Marketing Management

Week 6 Case Analysis Completion

Running head: KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
Krispy Kreme oughnuts' In*(: A Case Analysis
Presented to
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KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
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Table of Contents
&a,le o0 Contents /
III( E1e*uti2e Summary 3
I4( Situational Analysis 5
A( En2ironment ((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 5
+( Industry Analysis (((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 5
C( &he !rgani6ation (((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 7
( &he Marketing Strategy ((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 8
4( Pro,lems 9ound in Situational Analysis :-
A( Statement o0 primary pro,lem( ((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( :-
+( Statement o0 se*ondary pro,lem (((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( ::
C( Statement o0 tertiary pro,lem( ((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( :/
4I( 9ormulate' e2aluate' and re*ord alternati2e *ourse;s< o0 a*tion :3
A( Strategi* Alternati2e : (((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( :3
:( +ene0its ((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( :3
/( Costs ((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( :=
+( Strategi* Alternati2e / ((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( :5
:( +ene0its ((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( :5
/( Costs (((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( :7
C( Strategi* Alternati2e 3 ((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( :8
:( +ene0its ((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( :8
/( Costs (((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( :.
4II( Sele*tion o0 Strategi* Alternati2e and Implementation /-
A( Statement o0 Sele*ted Strategy (((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( /-
+( >usti0i*ation o0 Sele*ted Strategy ((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( /:
C( es*ription o0 the implementation o0 strategy( ((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( /:
4III( Summary /6
I?( Appendi*es /6
A( 9inan*ial Analysis and Sele*ted &a,les ((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( /6
+( Re0eren*e )ist (((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 3-
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
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III. Executive Summary
Krispy Kreme oughnuts' In*(' ,egan as a 0amily@oAned ,usiness ,a*k in :.37' as an
e1pansion o0 a pre@e1isting ,usiness' Ahen 4ernon Rudolph pur*hased a doughnut shop
along Aith the noA@0amous se*ret re*ipe 0or making yeast@raised doughnuts( $is
doughnuts' Ahi*h he deli2ered to gro*ery stores in the Winston@Salem' %orth Carolina
area' Bui*kly ,e*ame immensely popular Aith *ustomers( So popular in 0a*t' that he *ut a
hole in the Aall o0 his shop so that he *ould sell hot doughnuts to potential *ustomers
passing ,y on the street( ;Peter and onnelly' /--.' Page 6.-<( Who knoAs' ,ut this may
ha2e ,een one o0 the 0irst Cdri2e@thruDAalk@upE AindoAs in the restaurant ,usinessF And
that is Gust one e1ample o0 Mr( RudolphHs and his early partner' Mike $ardingHs' 0orAard@
thinking marketing ideas 0or that era( &he idea o0 making all o0 the shops look the same' so
that they Aould ,e re*ogni6ed ,y patrons Ahere2er they tra2eled' as Aell as the 2ieAing
AindoAs 0or Aat*hing the doughnuts ,eing made' Aere good e1amples o0 marketing
promotional strategies( &hese strategies are still *onsidered ,y Krispy Kreme to ,e C+rand
ElementsE as reported in *urrent' annual 0inan*ial reports( +y keeping *ontrol o0 the re*ipe
and the doughnut@making pro*ess' they also maintained produ*t standards and redu*ed'
Ahile not *ompletely eliminating' the *ompetition through the uniBueness o0 their produ*t(
In 0a*t' attempts to *hange the re*ipe' or e2en the look o0 the shops' in later years met Aith
negati2e rea*tions 0rom *ustomers and the *ompany Bui*kly returned to the original taste
and 0eel o0 the CoriginalE Krispy Kreme(
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
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&he *ompany and its doughnut ,e*ame synonymous Aith a parti*ular look' taste and
0eeling( &his emotion that ,e*ame asso*iated Aith Krispy Kreme' des*ri,ed as Ca 0eel@
good ,usinessE and one that C*reated an e1perien*eE as opposed to Gust selling doughnuts
;Peter and onnelly' /--7<' ,e*ame the *ore o0 the *ompanyHs marketing strategy' and Gust
may,e' one o0 the prime reasons 0or its su,seBuent struggles in the early /---Hs( Selling a
C0eelingE or Ce1perien*eE *an ,e a su**ess0ul marketing tool( +ut thatHs Gust one o0 the
tools that a su**ess0ul marketing plan must en*ompass( &he *ompany must also ,e
prepared to groA Aith the times and *hange Aith that groAth( &hat is' the marketing
strategy o0 one time and pla*e may not ne*essarily translate andDor Aork in another(
9inan*ial systems o0 one era Aill not su00i*e 0or another and in this age o0 ad2an*ed a**ess
to in0ormation' ina**ura*ies *an ,e e1tremely damaging to in2estor *on0iden*e(
&his analysis o0 the Krispy Kreme oughnut' In*( *ase study Aill attempt to un*o2er some
o0 the reasons 0or the *ompanyHs *hallenges' suggest some potential strategies and possi,le
solutions as Aell the steps 0or implementing those strategies(
