Krispy Kreme Doughnuts Inc. 2015

Krispy Kreme Doughnuts Inc. – 2015 Forest R. David A.Case Abstract Headquartered in Winston-Salem, North Carolina, Krispy Kreme Doughnuts ( KKD) serves doughnuts and c e as well as othe r snack items. The company has location s in 23 countries. Many Krispy Kreme s s are factory shops where customers can watch doughnuts being made and purchase fresh hot d ts as well. The factory stores are responsible for servicing local grocery stores and convenie e stores. The KK Supply Chain provides raw mater ials for both franchise and company- owned sto s in the doughnut-making process. Krispy Kreme storeow ners must purchase all materials from KK S ly Chain. Krispy Kreme reported total re s in fiscal year end February 2015 of $490 million with a bout 90 percent of revenues derived from the United States .B.Vision Statement (proposed) Krispy Kreme strives to be the best doughnut and coffee brand in the world.C.Mission Statement (actual) “Consumers (1) are our lifeblood, the center of the doughnut. (2) There is no s ubstitute for quality in our service to consumers.Imp le presentation is critical (7) wherever Krispy Kreme is sold.We mu t produce a collaborative team effort that is unexcelled.We must cast the best possible image in all that we do. (8) We mu t never settle for "second best;" we deliver on our commitments.We must c h our team (9) to ever-better results. (5)” (Proposed) Krispy Kreme Doughnuts provides people of all ages (1) the highest quality doughnuts and coffee (2) in the in try. We actively serve customers across the United States and globally in more than twenty count (3). We are proud of our Doughnut Theaters (7), where customers watch fresh hot doughnuts being made and or der them while they are still hot. We work diligently with many nonprofits including schools and c hurches to help with fundraising activities (8). We continually upgrade our production technolo y (4). We provide our employees with meaningful employment, fair wages, and an ethica l wor lace (6, 9), while providing a fair return on investment for our shareholders. (98 words) 1.Customers 2.Products or services 3.Markets 4.Technology 5.Concern for survival, growth, and profitability 6.Philosophy 1 Copyright © 2017 Pearson Education Limited Strategic Management A Competitive Advantage Approach, Concepts and Cases (Global Edition) 16e Fred David, Forest David (Solutions Manual All Chapters, 100% Original Verified, A+ Grade) 1 / 4

7.Self-concept 8.Concern for public image 9.Concern for employees D.External Audit Opportunities 1.The US doughnut market is a $13 billion industry with about 25% of sales coming from bulk doughnuts in the 1 d ozen-size box and up.

2.The outlook for doughnut shops remains positive, especially outside of North America, where the ma t is not saturated.

3.A growing middle class in developing countries has created many new customers.

4.In early 2015, Jollibee Foods Corp., based in the Philippines, was considered by many analysts to be a s ious contender to purchase KKD, as Jollibee managem ent looks to add an American-based food compa y to its portfolio.

5.Many people around the world prefer eating healthier snacks, with reduced calories.

6.Coffee prices as of 2015 were 75% lower than their all-time highs in 2011.

7.Growing familiarity of US products in Latin America from advertising and immi gration.

8.Schools, churches, and other not-for-profits are often looking for fundraising options.

9.Breakfast sandwiche s are the new burgers: Breakfast sales at fast-food chains increased by 4.8% annuall from 2007-2012.

10.In 2014, international sales for Dunkin' Donuts decreased 2% and Baskin Robbins decreased 1.2%.Threats 1.Major rival Dunkin’ Brands reported $260 million more in revenue than KKD.

2.Both in the US and globally, people are becoming more health conscious in their diet and food choi ces, in particular, low carb diets are increasingly popular.

3.Competitors of KKD, including Dunkin’ Brands and Starbucks, have already diversified their menu o tions to include healthier choices.

4.Like many commodities, the price of coffee is subject to wild price fluctuations. Recent droughts and f l infections may reduce the coffee supply by 40% by 2020.

5.Some cities and other governments around the world are imposing laws that restrict portion sizes of s t drinks and other sugar-laden snack sizes.

6.Also, a global acceptance to “fair trade” providing farmers a fair wage and educational programs for their farming ef forts has also contributed to higher prices.

7.There are over 850 Tim Hortons locations throughout the US that generated over $600 million in revenue in 2 .

8.Starbucks is the world’s largest specialty coffee retailer with over 18,000 stores in 60 different count es .

9.Barriers to entry are relatively low for the restaurant industry, but rivalry (competitiveness) among firms is ex tionally high.

