Krispy Kreme

Dianne Murray

Week Two

Question 1.

The chief element of Krispy Kreme's strategy is to deliver a better doughnut and to appeal to customers in new ways. They have taken great steps to insure customer satisfaction from the use of their proprietary flour recipe to their automated doughnut making machines. They have chosen to target mainly markets with 100,000 households. They also were exploring smaller-sized stores for secondary markets.

Krispy Kremes's strong brand name, highly differentiated products, high-volume production capability and multi-channel market penetration strategy has worked well. With each new store opening there are lines waiting at the door all night to experience the Krispy Kreme quality. In Denver, more than 3000 people stood in a line extending for more than three city blocks on opening day. They have production areas in full view and a neon light that lights up when "Hot Donuts" are actually coming off the line. Krispy Kreme makes customers feel good about indulging. Even Krispy Kreme's name brings a smile to people's faces.

Question 2.

I think Krispy Kreme's financial performance has been good. Since its initial public offering in April 2000 it has grown from 140 stores to one with 218 locations in 33 states and Canada. Preliminary results for fiscal year 2002 showed sales topping $621 million, up 39% from the previous year. Revenues climbed 30% to $392 million.

Krispy Kreme is a product company and the most profitable part of the business is doughnut sales due to the high volume of loyal customers.

Many Wall Street analysts considered Krispy Kreme to be overvalued. Analysts said in April 2000 the stock was destined for the $15 to $20 share range at best, which is where most known food related stocks are located. Instead it had been hovering at a value of $40 a share for most of the year. The stock rose to a high of $54 and many analysts doubted Krispy Kreme's strategy and potential growth merited a stock price nearly 70 times projected 2002 earnings per share. I agree with the statement "the numbers just don't work."

Question 3.

SWOT ANALYSIS

STRENGTHS WEAKNESSES

Affordability of products Limited menu items

Well-established and long running company Markets are leaning toward

Long-term company values healthier foods

Loyal and strong customer base Heavy competition

Nationally known brand of donuts

Doughnut making theaters

Strong community relationships

"One-of-a-kind taste"

OPPORTUNITIES THREATS

Expansion into premium coffee lines Stiff competition from

several similar companies

Diversification of product offerings Healthier product

Expansion into a more global marketplace alternatives available

Co-branding opportunities I believe the healthier product alternative has hurt Krispy Kreme in some parts of the country. My wife and I lived in Oregon for several years and this type of product did not appeal to the people in Oregon They seem to live a healthier life style than mid-westerners. For example we never saw gravy in a restaurant until we returned to the Midwest

Based on the SWOT analysis I think Krispy Kreme's overall situation is good. I think they are in a position to continue successfully. It has a few threats and weaknesses and careful planning will minimize