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
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IV. Situational Analysis
A. Environment
Krispy Kreme oughnuts' In*( Aas 0ounded in :.37 and is headBuartered in
Winston@Salem' %orth Carolina( Krispy Kreme is a maGor *ompetitor in the
restaurant industry' knoAn primarily 0or its donuts( %ear the end o0 /--=
and the ,eginning o0 /--5' the e*onomy ,egan to sloA( !ther ,usiness in
*ompetition Aith Krispy Kreme ,egan to *roAd into its market and
e1pansion plans that Krispy Kreme had proGe*ted had to ,e s*aled ,a*k due
to 0alling sales( Consumer interest in redu*ed *ar,ohydrate *onsumption'
in*luding ',ut not limited to' the interest in and popularity o0 loA
*ar,ohydrate diets' su*h as the CAtkinsE and CSouth +ea*hE diet plans ha2e
,een ,lamed 0or de*lining sales in pre@pa*kaged ;gro*ery store< donuts(
B. Industry Analysis
&heir leading *ompetitors are Cunkin onutsE' Aith AorldAide sales o0
I/(7 ,illion ;/--/< 5/-- outlets AorldAide and a =5J market share ,ased
on dollar sales 2olume' and C&im $ortonsE' a Canadian@,ased *ompany'
Ahi*h has e1panded in the "(S( Markets( C&im $ortonsE sales in /--/ in the
"(S( ;:6- outlets< and Canada ;/3-- outlets< Aere a *om,ined I65: million(
A maGor strategy that Cunkin onutsE has used su**ess0ully is to
emphasi6e its *o00ee sales more than its donut sales( &heir dri2e@thru
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
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ser2i*e makes it *on2enient 0or patrons to pi*k up a *up o0 *o00ee on the go'
and may,e Ahile theyHre there' pi*k up a donut' tooF &hey also ha2e donuts
Aith C,etterE nutritional 2alue' i(e(' are loAer in *alories' 0at and sugar( !ne
o0 their maGor strengths as a *ompetitor is its name re*ognition and market
saturation( Its ad *ampaign slogan o0 C&ime to make the donutsFE Aas 2ery
popular and made 0or memora,le ads( Cunkin onutsE is 2ieAed ,y many
patrons as more modern and more *on2enient ,e*ause o0 their dri2e through
AindoAs( C&om $ortonE' on the other hand' Ahile Aell@knoAn in Canada is
not as re*ogni6a,le in the "nited States as Cunkin onutsE' although it
does seem to ha2e gained a 0oot@hold in states along the ,order' su*h as
Maine' %eA York ' !hio' et*(' and other sele*t lo*ations in the eastern "(S((
&here are *onstant threats o0 neA *ompetitors in this industry( In addition to
*o00ee retailers and *a0es' su*h as CStar,u*ksE' CSeattleHs +estE and other
distri,utors' *ompetition 0rom other ,akery retailers' su*h as CWin*hellHs
onut $ouseE and C)aMarHs onutsE appear to ,e the *hie0 neA threats(
$oAe2er' *urrent e1pansion plans 0or those 0irms appear to ha2e 0allen short
o0 proGe*tions' perhaps due to o2er@saturation o0 the markets and the sloAing
e*onomy( Competitors are alAays *oming up Aith su,stitute produ*ts to
attra*t *ustomers( Spe*ialty items' su*h as ,agels' mu00ins' ,reak0ast
sandAi*hes and other items that may not ,e as sAeet as donuts are popular
andDor are easier to eat on the go( Spe*ialty drinks' ,oth hot and *old'
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
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parti*ularly high@end *o00ees are alAays popular Aith *ustomers and a threat
to Krispy KremeHs *o00ee' Ahi*h has re*ei2ed mi1ed re2ieAs 0rom patrons(
!utside suppliers ha2e relati2ely little impa*t on the 0irmHs ,usiness as
Krispy Kreme manu0a*tures the mi1es 0or the donuts' and the donut@
making eBuipment' and is the *o00ee supplier 0or use in the *ompany@oAned
and 0ran*hised stores( $oAe2er' the CKK Manu0a*turing and istri,utionE
segment o0 the *ompany' as itHs knoAn' generates a su,stantial portion o0
the *ompanyHs earnings(
C. The Organization
Krispy KremeHs 2ision statement' as shoAn on their Ae,site' is C&o ,e the
glo,al leader in doughnuts and *omplementary produ*ts' Ahile *reating
magi* moments AorldAide(E Krispy KremeHs ,usiness strategy is 0o*used
on re2enue 0rom their *ompany@oAned stores' royalties and 0ran*hises 0ees '
and sales o0 the mi1es' spe*ialty *o00ees and donut making eBuipment( &heir
organi6ational stru*ture Aas simple( &hey 0elt strongly that the 0ran*hising
Aas the ,est Aay to go' as it in2ol2ed little risk 0or them' pro2ided in*ome'
and at the same time' put more o0 the responsi,ility on the 0ran*hise holders(
In /--:' *ash 0loA return on eBuity in2estment 0or 0ran*hises Aas at .:J' so
attra*ting 0ran*hises Aas not a pro,lem( In /--3' the *ompanyHs ,usiness
strategy Aas to add enough neA stores and in*rease sales enough to a*hie2e
/-J annual re2enue groAth and /5J annual groAth in earnings per share(
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
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$oAe2er' they 0ailed to in2est in produ*t de2elopment ,eyond the CletHs try
thatE stage( +y all appearan*es' strategies do not appear to ,e *apa,le o0
maintaining a *ompetiti2e ad2antage 0or 2ery long' as their produ*ts Aere
easy to repli*ate su00i*iently 0or most *ustomers( As a matter o0 0a*t' many
o0 their *ompetitors *onsidered it an ad2antage Ahen Krispy Kreme *ame to
toAn' as it ,rought attention to donuts' Ahi*h resulted in in*reasing their
oAn salesF In >uly o0 /--=' the *ompany announ*ed that the SEC Aas
Claun*hing an inBuiry into the *ompanyHs a**ounting pra*ti*es( )ater that
year' in e*em,er o0 /--=' they announ*ed still more Ca**ounting errorsE
that *ould redu*e the net in*ome 0or 9Y /--= anyAhere 0rom /(7J to 8(6J(
