Krispy Kreme

Case Study: Adapting to the Changing Needs of Consumers

By: Andrea Slonecker, Jessica Curtin, Mike Hurlbut, & Keith Anderson

Table of Contents
Executive Summary............................................................................................................................ 1 Introduction ...................................................................................................................................... 2 Company History ....................................................................................................................................... 2 Current Situation ....................................................................................................................................... 4 External Environment Analysis ........................................................................................................... 6 General Environment ................................................................................................................................ 6 Industry Environment ............................................................................................................................. 10 Competitive Environment ....................................................................................................................... 12 Internal Environment Analysis .......................................................................................................... 17 Peformance ............................................................................................................................................. 20 Krispy Kremes Efficiency ........................................................................................................................ 21 Risks Facing Krispy Kreme ................................................................................................................ 23 Competition ............................................................................................................................................ 23 Costs ........................................................................................................................................................ 23 Expansion ................................................................................................................................................ 25 Economic Risk ......................................................................................................................................... 26 Changing Consumer Preferences ............................................................................................................ 27 Key Problem .................................................................................................................................... 27 Recommendations ........................................................................................................................... 28 Implementation Plan............................................................................................................................... 30 Appendix ......................................................................................................................................... 32

Executive Summary
Krispy Kreme is a doughnut manufacturer and retailer that was founded over 70 years ago and has since expanded into a global firm. After several structural changes, the company began to expand rapidly in the mid 1990s and early 2000s. A few years later after realizing they over expanded and several questionable accounting practices came to light, the companys stock prices plummeted. New management has slowly been trying to rebuild their reputation and decrease costs which are severely hurting the company. Competition is increasingly becoming an issue based on the changing needs of consumers who are looking for healthier products, convenience of store locations, and low price. Krispy Kreme competes in both the quick-service restaurant sector and the U.S. bread production industry and as a result their competitors vary greatly. The top three competitors they currently face are Dunkin Donuts, Starbucks Coffee Inc., and Hostess who each have their own strengths and weaknesses. While internally the companys new management is making smart decisions by building smaller factory stores in more locations, rather than traditional large stores in fewer areas which has allowed them to reach more customers and somewhat reduce costs, they are still facing a lot of store closures. Despite these financial improvements, the company is drawing in comparatively smaller revenues and still has higher costs than its competitors in the present market. Krispy Kreme needs to focus on cutting costs and expanding their customer base even further to bring in higher revenues. This can be done by implementing new, healthy lunch options to their menu. While it will change the companys traditional menu of doughnuts and sugary treats, it will help them adapt to the changing needs of consumers; without meeting the needs of their consumers they may face eventual bankruptcy.

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Introduction
Krispy Kreme is a doughnut retailer in the quick-service restaurant sector. As of January 31, 2010 they operated 582 stores in 20 countries across the world including The United States, Australia, Mexico, Saudi Arabia, and Qatar.1 In addition to their famous Original Glazed doughnuts, they also offer other options such as doughnut holes and jell-filled doughnuts, and coffee and espresso drinks that complement their featured product. They have also recently started to offer a product called Kool Kreme which is a homemade ice-cream that they make doughnut sundaes and other dessert items with. The quick-service restaurant sector of the economy is very competitive. Going against giants like McDonalds and Burger King, Krispy Kreme is having a tough time matching what these monster chains can offer customers. These competitors are encroaching into the breakfast market and Krispy Kreme is in danger of losing its advantage and position in the market. Unlike these other quick-service restaurants, Krispy Kreme is having trouble bringing in customers for meals after breakfast because they offer only doughnuts, coffee, and sweet treats. Based on their recent menu additions and the companys vision statement, To be the worldwide leader in sharing delicious tastes and creating joyful memories,2 Krispy Kreme obviously feels that they need to be more than just an average doughnut shop that sells doughnuts in the morning. Company History Krispy Kreme was started July 13, 1937 in Winston-Salem, North Carolina. Founder Vernon Rudolph purchased a secret doughnut recipe used to produce the treats that he then sold to grocery stores in the area. However, as pedestrians walked by the factory in the morning they were enticed by the smell of fresh doughnuts and inquired if they could purchase them straight from the factory while they were still hot. Rudolph created an accessible section in the factory to 2|Page