10.In the restaurant industry, the bargaining power of consumers is quite powerful, availability of restau t options in most places is abundant, and consequently there is intense price comp titiveness among rival firms.2 Copyright © 2017 Pearson Education Limited 2 / 4

Competitive Profile Matrix

Krispy Kreme

Starbucks

Dunkin' Brands

Critical Success Factors Weight Rating Score Rating Score Rating Score Advertising 0.06 1 0.06 4 0.24 2 0.12 Price Competitiveness 0.11 3 0.33 1 0.11 2 0.22 Financial Position 0.08 3 0.24 4 0.32 2 0.16 Customer Loyalty 0.10 2 0.20 3 0.30 4 0.40 Global Expansion 0.09 1 0.09 4 0.36 3 0.27 Market Share 0.12 1 0.12 4 0.48 3 0.36 Product Line 0.09 2 0.18 4 0.36 3 0.27 Store Locations 0.05 1 0.05 4 0.20 3 0.15 Customer Service 0.07 3 0.21 4 0.28 2 0.14 Product Quality 0.08 3 0.24 4 0.32 2 0.16 Debt Ratio 0.11 3 0.33 4 0.44 1 0.11 Employee Dedication 0.04 3 0.12 4 0.16 2 0.08 Totals 1.00 2.17 3.57 2.44

KKD trails both Starbucks and Dunkin’ on the total CPM score. KKD competes well with Dunkin’ in its home market of the Southeast US but not nearly as well in the Northeast and other markets. Much of KKD’s lower CPM score can be attributed to lower market share in both the US and international markets.

EFE Matrix Opportunities Weight Rating Weighted S core

• The US doughnut market is a $13 billion industry with about

0.10

4

0.40

25% of sales coming from bulk doughnuts in the 1 dozen-size

box and up.

• The outlook for doughnut shops remains positive, especially

outside of North America, where the market is not saturated.

0.05 2 0.10

• A growing middle class in developing countries has created

many new customers.

0.05 2 0.10

• In early 2015, Jollibee Foods Corp., based in the Philippines, was

considered by many analysts to be a serious contender to purchase KKD, as Jollibee management looks to add an American-based food company to its portfolio.

0.05

1

0.05

• Many people around the world prefer eating healthier snacks,

with reduced calories.

0.05 1 0.05

• Coffee prices as of 2015 were 75% lower than their all-time highs

in 2011.

0.05 2 0.10

• Growing familiarity of US product in Latin America from

advertising and immigration.

0.04 1 0.04

• Schools, churches, and other not for profits are often looking

for fund raising options.

0.03 4 0.12

9. Breakfast sandwiches are the new burgers: Breakfast sales at

fast-food chains increased by 4.8% annually from 2007-2012.

0.04 1 0.04

• In 2014, international sales for Dunkin' Donuts decreased 2%

and Baskin Robbins decreased 1.2%.

0.04

2

0.08 3 Copyright © 2017 Pearson Education Limited 3 / 4

Threats Weight Rating Weighted S core

• Major rival Dunkin‘ Brands reported $260 million more in

revenue than KKD.

0.10 2 0.20

• Both in the US and globally, people are becoming more health

conscious in their diet and food choices in particular, low carb diets are increasingly popular.

0.05

1

0.05

• Competitors of KKD, including Dunkin‘ Brands and Starbucks,

have already diversified their menu options to include healthier choices.

0.06

1

0.06

• Like many commodities, the price of coffee is subject to wild

price fluctuations. Recent droughts and fungal infections may reduce the coffee supply by 40% by 2020.

0.04

3

0.12

• Some cities and other governments around the world are

imposing laws that restrict portion sizes of soft drinks and other sugary-laden snack sizes.

0.01

1

0.01

• Also, a global acceptance to —fair trade“ providing farmers a fair

wage and educational programs for their farming efforts has also contributed to higher prices.

0.02

2

0.04

• There are over 850 Tim Hortons locations throughout the US

that generated over $600 million in revenue in 2014.

0.04 3 0.12

• Starbucks is the world‘s largest specialty coffee retailer with

over 18,000 stores in 60 different countries.

0.08 2 0.16

• Barriers to entry are relatively low for the restaurant industry,

but rivalry (competitiveness) among firms is exceptionally high.

0.05

2

0.10

• In the restaurant industry, the bargaining power of consumers is

quite powerful, availability of restaurant options in most places is abunda nt, and consequently there is intense price competitiveness among rival firms.

0.05

3

0.15

TOTALS 1.00 2.09

With a total EFE score of 2.09, Krispy Kreme is performing below average on addressing key external issues facing the firm. The most opportune area for Krispy Kreme to address is consumer desire for healthy options (KKD offers none) or breakfast sandwich offerings. Krispy Kreme’s score was also hurt significantly by larger rivals Starbucks and Dunkin’ Donuts.

• Internal Audit

Strengths

• Many KKD shops are factory shops where customers can watch doughnuts being made and purchase

fresh hot doughnuts.

• KKD has long prided itself on hot fresh doughnuts and a one of a kind taste.
• KKD are sold in KKD stores, grocery stores, convenience stores, gas stations, Wal-Mart, and Target

stores in the US.

• The company is transitioning toward smaller factory shops that will focus on retail rather than

wholesale customers. In fiscal 2015, 51% of revenue is generated from wholesale.

• KKD has long helped the communities with fundraisers, even offering special packaging at times.
• As of February 2015, there were 278 KKD stores operating domestically in 38 states and in the District

of Columbia, and another 523 shops in 23 other countries.

• KKD has plans to grow international stores to 900 by January 2017.
• KKD experienced 6.5% increase in total revenues in fiscal 2015.
• Current ratio for KKD is 2.5.
• KKD is increasing its $80 million stock buyback to $105 million in 2015.

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