+y then' their sto*k had 0allen 0rom I=- a share in Mar*h o0 /--= doAn to
I:-@:3 in e*em,er(
D. The Marketing Strategy
It is di00i*ult to determine Ahere the marketing department resides Aithin
the organi6ation' as 2ery little e2iden*e o0 market resear*h e1ists( Krispy
KremeHs marketing plan seems simple on the sur0a*eK they donHt appear to
ha2e put mu*h e00ort into marketing their produ*t( &he *ompany spent 2ery
little on ad2ertising' depending largely on Aord o0 mouth' and lo*al
pu,li*ity( Store openings Aere popular e2ents in the *ommunities' so o0ten
neAspapers and other media pro2ided 0ree pu,li*ity 0or the e2ents( &his
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
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strategy seems to still Aork Aell 0or neA store openings' ,ut Aould not ,e
su00i*ient to generate *ontinuing ,usiness( &his is e2iden*ed ,y the 0a*t that
e2en Ahile neA stores are opening' older stores Aithin the same market are
ha2ing to *lose( In short' the *ompanyHs marketing strategy appeared to
*onsist merely o0 alloAing its produ*t to sell itsel0( &he produ*tHs superior
reputation' the 0irmHs operational te*hniBues' i(e(' their training' 0a*ilities
management and 0ran*hise management' appears to ,e appear to ,e the
Krispy KremeHs maGor strengths( When adding the *o00ee produ*t to the
organi6ation' they also in*luded it Aithin the C2erti*al integration supply
*hain to *ontrol *osts( &hey 0elt that this Aould ensure Buality and
*onsisten*y in the produ*t( When Krispy Kreme pur*hased the Montana
Mills +read Company' there seemed to ,e a sense that this Aas Gust a logi*al
ne1t step( In 0a*t' the CE! *onsidered this a*Buisition as the Cnatural
outgroAthE in the *ontinuing pro*ess o0 2erti*ally integrating an entire range
o0 produ*ts and ser2i*es 0or C0lour@,asedE' short@shel0 li0e produ*ts( Again'
0ailure to do appropriate and e00e*ti2e market resear*h' Krispy Kreme
missed the identi0ying the neA trends toAard redu*ed *ar,ohydrate
*onsumption patterns in the general pu,li*( As a result' Krispy Kreme
a*Buired a *ompany in /--3 that ,y the end o0 0is*al year /--=' had lost I/
million dollars(
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
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V. Problems Found in Situational Analysis
A. Statement of rimary ro!lem.
&he primary' and most *riti*al' pro,lem area is the la*k o0 a *ohesi2e
marketing stru*ture Aithin or a strategi* marketing plan 0or the organi6ation(
9laAed or a,sent marketing resear*h has resulted in store *losings and or
e1pansions that Aere not ,a*ked up ,y market data or e2iden*e that this
in2estment Aould ,e 0easi,le( &he CMontana MillsE a*Buisitions Aas ,ased
on the CE!Hs C0eelingE that the ser2i*es 0or C0lour@,asedE' short@shel0 li0e
produ*ts in2estment Aas a logi*al 0it Aith their *urrent pro*ess o0 2erti*ally
integrating an ser2i*es 0or C0lour@,asedE' short@shel0 li0e produ*ts( Market
resear*h Aould ha2e the identi0ied the neA trends toAard redu*ed
*ar,ohydrate *onsumption patterns in the general pu,li*( &he *ompany
spent 2ery little on ad2ertising' depending largely on Aord o0 mouth' and
lo*al pu,li*ity( Store openings Aere popular e2ents in the *ommunities' so
o0ten neAspapers and other media pro2ided 0ree pu,li*ity 0or the e2ents(
&his strategy seems to still Aork Aell 0or neA store openings' ,ut Aould not
,e su00i*ient to generate *ontinuing ,usiness( As a result' Krispy Kreme
a*Buired a *ompany in /--3 that ,y the end o0 0is*al year /--=' had lost I/
million dollars( While Krispy Kreme later di2ested itsel0 o0 the Montana
Mills operation' this entailed a Arite@o00 o0 I3= million initiallyK Aith 0urther
Arite@o00s o0 I/@I= million in su,seBuent Buarters( &his ,ad in2estment' in
addition to slumping sales resulting 0rom the trend toAard loA *ar,ohydrate
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
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diets resulted in the *ompanyHs reporting a I/=(= million loss 0or the Buarter
o0 0is*al year /--5( &his is e2iden*ed ,y the 0a*t that e2en Ahile neA stores
are opening' older stores Aithin the same market ha2e to *lose( In short' the
*ompanyHs marketing strategy appeared to *onsist merely o0 alloAing its
produ*t to sell itsel0(
B. Statement of se"ondary ro!lem
&he se*ondary pro,lem is their insisten*e on using a 2erti*ally integrated
supply *hain Ahere,y it manu0a*tured the mi1es and the proprietary
doughnut@making eBuipment' as Aell supplying the *o00ee 0or use in their
stores( While this KK Manu0a*turing and istri,ution di2ision o0 Krispy
Kreme generally pro2ided su,stantial re2enues and earnings to the ,usiness'
this too' ,egan to slip along Aith other re2enues' and also *ontri,uted to
Krispy KremeHs la*k o0 *urrent market data( Analysis o0 re2enues 0or 0is*al
year ending 9e,ruary :' /--=' shoAed KK Manu0a*turing and istri,ution
re2enues at I:.3':/.'---( Re2enues ,y !*to,er 3:' /--= had dropped to
I:=/'/88'---(
Another' perhaps in*idental side@e00e*t o0 this dependen*e on internal
supply *hain *ould ,e that the CisolationE 0rom outside suppliers pre2ented
an additional sour*e o0 market in0ormation( While not mentioned in the
te1t,ook *ase analysis in0ormation' one *ould surmise that regular
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
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*ommuni*ation' pro2ided ,y *onta*t Aith the Coutside ,usiness AorldE 2ia