sell doughnuts to customers walking by on the street and the first Krispy Kreme doughnut shop was born.3 With the success of the store in North Carolina, Krispy Kreme decided that it should expand its stores in the South; this created additional revenues for the company and gave them better name recognition as everyone wanted to get their hands on a Krispy Kreme doughnut. Unfortunately, with expansion came problems as well, and consistency from store to store was lackluster - some used too much flour and some made them too small. To solve this problem the factory created a dry mix that would be distributed to all of the stores. This helped standardize the taste of the doughnuts, but it didnt solve the problem of shape/size. An answer to this problem was created in uniform machines that would produce the doughnuts evenly and at a faster pace than the previous style could produce. With this new technology stores could make 500 dozen doughnuts per hour!4 When Vernon Rudolph died in 1973 the company was sold to Beatrice Foods Company and became a subsidiary of the company. Krispy Kremes business model was tinkered with and changed from what its core competency was - creating fresh, superior doughnuts to sell to the public and grocery stores to one based on gaining short-term profits and not caring about the long-term health of the company as a whole. A group of franchise owners purchased the company back from Beatrice Foods in 1982 with the intent of going back to the old ways of the company; however, after the buyback, Krispy Kreme had debts that needed to be paid off and the company was stalled for some time until the mid 1990s when they went through a huge period of expansion. Their main focus during the expansion was to sell their main product, the hot Original Glazed. To promote this they created the famous sign that lights up to alert passerbys that fresh doughnuts just rolled off the line. With this strategy in mind they expanded out of the

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South and moved north, moving first into Indiana and then to most places between North Carolina and New York City. They targeted markets where they felt they could come in and take a huge portion of the market share. By the end of the decade they had successfully expanded west into Texas, Nevada and California and were a national chain.5 Current Situation Krispy Kreme is going through a tough stretch right now. Their aggressive expansion in the 1990s and early 2000s have come back to hit them hard. Net income has been negative since 2003 and the company has been on the verge of bankruptcy several times throughout the past seven years. However, 2010 is forecasted to have a positive net income based on quarterly earnings for the year. Current leadership has done a great job recreating the companys image and getting back to the basics of the classic doughnut shop, but there is still a lot of work to do. The current situation Krispy Kreme finds itself in is based on the actions of former CEO Scott Livengood. The company was sued by shareholders after releasing its first profit-warning in May of 2004 and was accused of fudging earnings to meet expectations and receive huge bonuses. The Securities Exchange Commission formally filled an investigation into the company and the stock price had fallen 50% in 2004.6 As the following graph shows, 2004 was the first year that Krispy Kreme reported a loss. In 2005 the company failed to file audited financial statements and Livengood resigned as CEO. It is impossible to know what the real numbers would have been had Krispy Kreme been following the guidelines from 2000-2004, but it is safe to assume that they were losing money during that time. The actions of past management have put the current management under serious pressure to save the company.

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Compared with its largest competitors, Dunkin Donuts and Starbucks, Krispy Kremes revenues are drastically lower. Posting revenues of 6.90 and 10.29 billion respectfully, its competitors dwarfed Krispy Kremes revenue of 350.42 million in 2009. Low revenues have caused major problems for the company. High startup costs, coupled with falling sales, have stressed Krispy Kremes stores. In the period from 2004-2009 over 240 domestic stores were shut down by the company and franchisees.7 Additionally, on November 10, 2010 they announced they will be shutting down 21 of their 51 stores in Australia.8 Competition from these companies, as well as changes in consumer taste and poor expansion strategy, has put Krispy Kreme in a difficult position. A shift in consumer demand to want healthier fast-food options has hit the industry hard. Dunkin Donuts and Starbucks have combated this shift by offering healthier menu items, something Krispy Kreme has failed to do. Dunkin Donuts offers healthy breakfast sandwiches and a variety of flatbread sandwiches that are based on both morning and lunch styles.9 5|Page

