A Case Study on Krispy Kreme Doughnuts, Inc Company Overview Krispy Kreme is a company that despite its history

dating back to 1937, has only started to experience rapidly increasing sales, expansion, and customer awareness in the last few years. Recently, however, the company has gotten into financial and legal trouble and is struggling to survive. This case is an evaluation of Krispy Kremes past and present business performance, internally and with regard to the external environment it is operating within. The study will conclude with both insights and recommendations Krispy Kreme should implement based on these evaluations and our SWOT Analysis. Mission & Vision One of Krispy Kremes main weaknesses is that it lacks a clear mission and vision statement. The only stated objective was to have a successful Krispy Kreme in every town in the United States. As a result, Krispy Kreme has suffered financial difficulties. Krispy Kreme tried to expand too rapidly and is now paying for it financially. Krispy Kreme made a good decision to shift its focus back to retail business rather than selling solely to wholesalers. Company Structure Krispy Kreme was originally a partnership, but now is a corporation. As a corporation, Krispy Kreme has limited liability, the ability to obtain finances for expansion, and a perpetual life. In addition, it has easily changeable ownership, attractiveness to potential employees, and the ability to obtain finances from outside sources other than management. An autocratic leadership style is used. Two-thirds of Krispy Kreme stores are franchises. The franchisees pay up to a $40,000 fee for each store they open and pay royalty fees. Marketing Although Krispy Kreme has no mission statement, its actions indicate its strategy is to differentiate themselves in the retail doughnut/coffee industry based on its experience in selling quality coffee and doughnuts. In the beginning, Krispy Kreme Doughnuts had the total product offer. The value package consists of delicious, hot doughnuts that are ready to buy. Krispy Kreme prides themselves in having speedy service, and ready to sell, hot doughnuts right off of the oven rack. The image created by all of the free publicity caused many people to come and experience the Krispy Kreme Phenomenon. Stores have a custom design appeal and some are open twenty-four hours a day making efficient use of all available time. Product Differentiation & Product Line Krispy Kreme differentiates themselves with signature stores that have a green roof and open glass windows which allow customers to see doughnuts being made (Thompson et al, 2004). The facility layout of the stores allows for a unique customer experience, separating Krispy Kreme from such competitors as Dunkin Donuts, Tim Hortons and Winchells Donut House.

Krispy Kremes product line already consists of over twenty-five different varieties of doughnuts. A major push to sell coffee was made in hopes of keeping potential customers from going to Dunkin Donuts. In 2001, Krispy Kreme purchased Digital Java, Inc., in an effort to compete with other doughnut retailers beverage sales. Krispy Kreme increased its sales by 40% because it was able to expand its product offering and its quality (Thompson et al, 2004). Krispy Kremes coffee and beverage sales became more profitable, but did not produce as much sales as the competition did in the beverage area. Although, Krispy Kreme has started selling coffee, its primary focus has always been on selling doughnuts. Nothing was done to promote the coffee and other beverages, customers were expected to buy them when they saw they were available and to tell their friends about the new products. One of Krispy Kremes downfalls in recent years is its inability to differentiate themselves from the product line of Dunkin Donuts and other competition. Doughnuts sold to wholesalers were no longer hot out of the oven and were not any different than any other doughnut. Krispy Kremes failure to separate themselves from what the competitors were selling caused the consumer to lose interest in the companys products. Krispy Kremes competitors such as Dunkin Donuts and Starbucks have been successful because they are able to offer not just one product, but a number of things that attract both new and old customers while still bringing in a steady profit. After the consumer had the Hot Doughnut experience, they were left with nothing to come back for. Marketing Mix Product & Price Krispy Kremes marketing mix concentrates on its product. The Hot Doughnut Now concept intrigues customers. All the doughnut mix and equipment used in Krispy Kreme stores was manufactured and supplied by the company in order to ensure consistent recipe quality and doughnut making throughout the chain during the production process (Thompson et al, 2004). These doughnuts were sweeter, bigger and at a slightly lower price than most of its competitors, depending on the variety of doughnut. Place The companys choice of locations has been highly debated. A marketing analyst stated that Krispy Kreme expanded too rapidly and never altered its product line to differentiate themselves from their competitors. Also, the same analyst argues that the places where the older buildings where placed are bad locations for retail sales (Barnes 2004). Promotion Mix Personal Selling, Product, Sales Promotion The promotion mix was great going into the 21st century. There is not much personal selling in Krispy Kreme. Instead, customers come in with the brand awareness of the doughnuts. The