sales representati2es' Aould ha2e pro2ided Krispy Kreme Aith a de*ent
sour*e o0 Cin*identalE' se*ondary market resear*h on their *ompetitors(
Sales representati2es must' ,y ne*essity' knoA Ahat is going on in the
marketpla*e' so they *an make de*isions on hoA ,est to supply their
*ustomersH needs( Krispy Kreme had *ut itsel0 o00 0rom a good sour*e o0
2alua,le' ,ut 0ree' market in0ormation(
C. Statement of tertiary ro!lem.
Krispy KremesHs 0inan*ial a**ounting systems appear to ,e inadeBuate 0or
a**urately reporting the 0inan*ial in0ormation that is ne*essary to make
management de*isions( &his also ser2es to erode pu,li* *on0iden*e and
trustK making them relu*tant to in2est in the *ompany(
In >uly o0 /--=' the "(S Se*urities and E1*hange Commission laun*hed an
inBuiry into the *ompanyHs a**ounting pra*ti*es regarding *ertain 0ran*hise
,uy,a*ks( In e*em,er /--=' the *ompany announ*ed that it had identi0ied
a**ounting errors related to tAo 0ran*hise ,uy,a*ks that *ould redu*e net
in*ome 0or 9Y/--= ,y /(7 per*ent to 8(6 per*ent( &he *ompanyHs outside
auditor re0used to *omplete re2ieAs o0 the *ompanyHs 0inan*ial per0orman*e
until a spe*ial *ommittee o0 the *ompanyHs ,oard o0 dire*tors had *ompleted
its re2ieA o0 the ,ookkeeping pro,lems( +y late e*em,er /--=' Krispy
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
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KremeHs sto*k had 0allen 0rom I=- per share in Mar*h /--=' doAn to LI:-@
I:3 per share(
VI. Formulate, evaluate, and record alternative course(s
of action
A. Strategi" Alternative #
Strategi* Alternati2e : Aould ,e to *ondu*t a *orporate@Aide 0inan*ial and
operational audit o0 random stores' ,oth *ompany@oAned and 0ran*hised to
determine *auses o0 negati2e ratio o0 re2enues to e1penses(
!. "enefits
&he Muarterly !perating Per0orman*e ;Peter and onnelly' /--.<
ta,les demonstrated that 0rom 9is*al Year /--= to 9is*al Year /--5'
per0orman*e de*lined in ,oth 2enues( $oAe2er' this in0ormation
does not detail either the reason 0or the de*line' or Ahy the report
indi*ated that the *ompany@oAned storesH per0orman*e de*lined at a
0aster rate than did the other 0ran*hisee operations( ;Page 7::<( &he
,ene0it;s< o0 *ondu*ting this audit Aould ,e that it Aould assist
management in identi0ying *auses o0 in*reased operating e1penses in
*orporate stores 2s( the 0ran*hise operations( Another ,ene0it Aould
,e in dis*o2ering the a**ounting errors in e1isting systems that
resulted in redu*tion o0 net in*ome ,y 0rom /(7J @ 8(6J(
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
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Management needs *lear and a**urate in0ormation in order to make
appropriate operating de*isions 0or the *ompany( +y itsel0' the 0a*t
that this redu*tion had to ,e stated ,y a per*entage range' rather than
a spe*i0i* per*entage' Aould indi*ate that a**ounting methods are
not a**urate enough to pro2ide this *riti*al in0ormation( 9inally' this
independent audit may ser2e to re2itali6e in2estor *on0iden*e in the
*ompany( Regardless o0 the struggles' i0 the in0ormation put 0orth in
the market is ,elie2ed to ,e a**urate' in2estors may ,e more Ailling
to take a *han*e in the *ompany(
#. Costs
&he *ost;s< o0 the audit Aould ,e the 0inan*ial in2estment o0 hiring'
a**ountants to audit the ,ooks' as Aell as operational e00i*ien*y e1perts to
audit the systems 0or operational issues( In the *ase o0 the operational
e00i*ien*y e1perts' there may ,e an additional *ost ;temporary< asso*iated
Aith doAn time o0 eBuipment 0or e1amination' as Aell as the lost produ*tion
time o0 personnel in2ol2ed in the pro*ess( &here also is the potential *ost o0
additional loss o0 in2estor *on0iden*e as ;i0< results 0rom these internal
audits are made pu,li*( $oAe2er' it is e1pe*ted that this last C*ostE Aould ,e
temporary and impa*t *ould ,e minimi6ed ,y appropriate management
response regarding ne1t steps(
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
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B. Strategi" Alternative $
Strategi* Alternati2e / Aould ,e the de2elopment or enhan*ement o0 the
marketing department
!. "enefits
As dis*o2ered during the situational analysis' pro,a,ly the primary' and
most *riti*al' pro,lem in the operational area is in the la*k o0 a *ohesi2e
marketing stru*ture Aithin or a strategi* marketing plan 0or the organi6ation(
9laAed or a,sent marketing resear*h has resulted in store *losings and or
e1pansions that Aere not ,a*ked up ,y market data or e2iden*e that this
in2estment Aould ,e 0easi,le( &his is needs to ,e *ountera*ted Bui*kly ,y
the de2elopment or enhan*ement o0 the marketing department( &his should
,e done ,y re*ruitment o0 *ompetent in@house marketing spe*ialists to
de2elop a marketing plan and *arry it out either through in@house e00orts' or
