Krispy Kreme Doughnuts, Inc

Written Assignment

Krispy Kreme Doughnuts, Inc

I. Brief History

Vernon Rudolph is the brains behind the Krispy Kreme name. He bought a doughnut shop in 1933 and all the assets came along with the purchase, including a secret recipe and name, Krispy Kreme. Rudolph moved to Winston-Salem, North Carolina, where he opened his first Krispy Kreme shop. The business prospered and in the 1950ÐŽ¦s over ten other locations were opened. The business was able to produce 500 dozen doughnuts an hour. ÐŽ§Revenues grew from less than a million in 1954 to $58 millions in 1974.ЎЁ(C-280) The company was bought out in 1976 by Beatrice Foods. This hurt the name and image of Krispy Kreme. Revenues began to fall and customers were not satisfied with the new ownerÐŽ¦s changes to the image of the doughnut giant. Then in 1982, new buyers decided to go back to the original image of Krispy Kreme and revenues again began to rise. Revenues gradually rose to $117 million in 1989 and then stayed the same over the next six years.

II. External Analysis

Economic Factors: studies were conducted to show that in the United States people consumed just about 10 billion doughnuts. Krispy Kreme is in a low cost industry, therefore a rise or fall in the market will not affect their revenues as significantly as higher priced luxury goods.

Technological Factors: Krispy Kreme has a doughnut theater where the doughnut making process is showcased. This gives customers a unique experience where they are able to watch the doughnuts being made. Krispy Kreme has recently introduced ÐŽ§MyKrispyKremeЎЁ which is an internet based portal that connects management franchisees and Krispy Kreme vendors to each other.

Societal Values and Lifestyles: As of 2001, the diet and eating healthy craze did not have that much of an impact on sales as many thought it would. People still buy doughnuts as a way of giving themselves a treat.

Population and demographics: Krispy KremeÐŽ¦s corporate headquarters are located in Winston-Salem, North Carolina. They have 401 stores in operation. It is traded under KKD in the NYSE. They currently employ 3,913 employees.

Key Success Factors

Krispy Kreme is as efficient as they are in the business because they go by the motto that ÐŽ§the key to expansion is to have control over each step of the doughnut-making process and be able to deliver hot doughnuts to customers as soon as they emerged from the frying and sugar-glazing process.ЎЁ(c-280) Krispy Kreme has done so well because they follow their beliefs that you must make the customers happy.

Krispy Kreme went from being a wholesale baker to a specialty retailer. They used their marketing skills by stressing the ÐŽ§hot doughnut experienceЎЁ that customers knew them by. It was known that by changing the companyÐŽ¦s traditions and style as was done when Beatrice Foods took over in the 1970ÐŽ¦s that customers do not take a liking to change. Krispy Kreme knows that they always have to look to see what the customers want and appeal to them. Krispy Kreme spends very little on advertising. They rely on word of mouth of their customers, local media publicity, and product giveaways.

Technology speaking the company made the size of the doughnuts bigger. They also looked at the size of the stores and realized that it was not cost efficient to have the large stores so they began to make smaller ones.

Krispy Kreme has built-in supply chain where it manufactures the mixes for the doughnuts at company plants located in North Carolina and Illinois. They also manufacture proprietary doughnut-making equipment for use in both company-owned and franchised stores. The company receives a substantial amount of their revenues and earnings, which are attributable to ÐŽ§KK manufacturing and distributionЎЁ, which is the sale of mixes and equipment.

II. Industry Analysis

One of the dominant economic features of Krispy Kreme is that the doughnuts are affordable and nice treats. The market size is relatively small. The major competitor in the market is DunkinÐŽ¦ Donuts who controls over 70% of the market share. The market is concentrated. This is due to DunkinÐŽ¦ Donuts controlling most of the market. Krispy Kreme controls 24.6% of the market share in the doughnut industry.

PorterÐŽ¦s 5 Forces

The Rivalry among competing sellers in the industry is medium to high. KK highest competitor is DunkinÐŽ¦ Donuts who controls most of the doughnut making market. KK must do everything in their power to remain in the position they are in or to move up. New competitors can enter the market at any time. Mom and Pop shops open all the time that sell doughnuts and breakfast products. The barriers to entry in the doughnut market are small. Doughnuts are simple to make and anyone could make them if they wanted to. However, mass production of doughnuts takes a little more effort and money. KK is able to compete in a market that has many large competitors as well as Mom and Pop shops.

When analyzing the affect of substitute products you must take into effect the lifestyle of Americans. We live in a world that is on-the-go and fast pasted. People eat in fast food constantly. The fast food industry is constantly being threatened from substitute products.

There is little bargaining power of sellers in the doughnut industry. If one company is selling their product at a higher price than another one there is no way to know if the customers will buy the cheaper product. There are also substitute products that can be eaten instead of doughnuts.

The ingredients in doughnuts are simple. Anyone can go buy the supplies necessary to make doughnuts. The amount of suppliers in the industry limits the power of suppliers greatly. Therefore, the bargaining power of suppliers is low.

III. Internal Analysis

Strengths

„X Minimized capital requirements due to franchising providing an attractive royalty stream which puts responsibility for local store operations in hands of successful franchisees who know the ins and outs of operating multi-unit chains.

„X They use a vertical supply-chain, which means that manufacturing and mixing for the doughnuts are done by Krispy Kreme.

„X Sales of mixes and equipment ÐŽ§KK manufacturing and distributingЎЁ generated a substantial fraction of revenues and