store emphasizes its original glazed doughnuts but other than that not much personal selling goes on. Product giveaways are held at grand openings to improve knowledge of Krispy Kreme products. On certain occasions Krispy Kreme sells a special flavored doughnut for a limited period of time. Currently, Krispy Kreme is offering a strawberry shortcake doughnut. Advertising Promotion was highly done by the word of mouth advertising of past customers. The media also contributed to this type of promotion. Krispy Kreme spends very little, if anything, on advertising (Thompson et al, 2004). Krispy Kreme strongly believes that the buzz created from public relations, at a store opening, is enough to bring the customers to its doughnut shops. This hurts them in the long run because as soon as a stores grand opening is over, Krispy Kreme is old news. Customers lose the hype over the doughnuts and do not come back. Also, grand openings of Krispy Kremes have promoted doughnut awareness through media relations. This has helped increase sales of competitors. Something must be done to keep those customers from going to competitors. Public Relations Krispy Kreme obtains excellent public relations when a store opens. An Austin, Texas store opening was covered live by five TV crews and four radio stations, and at a San Diego opening, five more TV crews and radio stations covering the lines outside the stores waiting for the store to open (Thompson et al, 2004). Sales were at a peak during those openings. Gradually, without advertising to keep Krispy Kreme fresh and new in the public eye, sales declined. Financial Analysis On paper, Krispy Kreme seems to be a company in which there is no end in sight. When it comes to making a hefty profit based solely on the idea of selling hot, delicious doughnuts, Krispy Kreme is excellent. Since this case was written, Krispy Kremes net i ncome has increased from $14.5 million to $57.09 million in just three years (www.krispykreme.com). However, there seems to be evidence that Krispy Kremes financial future may be in jeopardy. Recently, the companys first losses were reported. The quarter that ended October 31 produced a $3 million net loss, compared to a $14.5 million profit a year earlier (Barnes 2004). The stock was once at a high of $50, but nowadays the stock price is around $7.59 (www.krispykreme.com). To make matters worse, Krispy Kremes shareholders have filed class-action lawsuits claiming that they were deliberately misled about the companys financial position. Financial Ratios After examining Krispy Kremes financial ratios, and what they indicate, Krispy Kreme appears to be doing quite well. Financial Speculation

Publicity, centered on Krispy Kremes current financial issues, has negatively affected the companys image among investors and customers. This shows the downside to free publicity. Krispy Kreme has gotten into legal trouble with lawsuits being filed against the company and the United States Securities and Exchange Commission (SEC) looking into its accounting methods. Demonstrating that Krispy Kreme is not as well-off as some people might have believed. When Krispy Kreme repurchased one of its franchises, it did so in a way that avoids the need to deduct their value gradually from future earnings (Barnes 2004). Krispy Kreme was trying to make its profits seem greater than they actually were because they were not taking into account the fact that the value of those stores would decrease every year; which would therefore decrease its profits. Stockholders were misled into believing that Krispy Kreme was more financially sound then it actually was, causing more people to invest then actually would have if they had more accurate information. Krispy Kreme violated its legal and ethical responsibilities to its stockholders and as a result, stockholders have filed lawsuits against the company. Financial Future Even if the company manages to battle the lawsuit and the SEC investigation, its name has been brought down because of these situations and its stock price may continue to decline for a long time. The company is not built for long-term success since it depends on a single product line. Since every field of business encounters fierce competition, Krispy Kreme might not be able to keep up with Dunkin Donuts and Starbucks. Krispy Kreme has been unable to effectively offer the complete value package. All in all, the company seems to be heading into rocky waters and may not be able to get themselves back to where they were in the beginning. Human Resources Since Krispy Kreme is a fast-food restaurant, employees will probably tend to be motivated only by extrinsic rewards. There is very little, if any, intrinsic rewards. Typically employees in the fast food industry do not require a lot of education, knowledge, or expertise of any kind. Krispy Kreme provides full-time employees with very good benefits. The one benefit, which seems unusual for the fast-food industry, is to give employees a Profit Sharing Stock Ownership Plan. It is questionable as to how many of the employees are eligible for benefits and how many of those eligible actually take advantage of the benefits available to them. In a typical Krispy Kreme store there are about 125 employees, of which 65 are usually full-time employees. This means that 48% of the store employees are probably not eligible for those benefits. Employee Management On the positive side, Krispy Kreme seems to have a good management program for it employees. Krispy Kreme calls the management program Management 101. The management course motivates employees and builds a sense of trust with store managers and employees.