Starbucks is even more impressive when it comes to variety on its menu as they offer pastries, muffins, fruit plates, salads, oatmeal, yogurt, and breakfast sandwiches to complement their main product, coffee.10 Even with a forecasted profit for 2010, how Krispy Kreme addresses and answers the health craze in the upcoming years will define the companys future. The magnitude of growth in the late 1990s and locations chosen for expansion have not worked as well as Krispy Kreme had hoped. These seemed like solid investments when the management was participating in unethical accounting methods. Why are these franchises now failing and have they been failing since they opened? Almost all new locations have competition in the form of multiple options for consumers to choose from, putting Krispy Kreme at a disadvantage. For example, Many of the new Krispy Kreme outlets were located within the food courts of major shopping centers, where rents are high and consumers can immediately compare retail offerings11. Other quick-service restaurants can offer more selection than Krispy Kreme can and this makes them more appealing. As primarily a doughnut shop, Krispy Kreme is viewed as a snack and not a full meal which is leading to the aforementioned store closures.

External Environment Analysis

General Environment Krispy Kreme competes in the Bread Production in the United States industry, NAICS code 31181. This includes everything from the production for wholesale or retail of breads, pies, doughnuts, cakes and other bakery items. Its in the mature stage of the life cycle with annual revenues of $36.5 billion, and roughly 8,495 small to medium sized firms competing.12 The two major players are Sara Lee Corporation (7.0%) and Flowers Foods, Inc. (6.0%), which together make up thirteen percent market share of the industry.13 The other eighty seven percent is made

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up of smaller, yet still highly competitive firms like Hostess Brands (4.5%), Bimbo Bakeries USA (4.5%), and Krispy Kreme (<1.0%).14 There are seven product segments which make up this industry. The largest is the bread segment at 32% which includes many fresh and packaged breads like French bread or the loaf varieties you might find in your local grocery store. Revenues from this segment make up more than half the industry total, which is in part because the breads in this segment are considered staple foods; in other words, people consume bread products in such quantities that its a substantial portion of their diets. Staple foods can vary from country to country, for example, China or Japan may consider rice as a staple more so than Americans would. Some examples of other staple foods are pastas, grains and potatoes. The second largest segment is the rolls segment, capturing roughly 19%. Varieties include fresh or packaged rolls, muffins, croissants and bagels. Again, this category yields strong revenues which are tied to its strong relationship with the staples of the American diet. The frozen cakes and pastries segment carries 15% of the market. This segment is somewhat an up-and-coming segment with strong recent popularity due to its convenience combined with shelf life. The last four segments include other sweet goods, holding 14% of the market, retail bakery products with 10%, soft cakes (non-frozen variety) holding 8%, and pies making up 2%. The five lowest revenue-yielding segments are because the products are not considered discretionary items rather than staples; they are not requirements in the diet, but indulgences. These discretionary segments also feel losses when the economy is experiencing difficulties and people begin cutting their spending habits. They also see fluctuations seasonally; in the colder holiday months there is a spike, while spring and summer months see a decline as people are eating lighter.15

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Economics plays a large part in the industry; impacts cause a ripple effect throughout the industry touching everything, including competition, consumer spending habits and tastes, supply prices, transportation costs, and labor costs. In the past few years, Krispy Kreme, as well as the bread producing industry as a whole, has struggled like many other companies and industries during the recession. Growth within the industry over the past five years has been nonexistent, around -1.0%.16 Competition is extremely high and therefore firms must be able to provide low-cost, differentiated products to the consumer who has extremely low switching costs. From 2005 to 2010, there have been 813 closed enterprises within the industry.17 This is because in order to survive with all-around low bargaining power, firms must have some form of brand loyalty from their customers or some sort of differentiation in order to stand out; without, they become subject to closure or easy targets of acquisition.18 As previously stated, the doughnut market unfortunately falls into the discretionary item category; therefore, with the recession taking a toll on consumer spending, doughnuts are not at the top of priority lists. This raises the stakes for competing firms - how do they get customers in the door when the product isnt a current need? The indulgence categories of items on consumers lists often get cut during recessions, as many face substantial difficulties simply paying for current necessities. Competing firms see great struggles with their raw input prices. Already, prices are fairly volatile; add a recession on top of it, and you have a potential problem as a buyer. Bakeries buy their raw materials like sugar or flour from their suppliers who often have erratic prices. Many of the larger firms have an advantage because they deal business under contracts with their suppliers and therefore have fixed costs which allow them more flexibility in not having to worry over unstable costs. On the other hand, smaller firms dont have the opportunities or resources to enter into contracts like larger firms do and therefore have to work with what is available.

