Krispy Kreme

Focus of the Proposal

Krispy Kreme, a leading, well-established brand of high quality doughnuts, is still in a stage of astonishing growth potential. According to Dain Rauscher Wessels equity analyst David Geraty, "Krispy Kreme has established itself as the quality leader in the doughnut industry and is positioned to become the dominant industry player, with 145 retail locations in 27 states, Krispy Kreme is expected to capitalize on the brand conscious consumer's demand for a consistent, high quality specialty food product" (Minneapolis 2000). Krispy Kreme has quickly risen to the top of the doughnut business in a short amount of time. The company's goal since its infancy has been to satisfy customers by providing a unique experience when visiting a Krispy Kreme outlet. This bold strategy has differentiated them from their competition and created a competitive advantage. Customers are allowed to see how the doughnuts are made, and then served the newly baked treats hot and fresh. The bright neon light that shines from every Krispy Kreme location reads "Hot Doughnuts Now," is one of Krispy Kreme's key marketing strategies. When this sign is lit up, customers know that they will get fresh doughnuts that have just been made.

Since going public in 2000, Krispy Kreme Doughnuts has posted strong growth in same-store sales each quarter, with a consistency that would make most competitors envious. According to the Krispy Kreme's most recent quarter, which ended August 3, 2003, it posted an 11.3 percents rise in system wide same-store sales, including 15.6 percents growth at company operated units (Peters, 2003). From the financial report of second quarter in 2003, it could foretell there would be more earnings growth in the future as long as Krispy Kreme finds more new markets in which to launch doughnut shops. Its average weekly sales are in large determined by newly opened stores. This also demonstrates that the doughnuts specialist's soaring results and rise to the top echelon of industry performers can be attributed to successful expansion.

Despite the fact that Krispy Kreme's same-store sales are increasing every quarter, the company is not in control of the specialty foods industry. Starbucks Coffee, Krispy Kreme's leading competitor, has been experiencing astonishing sales that surpass even Krispy Kreme's admirable numbers. Statistics from the National Restaurant News show that for the third quarter (which ended June 29) Starbucks' earnings jumped 23 percent and revenues increased to 24 percent. In addition, "Starbucks reported net income of $68.4 million, or 17 cents a share, compared with $55.7 million, or 14 cents a share, in the previous year's third quarter. Revenues of one- billion dollars reflected the opening of new units and an 8-percent rise in same-store sales" (National Restaurant News, 2003). With its same store sales increasing twice as much as Krispy Kreme in the same year, Starbucks has the proof that it will not yield to Krispy Kreme. In order to surpass Starbucks, and the many other potent competitors, Krispy Kreme must devise new business tactics that rely on information technologies, because that is an aspect of business which Krispy Kreme has utilized very effectively in the past.

As stated previously, Krispy Kreme's sales are very admirable, but are still, despite excellent growth, much lower then Starbucks Coffee. With such a powerful rival, Krispy Kreme will need to devise strategies that fully utilize the potential that a well organized and operated IT infrastructure has.

Several options exist that will be able to assist Krispy Kreme. Partnerships, for example, can take much of the pressure off certain sections of the company and allow the top tear managers to focus on more pressing concerns. With the recent upgrades in technology and computers, employees must be able to operate the new technology without experiencing problems that could damage consumer confidence in the company. In addition, since Krispy Kreme matures and expands rapidly, it becomes difficult for employees to communicate with stores that are located many miles away. This can be a disadvantage when new personnel must be taught specific skills, how to operate newly installed systems.

In addition to the problem of personal training, the process of production remains a major concern and eventual factor in Krispy Kreme's success. The Equipment used in producing the doughnuts in factory stores can be expensive, but is necessary in order to maintain the competitive advantage of having freshly served doughnuts. Recently a new "baking" technology has been developed that allows stores that currently do not possess the ability to bake fresh doughnuts to do so in a cheaper way. Leading managers are focusing on substantially increase the number of stores that possess this technology, which would allow them to feature its signature hot doughnut experience which they have lacked in the past. Utilizing the new equipment will allow Krispy Kreme to further understand and refine the technology. The company has dubbed this new machinery "Krispy Kreme Hot Doughnut Machine." The Hot Doughnut Machine is designed to finish cooking and glazing doughnuts that have been prepared to a certain point at a factory store, and deliver them to a store employing this cheaper technology. As Krispy Kreme's chairman, president and Chief Executive Officer, Scott Livengood commented, "Stores that utilize the Hot Doughnut Machine technology will complement, not replace our traditional factory stores. This technology provides us with the versatility we need to enter market areas which before were not practical, including certain urban location, small markets, and confined locations such as airports and malls" (PR Newswire, 2001). This new technology enables Krispy Kreme to take advantage of existing stores' production capacity, creating efficiencies and greater profitability. It also can offer multiple varieties of hot doughnuts throughout the day. This new system solves the problem of not