However, as the years passed by, Rudolph discovered a need for consistency in the company’s doughnut making process so the company built a distribution centre that would deliver the perfect mixture of doughnut mix to each store. Since the 1940’s Krispy Kreme has invented and built their own doughnut-making equipment.

Through the 1960s, Krispy Kreme was growing steadily in the South. When Vernon Rudolph died in 1973 the company’s growth slowed down immensely, and the company was sold in 1976 to Beatrice Foods. Krispy Kreme Company became its own company again after the franchisees bought them back from Beatrice Foods in 1982. In the mid to late 1980s, Krispy Kreme began to focus on what their founder intended initially, which was the hot doughnuts experience. They did this by designing their stores to have the maximum experience for each customer by having the doughnut making process done right before their eyes. This was a huge success and their popularity and growth spread fast.

Over the past decade, Krispy Kreme’s brand name has become very valuable because of the authentic quality that goes into making their doughnuts. Finally on April 5, 2000, Krispy Kreme went public. They offered three million shares of common stock for the initial public offering. They traded on the NASDAQ Stock Exchange under the symbol KREM. Krispy Kreme is now listed on the NYSE under KKD. Currently the company produces more than 7 million doughnuts a day and over $1.8 billion in sales a year and has approximately 300 stores in 41 in the United States, Canada and Australia. Also, like the company did the very beginning, they are still selling their doughnuts to grocery stores. With the continued improvement of the doughnut making process and the innovation of the equipment within Krispy Kreme, this company looks very strong and shows even a potential to be stronger by catching a bigger market perhaps overseas and expanding their product base.

Question 1

Strengths

Image - Krispy Kreme has an extremely well-established product brand name. In fact, the prestigious Smithsonian Institution's National Museum of American History has placed its artefacts on display. The “Hot Original Glazed” doughnuts brand is an icon for the industry.

Product Quality - Krispy Kreme’s current competitive advantage is derived primarily from the freshness of the doughnuts which is enough of an incentive to convince consumers to purchase from them even though they cost more then competitor’s doughnuts. The difference in quality makes up for the 25% or so more that must be paid to purchase the product. Krispy Kreme must maintain this market niche based on the high product quality in order to compete with Dunkin’ Donuts and Tim Horton’s. Something that they have begun to implement is the creation of special doughnuts that cannot be found in competing stores.

Strong management team/organisational structure - Led by a group of experienced executives; Krispy Kreme has a management team positioned to lead the company to financial success. Ex CEO, Scott Liningood, had 27 years of experience with the company, and led nationwide expansion with unprecedented success. The Company recently tapped Daryl Brewster, a veteran of Kraft Foods, as its new CEO.

Vertical Integration вЂ" Krispy Kreme Manufacturing and Distribution (KKM&D) business unit keep enables the company to keep its costs low by utilising volume-buying power whilst maintaining product quality and consistency. The vertically-integrated value chain supplies both company-owned and franchised stores with proprietary doughnut-making equipment as well as doughnut mixes. Krispy Kreme’s business is volume driven, and thus economics are enhanced by expansion within own sales channels. The acquisition of Digital Java was another vertical integration step that not only provides additional source of revenue, but also improves the calibre and appeal of the company’s on-premise coffee and beverage offering.

Large customer base and loyalty вЂ" since its inception in 1937, Krispy Kreme gradually expanded its operations throughout the South-eastern US over a period of several decades. The company has successfully built on its brand’s nostalgic qualities and unbeatable product to acquire a cult-like status amongst its customers. Customer passion for Krispy Kreme doughnuts and the valuable word-of-mouth advertising provides for a large and very loyal customer base. KKD understands that consumers value freshness when it comes to doughnuts. Their Doughnut Theatre Experience combined with clever marketing, creates a myth for consumers. Before Krispy Kreme enters a market they will flood that market with memorabilia including T-shirts and hats, forming an unpaid loyalty base.

Each store