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Additionally, its important for firms to be close to their supply and distribution channels in order to save money on any transportation costs that may be incurred.19 Prime supply areas include the Great Lakes region, the Southeast and the Plains region. All are beneficial for their production of raw inputs. The Great Lakes region is home to many grain and flour mills, while the Southeast offers production of starches and sugars, and the Plains region is home to the largest corn farming.20 Finally, it is key that firms are in premium locations in order to reach their consumers. These locations are generally large cities where there are larger concentrations of consumers. 21 Within the past decade, consumer tastes have made some dramatic changes. In the past, diets of Americans have been poor; high levels of sugars and fats and low in nutrients. As a result, diabetes and obesity have made it to the forefront of deadly diseases in recent years causing consumer tastes make a substantial change. Alongside dietary changes, Americans are becoming increasingly busier.22 They have little time to spend on shopping let alone cooking and consequently consumers look for items that support their on-the-move lifestyles. This factor is a leading influence for substantial growth that the frozen desserts segment of the market has seen in recent years.23 Alongside this, consumers are looking to substitute products like fresh snack foods that are much more easily accessible than traditional bread products.24 Exporting baked goods abroad both now, and throughout history, has been unfeasible. These goods are highly perishable and overall generally taste better fresh. In recent years, there has been an increase in packaging procedures as well as the addition of preservatives which can extend the life of products; however, they still are not suitable for exportation and instead many major players have extended their franchises outside of the United States to gain presence in many other countries abroad.25 Industry exports accumulate $863 million annually, servicing 80% to Canada, followed by Mexico, Japan, Korea and the UK.26

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Manufacturing technology in recent years has slightly developed. Baked good products typically require significant labor and these new technologies eliminate much of that need. Although profitability rises for enterprises investing more in technology and equipment, labor opportunities within the industry have declined.27 Major competitors have the resources to invest in these technological manufacturing machines and save on their labor costs stemming from wages. The major players also have a great advantage - they are able to invest in these technologies, yield more, sell more, and their costs per unit are much lower than otherwise. Industry Environment Using Porters Five Forces model, we can better analyze the industry as a whole. Suppliers generally have low bargaining power. This is true because suppliers have an uphill battle both ways in the supply chain. On one hand, they have volatile raw input prices which can cause fluctuation in costs and hinder proper planning, while on the other hand, their customers come and go as they please because bread products are easily interchangeable and readily available. In order for suppliers to leverage their bargaining power they need to differentiate themselves from the rest and create some sort of switching cost for the buyers. To do so they need to offer premium products or a particular combination of products that are easily accessible to consumers at low prices; these products must be hard to find elsewhere or the consumer must be brand loyal to the firm based on other factors. The bargaining power of buyers is very high. Consumers can go nearly anywhere to get their bread products, with the exception of specialty niche products. Goods like loaf breads from grocery stores are especially common; consumers head to the bread aisle and can choose from a variety of brands, finding similar offerings among them all, usually settling on whichever is the lowest price for what theyre looking for.

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Threat of substitutes is at an extreme high. Especially in todays society where consumers are becoming more aware and conscientious of what they eat, substitutes are readily available and on the rise. Healthy alternatives to traditional bakery items can satisfy the hunger and are much more accessible. These items include things like yogurt or fruit bars, nuts, and even fruit.28 The threat of new entrants into the bread production industry is moderate. Barriers to entry are low because the capital required to successfully start a profitable business is fairly significant. What new entrants have to face is the entrenchment of strong players within the industry who have the resources to maintain contracts with their suppliers for stable raw input prices, the capital to invest in technologically advanced manufacturing equipment, and customer brand loyalty.29 Furthermore, they enjoy economies of scale because they are able to have lower per unit outputs. On the positive side of things, producers in the industry have a wide variety of segments they can enter making product differentiation easier, along with combining products from other industries. For example, looking at Krispy Kreme, they offer not only fresh doughnuts, but they offer fresh brewed coffee as well; however, its also easy to imitate one another within the industry, as well as one-upping each other. A major competitor that Krispy Kreme has is Dunkin Donuts, who recently began offering extended breakfast menu items like sandwiches. This extended menu appeals to a wider market than those shopping for doughnuts; it captures the on-the-go breakfast consumer, as well as the health-conscientious, as many of their sandwiches are served with ingredients like egg whites and spinach. The competitive rivalry among firms is high. Because operating conditions have become increasingly unpredictable and industry growth over the past five years has been -1.0%, many companies have had to make many changes. Many have begun to scale back operations and the industry has seen increases in mergers, as well as acquisitions, creating an increasingly