;pre0era,ly<' through the use o0 an e1ternal marketing 0irm( &his marketing
plan must *ontain elements addressing appropriate marketing resear*h o0
industry en2ironment and a marketing strategy addressing *urrent and
possi,le 0uture *ompetition(
Se*ondary Sour*es 0or marketing resear*h are o0ten a good pla*e to o,tain
,ase@le2el data at minimum 0inan*ial outlay( &his kind o0 data 0or the
restaurant and 0ood ser2i*e industry *an ,e o,tained through online sour*es
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
:6
su*h as CMarket Resear*h(*omE( 9or e1ample' the C/--. Restaurant' 9ood
N +e2erage Market Resear*h $and,ookE' ,y Ri*hard K( Miller N
Asso*iates' *an ,e doAnloaded 0or a nominal *ost o0 I/85( &he ,ene0it o0
this item is that it *ould ,e used as a tool to assist senior management in
understanding Ahat the marketing resear*h plan Aill attempt to address and
a**omplish( It also Aould pro2ide a ,road look at the industry en2ironment
and issues *urrently 0a*ed( !ther se*ondary sour*es' su*h as the CRestaurant
Marketing #roupO ;RM#<Eshould also ,e in2estigated( &his 0irm has
2arious methods that it uses 0or *ondu*ting *onsumer resear*h' one o0
Ahi*h' the C9ood A*tuallyE study is des*ri,ed as C(((a measure o0 a
*onsumerPs per*eption o0 the ingredients a ,rand uses(E Resear*h 0or the
study Aas *ondu*ted as an online sur2ey 0o*used on ea*h ,randHs 9ood
A*tuallyQ rating' the 0a*tors *ontri,uting to the 9ood A*tuallyQ rating' and
hoA signi0i*ant 9ood A*tuallyQ is in relation to other ,rand *onsiderations(
A 9ood A*tuallyQ rating is gi2en to ea*h o0 the :/8 ,rands in*luded in the
study using a ten point s*ale to determine the *onsumerHs per*eption o0' and
*on0iden*e in' a ,randHs 0ood( &his report *osts a mere I..' ,ut *ould
pro2ide 2alua,le insight into *onsumerHs de*ision@making pro*ess(
$oAe2er' in the *ase o0 Krispy KremeO' se*ondary sour*es o0 data are not
su00i*ient 0or de2eloping a *ohesi2e marketing strategy( Primary data must
,e o,tained a,out the *urrent industry' *ustomers and *ompetition' ,oth
*urrent and potential( While *olle*tion o0 primary data' *ould theoreti*ally
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
:7
,e done ,y in@house marketing personnel' hiring an e1perien*ed marketing
0irm that 0o*uses on the restaurant and 0ood ser2i*e industry Aould ,e more
e00e*ti2e and e00i*ient in the long run( &he 0irm mentioned a,o2e also
pro2ides a ser2i*e *alled CRapid Ad 9eed,a*kE Ahi*h deli2ers a
Buantitati2e@Bualitati2e 0eed,a*k on up*oming *ampaigns ,e0ore they go
Cli2eE to ensure the message is e00e*ti2e( &his *an tell the marketing
department i0 potential *onsumers understood the main message o0 the ad
and i0 not' Ahat Aas *on0using( It *an also pro2ide in0ormation on Ahat
respondents per*ei2ed a,out the ,rand ;,ased on Ahat they saA in the ad
and Ahat might moti2ate them ,ased on the ad<( A *ompetent market 0irm
should ,e a,le to pro2ide all ,oth Buantitati2e and Bualitati2e data su*h as
market resear*h' *ustomer pro0iling N loyalty' 0o*us group moderating' and
lo*al store marketing( &his last item assists the operation audit mentioned
a,o2e ,y pro2iding 2alua,le primary data on an ongoing ,asis( !0 *ourse'
the 0irm mentioned a,o2e is Gust an e1ample o0 the type and ser2i*es one
Aould 0or in a marketing 0irm(
#. Costs
Sin*e *ost is a *onsideration in Krispy KremeHs *urrent 0inan*ial situation' a
*ompetiti2e ,id pro*ess 0or sele*tion o0 the marketing 0irm might ,e a
re*ommendation(
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
:8
C. Strategi" Alternative %
Strategi* Alternati2e 3 Aould ,e to *ondu*t a *ost@e00e*ti2eness analysis o0
the supply *hain(
!. "enefits
Sin*e Krispy Kreme has a long history o0 using this method' there Aould ,e
more than ample data to ,e a,le to set the pre@determined standard o0
ser2i*e ne*essary 0or the ,ene0its side o0 the eBuation ;Ahi*h is held
*onstant<' and then *ompare 2arious options 0or pro2iding that standard o0
ser2i*e' Aith the least@*ost method identi0ied as the pre0erred option( It
most likely Aill not ,e *ost@,ene0i*ial ;or e2en ne*essary< to attempt to
outsour*e the manu0a*turing o0 the donut@making eBuipment' although this
*ould ,e studied later( Although KK Manu0a*turing and istri,ution
di2ision o0 Krispy Kreme generally pro2ides a su,stantial portion o0 the
re2enues and earnings to the ,usiness' it may not ,e the most e00i*ient
method o2er time(
Krispy Kreme should in2estigate other supply *hain methods 0or *o00ee and
0lour produ*ts( Simply ,ased on the amount o0 0lour that Krispy Kreme
Aould ,e pur*hasing' many suppliers Aould pro2ide 2olume dis*ounts'
Ahi*h *ould ,ene0it the *ompany ,y loAering operating *osts( A side
,ene0it' Ahi*h Aas mentioned in the earlier situational analysis' Aould ,e
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
:.