Marketing Environment Sociocultural Factors In 2003, Krispy Kreme was quoted as saying they do not believe the growing awareness of nutrition and health was affecting its sales. Now, in 2005, major marketers are suggesting that health awareness is affecting Krispy Kremes sales and Krispy Kreme has blamed its financial problems on it (Barnes 2004). Social Responsibility Krispy Kreme recently ran a promotion where customers could buy a paper balloon for $1. The money for the balloons was donated to the Childrens Miracle Network (www.krispykreme.com). Technological & Global Factors Technologically, Krispy Kreme does have its own website where customers can get all of the information they need regarding the companys background, nutritious values, and special promotions. Globally, the company has entered the international atmosphere. Krispy Kremes can be found in the United States, Canada, Mexico, Australia, Korea and the United Kingdom (www.krispykreme.com). Economic Factors According to company research, Krispy Kreme targeted all demographics, including age and income. This proved to be a significant weakness. They did not know specifically who its customers where and what they wanted. Stores were opened in high traffic areas, but not much other research was done to determine the best locations. Customers in America were consuming ten to twelve billion doughnuts annually (Thompson et al, 2004). Individuals willingness to buy doughnuts allowed for Krispy Kremes success early on.

Recommendations Krispy Kreme has gotten itself into a lot of trouble. If they can escape the lawsuits and SEC investigation without going out of business, some changes need to be made. [O] fficials are too concerned with staying out of jail and need to come up with a clear plan for the company (Barnes 2004). A mission, vision, plan for expansion, as well as long-term and short-term goals need to be established. The mission, vision, and objectives need to be clearly stated, precise, and to the point. The information should be easily accessible to both employees and customers. Stores that are not successful need to be shut down to reduce unnecessary expenses. The focus should be on making stores in the U.S. successful before worrying about stores in other countries. An advertising campaign needs to be established to promote and maintain awareness of the Krispy Kreme products. It is fine to sell products other than doughnuts, but people need to know that they are available.

Conclusion The food industry has been affected by a recent trend toward healthier eating habits. Mirroring this trend has been a desire by many to indulge in unhealthy foods. Krispy Kreme has capitalized on this trend by positioning doughnuts as a popular, on-the-go food. Krispy Kremes success has hinged on consistency throughout its locations and by delivering a high quality product. Future growth opportunities include expanding franchises as well as penetrating alternate distribution channels. As Krispy Kreme analyzes potential growth opportunities within alternate distribution channels such as convenience stores and grocery chains, it must determine whether doing so will sacrifice brand equity and product quality. Expanding beyond its own stores will require the marketing of the doughnut in a cold format. As research has shown, Krispy Kremes success has come from factors other than the serving temperature of its products. I believe that Krispy Kreme can be successful in launching its product in new markets without establishing physical locations. Alternative channel distribution will help bring the Krispy Kreme product to millions of potential customers who have yet to experience the taste of Americas best doughnut.