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fragmented arena which leads to overall low industry concentration levels. There are many small to medium sized enterprises that are dispersed throughout the country, therefore there is no significant foreseen increases to concentration.30 Furthermore, businesses are unable to capture significant portions of the market for several reasons - not only because of the highly fragmented nature of the industry, but also the violent fluctuations of raw inputs, price competition, quality control and product differentiation. Quality control is difficult to capture for larger competitors, as it is hard to deliver fresh, quality products daily to a large area. While they are able to provide larger outputs at lower costs per unit, smaller firms are able to provide a smaller quantity of fresher products, at lower prices to the consumer. Staying innovative and differentiated is crucial in the success of the firm, as growth within the industry is quite limited. Consumer preferences have made some dramatic changes recently and therefore firms who want to captivate larger market shares must to cater to these shifting needs.31 Substitute products are readily available and generally healthier, therefore posing grave threat to those who arent conforming to customer demands. Finally, firms need to form relationships both with their supplier resources, as well as their consumer base. The only way to sustain or grow market share is to first, establish steady supply rates, and second, create switching costs for customers using brand loyalty. Competitive Environment The bread production industry is house for a wide assortment of baked goods. Because the industry houses everything from loaf whole grain breads down to gooey-sugary doughnuts, its easier to narrow the competitor focus to the market segment in which Krispy Kreme competes. The top three competitors that Krispy Kreme faces are Dunkin Donuts, Starbucks Coffee, Inc., and Hostess. Each has similar product offerings, however, are quite differentiated at the same time both in their focus as well as strategies.

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Dunkin Donuts may be the largest competitor to Krispy Kreme in that they offer very similar products. The first Dunkin Donuts opened its doors in 1950 out of Quincy, Massachusetts with founder Bill Rosenberg behind the counter. Within four years, the company had a total of five Dunkin Donuts shops and Mr. Rosenberg was well known as a young local entrepreneur. In 1955, Dunkin Donuts began licensing itself to franchisers. Today, they claim to be the worlds largest coffee and baked goods chain, serving more than 3 million customers per day.32 Dunkin Donuts is also a subsidiary of Dunkin Brands, Inc. which also owns BaskinRobbins. They offer 52 varieties of doughnuts, other baked goods, multiple coffee beverages, and breakfast and deli sandwiches. As of year-end 2008, Dunkin Donuts had over 8,800 locations world-wide, including over 6,300 in the United States and more than 2,400 international venues in 31 countries.33 Sixty percent of their sales are in coffee, with the remaining forty percent in their bakery items.34 In 2007, Dunkin Donuts became the first major player to introduce a doughnut with zero grams of trans fat. With the new health change, they also revamped their entire menu of over 50 items.35 In 2008 they began marketing healthier menu items, adapting to the changing tastes of todays health-conscious consumer. Their DDSMART product line includes healthy breakfast sandwiches, snacks and coffee beverages. Some menu items include the Egg White Turkey Sausage Flatbread Sandwich, a multigrain bagel with reduced fat cream cheese, the Coffee Coolatta with skim milk, and several others.36 By looking at their product offerings, their business level strategy is targeting the on-thego families and professionals who appreciate low cost breakfasts or lunches and coffee that are fast, yet healthy at the same time. Brand Keys Customer Loyalty Engagement Index rated Dunkin Donuts number one for customer loyalty within the Doughnuts and Coffee category