the a**ess to market data 0rom outside sales personnel' ,ringing the market
CgossipE Aith them( &his Aill pro2ide Krispy Kreme Aith some
Cin*identalE' se*ondary market resear*h on their *ompetitors( Krispy Kreme
is knoAn 0or donuts' not 0or *o00ee' and histori*ally has su00ered 0rom mi1ed
re2ieAs( It might ,e ,ene0i*ial 0or Krispy Kreme to in2estigate linking up
Aith a Aell@knoAn *o00ee 2endor' su*h as Star,u*ks' Cari,ou or some other
supplier( &his CpartnershipE *ould pro2e ,ene0i*ial to ,oth *ompanies( 9or
e1ample' Krispy Kreme *ould take ad2antage o0 the reputation 0or superior
*o00ee ,y ad2ertising' C%oA ser2ing Star,u*ksO *o00eeFE And Star,u*ks
*ould ad2ertise' CStar,u*ksO *o00ee noA a2aila,le at Krispy Kreme stores
e2eryAhereFE
#. Costs
&he *ost o0 this study Aould most likely ,e minimal as it *ould ;and should<
,e done simultaneously Aith the independent 0inan*ial and operational
audit( &he ,ene0its o0 this *ould ,e tremendous *ost@sa2ings o2er time(
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
/-
VII. Selection of Strate$ic Alternative and
Im%lementation
A. Statement of Sele"ted Strategy
$a2ing e1amined and e2aluated the possi,le alternati2e *ourses o0 a*tion
aimed at righting the 0uture *ourse o0 the Krispy Kreme oughnuts' In*(' Ae
,elie2e that the most immediate need is ;Alternati2e A<' to *ondu*t a
*orporate@Aide 0inan*ial and operational audit' in*luding ,ut not limited to'
*ompany@oAned and 0ran*hised stores to determine *auses o0 the negati2e
ratio o0 re2enues to e1penses( It is this analystHs opinion that ample data
e1ists to' simultaneously and as part o0 this audit' *ondu*t a *ost@
e00e*ti2eness analysis o0 the *ompanyHs supply *hain' i(e(' their use o0 a
2erti*ally integrated supply *hain' to determine i0 this method is' and Aill
*ontinue to ,e' the most e00i*ient method o2er time ;Alternati2e C<( While
enhan*ements to the marketing department and su,seBuent de2elopment o0
a marketing plan ;Alternati2e +<' are indeed *riti*al elements in the
*ompanyHs re*o2ery and 0uture de2elopment' Aithout a *lear pi*ture o0 the
*ompanyHs 0inan*ial status and an analysis o0 operating pro*esses and
*apa,ilities' any marketing strategies Aould 0or all pra*ti*al purposes'
amount to a Cshot in the darkE' and Aould not result in the ,est use o0
*ompany assets(
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
/:
B. &ustifi"ation of Sele"ted Strategy
It is ,elie2ed that the results o0 this audit Aould pro2ide senior management
Aith the *lear and a**urate in0ormation reBuired to make appropriate
0inan*ial and operating de*isions 0or the *ompany( Additionally' operations
in0ormation Aould pro2ide *riti*al data to all le2els o0 management' 0rom
the most senior le2els to line super2isors at *orporate headBuarters' as Aell
as pro2iding use0ul in0ormation to 0ran*hisees to guide them in their
0inan*ial and operational de*isions( &his in turn *ould result in higher
re2enues and loAer e1penses at all le2els Ahi*h Aould ,ene0it ,oth the
0ran*hisees and the Krispy Kreme oughnuts' In*( A**ording to &he Center
0or Audit Muality ;CAM<' CAuditors *ondu*t a systemati* e1amination to
*onsider Ahether the 0inan*ial statements are 0airly presented and 0ree 0rom
material misstatements(E ;/--.' page 3<( &here0ore' it is also ,elie2ed that'
regardless o0 the out*ome 0rom the audit reports' potential in2estorsH
*on0iden*e Aill ,e enhan*ed i0 in0ormation is ,elie2ed to ,e a**urate as
released(
C. Des"rition of the imlementation of strategy.
&he *ompanyHs *urrent outside auditing 0irm' Pri*eAaterhouse@Coopers'
))P' has re0used to *omplete re2ieAs until the ,ookkeeping pro,lems Aere
re2ieAed( &here0ore' the 0irst step Aould ,e to sele*t an outside a**ounting
0irm to Aork Aith the 0irmHs ,oard o0 dire*tors' sele*ted managers and the
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
//
a**ounting department to *ondu*t a re2ieA o0 the *ompanyHs general
a**ounting pro*esses and *ontrols( Method o0 sele*tion shall ,e ,y
*ompetiti2e *ontra*t' Aith predetermined e2aluation 0a*tors( A**ounting
*ontrols e1pertise and *erti0i*ations shall ,e s*ored as paramount 0or
sele*tion( Consideration Aill also ,e gi2en ,ased on the 0irmHs pre2ious
e1perien*e Aith *ompanies o0 similar industries' si6e' ,readth and *orporate
issues( Consideration o0 the 0airness and reasona,leness o0 *osts proposed
shall ,e a *onsideration' ,ut as a de*iding 0a*tor only in *ase o0 a tied ,id
e2aluation s*ore(
!n*e the auditing team has ,een sele*ted' the ne1t step is to ,egin the
preparation 0or the audit( &his preparation ,egins Aith a meeting o0 the
*orporate mem,ers o0 the audit *ommittee to ,egin *reation o0 an audit
0rameAork( &his 0rameAork Aill do*ument all the steps in pro*ess' as Aell
as the e1pe*tations o0 outside a**ounting ;*ontra*ted< 0irm(
%e1t' a meeting Aith the outside a**ounting 0irm Aill ,e held to outline the
audit pro*edures' timelines' 0ees and all other e1pe*tations' su*h as a**ess to
in0ormation and in0ormation se*urity( Simultaneously' meeting;s< Aill ,e
held Aith *ommittee mem,ers responsi,le 0or *ondu*ting operation
inspe*tions and inter2ieAs at *ompany@oAned 0a*ilities( Pre@planning Aill
,e 0or *onta*t Aith 0ran*hises to reBuest inter2ieAs and a**ess to their
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
/3
0a*ilities 0or analysis o0 operations pertaining to that aspe*t o0 the RauditH(
Colle*tion o0 internal *ost data 0or supply *hain analysis Aill also ,egin at
this stage(
&he audit pro*ess ,egins ,y e1amining *orporate le2el general *ontrols( &he
,oard o0 dire*tors and their dire*t reports shall ,e responsi,le 0or re2ieAing
areas regarding the *ompanyHs *ontrol en2ironment' e(g(' e00e*ti2eness o0
the *ompanyHs 0ormal ethi*s and audit *ommittee' its ongoing a*ti2ities'
su*h as training and *ommuni*ation( +usiness and marketing plans shall ,e
re2ieAed ,y department heads 0or *urrent status' i(e(' Ahether it is ,eing
re2ieAed regularly' signed o00 on' updated' et*( Management planning
reports are re2ieAed ,y department heads o0 appropriate di2isions 0or
*urrent status( Methods 0or use o0 in0ormation *ontained in operations
reports' and 0or updating as ne*essary' are re2ieAed and do*umented(
9inan*ial Management !00i*e di2isions and sta00 shall re2ieA systems to
ensure their *apa,ility to maintain and store all transa*tional and a**ounting
data reBuired to produ*e 0inan*ial statements 0or ea*h di2ision( E1ternal
a**ounting 0irm asso*iates Aill ,egin audits o0 0inan*ial data 0or all
*ompany@oAned and the randomly@sele*ted 0ran*hise stores( Sin*e the
marketing department has e1pertise at de2eloping sur2eys' they Aill
*ontri,ute to the e00ort ,y de2elopment o0 0ormati2e resear*h tools to *olle*t
primary data 0rom 0ran*hisees and 0rom outside suppliers( &his data *an ,e
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
/=
used ,y auditors to assist in the *ost@e00e*ti2eness analysis( Marketing
department personnel Aill also *olle*t in0ormation ,ased on a2aila,le
se*ondary data sour*es to o,tain ,ase@le2el data at minimum 0inan*ial
outlay(
&he ne1t step Aill ,e to *omplete the 0inal re2ieA o0 the ,ooks as o0 the pre@
sele*ted C*lose@outE date' re2ieA the results' and prepare the audited
0inan*ial reports( +ased on in0ormation already at hand through pre2ious
internal Cpro,esE as Aell as the inBuiries ,y "(S( Se*urities and E1*hange
Commission' it is e1pe*ted that these 0inan*ial reports Aill di00er
su,stantially 0rom pre2iously released reports( $oAe2er' due to the s*rutiny
and meti*ulousness o0 the audit' these reports Aill pro2e their 2alue ,y
ena,ling management at all le2els to use the in0ormation *ontained therein
to make *riti*al ,usiness de*isions( 9inal Aritten reports 0rom operations
analysis Aill identi0y key areas o0 su**ess and key *hallenges to 0uture
groAth o0 the *ompany( 9ormati2e resear*h data Aill also ser2e to
strengthen this analysis ,y upholding the 0indings and re*ommendations
0rom this report( &his data may also play a key role the de2elopment o0 a