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for 2007-2009. In 2004 they did a study testing customers brand loyalty and challenged them to substitute another brand of coffee for one week. The results of the study showed that regular consumers very much disliked living with the other brands, and preferred Dunkin Donuts coffee.37 They are a privately held company so finding financials for ratios for comparison is not feasible. Starbucks is everywhere and to date they are the number one retailer of specialty coffees in the world.38 They are present in over 50 countries with more than 15,500 coffee shops.39 Their venues specialize in serving freshly roasted and brewed coffees in all variations of coffee and espresso beverages, as well as many non-caffeinated varieties. They also have a wide assortment of pastries, breakfast sandwiches, and even oatmeal. Originally, before Starbucks was what it is today, it was a small coffee bean and spice storefront in the heart of Pike Place Market in Seattle, Washington. Howard Schultz, todays CEO, walked into the small Starbucks store, instantly felt at home, and joined the family. His inspiration took off when he visited Italy for a purchasing trip and returned to America with big changes. The owners didnt want the expansion and Schultz left to start his own coffee shop to pursue his dream. After some time he was able to build his empire, and eventually purchased the original stores. From the beginning, Starbucks wanted to change the perceptions people had about coffee, turning it into more of a relationship and lifestyle. Starbucks mission is to inspire and nurture the human spirit one person, one cup, and one neighborhood at a time.40 Their competitiveness is mainly focused on the coffee market, and targets middle to upper income individuals and professionals. They want people to have a connection with the coffee and be comfortable in the atmosphere by providing relaxing music, comfortable chairs, ambient lighting and free Wi-Fi. This makes Starbucks a prime location for small professional meetings, study

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spots and a place of relaxation.

Source: Yahoo Finance

Looking at Starbucks Yahoo Finance chart provided above, as compared to S&P 500, NASDAQ and the DOW, its evident that Starbucks took a massive hit with the recession.41 This is most likely a similar situation as stated above; discretionary items are often times what gets cut from consumers spending during times of difficulty namely the recession. Some of the strengths that they hold are in their brand loyal market, their customer service and their constant product development and differentiation. There are some consumers who dont stray from their daily Starbucks and part of the reason is the employees who make everyone feel at home; people go to Starbucks for the relationship and connections they make. Another reason for brand loyalty is their constant devotion to eco-friendly products and practices. Product enhancement and differentiation allows Starbucks to maintain competitive advantages by offering new and convenient products. They recently began promotions for customized Frappuccino Blended Beverages which allow consumers to choose their own 15 | P a g e

flavors, milks, and other aspects. Furthermore, they began offering breakfast sandwiches and instant breakfasts like oatmeal which attract on-the-go professionals who have time to stop for their morning coffee, but not their breakfast as well. Added convenience can easily recruit customers. Several weaknesses Starbucks faces include the overall economy and consumer spending, and consumer expectations changing. Although the economy is beginning to recover from the recent recession, consumers are not confident in their spending just yet and people are still penny pinching, trying to regain hold over their assets and eliminate debt; therefore, they still arent spending money on lavish coffees when they can brew at home to save $4 a day. Another major threat is that customer preferences and expectations are changing, meaning that customers are becoming used to specialty coffees the excitement is wearing off and people are wondering if its worth the money. However, overall Starbucks still maintains strong holds over the specialty coffee industry and in the future, Starbucks wants to maintain their name and reputation of quality products, as well as continue to foster human connections. They also plan to continue growth throughout the world, aiming for positive and uniting actions.42 Another competitor for Krispy Kreme is Hostess Brands; however, this competition is slightly different than the other competitors. First, Hostess focuses on convenient snacks, placing their products in convenience stores and places where consumers are grocery shopping. They also do not focus on offering fresh products to the consumer because they are competing under convenience rather than quality or health snacks. Hostess began in 1925 in Indianapolis, Indiana. Initially Continental Baking Company purchased a small bakery that was selling Wonder bread which was very popular within the customers shopping at the bakery, so Continental began selling it nationally. They knew they had

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to integrate more baked goods into their company, so they looked to cakes and the Hostess cake was born. In 1930, the recession made a need for inexpensive products. Shortcake pans that were not being used at the time were reinvented to make shortcake with banana cream filling and thus, Americas favorite cakes, Twinkies were conceived. It soon became Hostess best-selling cake, even so today, as they survived the change from banana cream to vanilla during WWII. Throughout the years, Hostess has produced various other products like Ho Hos, fruit pies and the popular doughnut product Donette. In 1995, Interstate Bakeries Corporation bought Continental.43 Because Hostess continues to focus on low-cost snack foods, they are able to target lower income consumers and families. They place their products in convenience and grocery stores where snack foods are readily consumed. Some weaknesses that Hostess does have are the quality of their products and health aspects. Looking at their quality, they strive for low cost and that is exactly what you get cheap food. There are a lot of preservatives in their cakes and snack foods in order to decrease perishability and lengthen the shelf-life of their products, as well as enough sugar to induce comas. They are lacking to offer healthy products to the now healthconscious consumer. They suffered bankruptcy in 2004, but were able to come out in 2009.44 They are a privately held company so finding financials for ratios for comparison is not feasible.