marketing plan 0or 0uture groAth(
&he su**ess ;or 0ailure< o0 this alternati2e Aill ,e measured ,y the
pre*iseness o0 the data *olle*ted' ,y the appli*a,ility o0 the in0ormation
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
/5
*olle*ted and ,y the reportHs a,ility to pinpoint areas o0 *on*ern( &his audit
must ser2e three purposes:
a< to identi0y the pro,lem areasK
,< to e1amine the *ause;s< o0 the pro,lems' and
c) to suggest possi,le solutions to pre2ent re*urren*es(
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
/6
VIII. Summary
+ased on the in0ormation pro2ided as Aell as data o,tained through additional resear*h' it
is e2ident that the past 0i2e years' spe*i0i*ally late /--= S /--.' ha2e ,een e1tremely
pro,lemati* 0or Krispy Kreme oughnuts' In*(( Issues Aith their 0inan*ial management
systems Ahi*h ha2e resulted in un*lear and unaudita,le 0inan*ial reports' ha2e dealt a
maGor ,loA to in2estor *on0iden*e' Ahi*h only *ompounds the 0inan*ial pro,lems Aith
Ahi*h the *ompany is dealing( )a*k o0 in2estment in and inno2ati2e approa*hes to their
marketing strategies ha2e le0t the *ompany Aithout good' solid marketing plans 0or their
re*o2ery and 0uture de2elopment( Assumptions ha2e *ontinued to ,e made a,out *ustomer
desires' Aithout appropriate data to ,a*k up those assumptions( Assumptions also *ontinue
to ,e made a,out supply *hain and other *ompany operating methods(
It is apparent ,ased on the analysis o0 a2aila,le in0ormation 0or this *ase that Ahile there
are many potential issues that *an 0orestall the a,o2e@mentioned re*o2ery and 0uture
de2elopment( $oAe2er' it is ,elie2ed ,y this re2ieAer that ,y taking the appropriate steps
*orre*t the identi0ied pro,lems and ,egin to implement the proposed solutions' the Krispy
Kreme oughnuts' In*( *an on*e again thri2e in todayHs restaurant industry markets(
I&. A%%endices
A. 'inan"ial Analysis and Sele"ted Ta!les
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
/7
A**ording to a 0inan*ial statement 0iled ,y Krispy Kreme oughnuts' In*( 0iled :-D3:D-6
0or the Period Ending -:D/.D-6' loAer a2erage Aeekly sales had a disproportionately
ad2erse impa*t on *ompany store pro0ita,ility due to the signi0i*ant 0i1ed or semi@0i1ed' as
a result' the Company *losed := stores in 0is*al /--5 and =7 stores in 0is*al /--6( &he
loAer sales in the 0ran*hise stores had a dire*t impa*t on the re2enues o0 the Krispy Kreme
Manu0a*turing N istri,ution ;KKMN<' as Aell as re2enues 0rom royalties( A**ording
to this 0inan*ial statement' Krispy Kreme oughnuts' In*( is C(((2erti*ally integrated to help
maintain the *onsisten*y and Buality o0 produ*ts throughout the Krispy Kreme system(E
A loss in*urred in 0is*al /--5 re0le*ts impairment *harges o0 appro1imately I:5.(- million
related to goodAill' other intangi,le assets and property and eBuipment asso*iated Aith the
Company Stores ,usiness segment' and appro1imately I35(: million related to the
CompanyHs dis*ontinued Montana Mills segment( A**ording to the report' C&he Company
in*urred a loss 0rom *ontinuing operations o0 I:57(: million in 0is*al /--5 *ompared to
in*ome 0rom *ontinuing operations o0 I=.(8 million in 0is*al /--=( &a,le : ,eloA'
CSele*ted 9inan*ial ataE is taken 0rom the a,o2e re0eren*ed 0inan*ial statement 0iled ,y
Krispy Kreme oughnuts' In*( 0iled :-D3:D-6 0or the Period Ending -:D/.D-6(E
Table 1: SELECTED FINANCIAL DATA(
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
/8
&a,le / ,eloA summari6es the CompanyHs *ash 0loAs 0rom operating' in2esting and
0inan*ing a*ti2ities 0or 0is*al years /--=' /--5' and /--6:
Table 2
'i(uidity and Ca%ital )esources Jan. 29, Jan. 30, Feb. 1,
2006 2005 2004
(In thousands)
Net cash provded b! operatn" actvtes #1,$65 #$4,921 #$2,665
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
/.
Net cash (used %or) nvestn" actvtes (#11,6$$) (#4&,60&) (#169,949)
Net cash provded b! (used %or) %nancn" actvtes #13$ (#34,214) #&6,110
'%%ect o% e(chan"e rate chan"es on cash (#10) #340 )
*ash ba+ances o% subsdares at date o% conso+daton ) #3,21& )
*ash ba+ances o% subsdares at date o%
deconso+daton (#1,011) ) )
Net ncrease (decrease) n cash and cash e,uva+ents (#10,&06) # 6,65& # (11,1&4)
KRISPY KREME !"#$%"&S' I%C(: A CASE A%A)YSIS
3-
B. (eferen"e )ist
Peter' >(' onnelly' >(' ;/--.<( Marketing Management: knowledge and skills, 9
th
edition
Retrie2ed !*to,er .' /--.' %eA York: M*#raA@$illDIrAin(
&he Center 0or Audit Muality ;CAM<, ; May /--.<' C#uide to pu,li* *ompany
auditingE'
http:DDAAA(the*aB(orgDneAsroomDpd0sD#uidetoPu,li*CompanyAuditing(pd0'
Retrie2ed !*to,er 3' /--.(
E#AR !nline' In*' ;/--8<' Annual Report on Krispy Kreme oughnuts' In*(' ;/--6<'
Retrie2ed on !*to,er :-' /--.' http:DDAAA(edgar@online(*om