Internal Environment Analysis

Krispy Kreme earns revenue from four main segments: Company stores, franchise stores in the U.S., international franchise stores, and the Krispy Kreme supply chain. The company stores segment is composed of all of the stores, including both factory and satellite stores, operated by the company itself where doughnuts, coffee, and other Krispy Kreme products are 17 | P a g e

sold. Company stores typically sell both on and off-premises in order to maximize their manufacturing capabilities.45 The second segment, franchise stores in the U.S., consists of all of the doughnut shops in the country which are very similar to company stores, just operated by franchisees instead. Next, international franchise stores use the same format as the company stores, but are operated by franchisees overseas and some are run in a kiosk style rather than a storefront. Most of the international franchise stores stick to on-premises selling.46 The last segment is the Krispy Kreme supply chain which produces the companys doughnut mixes and manufactures the only equipment used to make the doughnuts in factory stores. The supply chain sells packaging, ingredients, and various other supplies to company-owned and domestic franchise stores to ensure quality is standardized across all stores.47 The company manufactures all of its own products and sells them through two channels: on-premises sales and off-premises sales. On-premises sales consist of people purchasing doughnuts at one of the company or franchise stores either by drive-thru, inside the store, or discounted sales to organizations who sell the doughnuts for fundraisers. Off-premises sales consist of the doughnuts that are sold to retailers who resell the doughnuts in brand packaging. Krispy Kreme owns and operates its own fleet of trucks to deliver the fresh goods to convenience stores, grocery stores, mass merchants, etc. to U.S. stores.48 Between these two channels Krispy Kreme is able to sell its product directly to consumers and retailers. Stores operate based on a standard set of guidelines created by Krispy Kreme; stores must follow specific rules set for product varieties and specifications, packaging, sanitation, signage and advertising, design including furniture, use of logos and trademarks, training protocols, marketing plans, and more. 49 There are also standards set in place regarding employee behavior

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and customer service which are monitored via mystery shoppers, a customer service hotline, and quality audits. Krispy Kreme is run by a top management team made up of 8 individuals: Chairman, President, & CEO James H. Morgan, Executive VP, CFO, & Treasurer Douglas R. Muir, Senior VP of Company Store Operations Cynthia A. Bay, Senior VP of Human Resources & Organizational Development Kenneth J. Hudson, Senior VP & President of U.S. Stores Steven A. Lineberger, Senior VP, General Counsel, & Assistant Secretary Darryl R. Marsch, Senior VP of Supply Chain & Off-Premises Operations M. Bradley Wall, and Senior VP & President of International Stores Jeffery B. Welch.50 In addition to the top management Krispy Kreme has a nine member Board of Directors in place which consists of members from both inside and outside of the company. Board members outside experience includes leadership in the quick-service industry, community and civic organizations, financial industry, public accounting, legal advising, and more. Members have worked at, or served on the boards of, such companies as McDonalds, Sonic, Wachovia Corporation, Pike Electric Corporation, United States Securities and Exchange Commission, Metro Atlanta Chamber of Commerce, U.S. Department of Justice, and KFC just to name a few51; these leadership positions in such a wide array of industries is beneficial to Krispy Kreme because the board is diverse and can use their various experiences to make good decisions for the company. The company has a variety of core competencies working in their favor namely the brand reputation they have built up with their Original Glazed doughnuts as being of high quality, warm, and always fresh. Along with that go the Hot Krispy Kreme Original Glazed Now signs which light up when the doughnuts are fresh right out of the oven. This is a unique feature of Krispy Kremes marketing strategy that competitors havent attempted to use. The sign helps the

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company not only advertise its most famous product, but increases impulse purchases from consumers who may decide stop by simply because they know the doughnuts are currently hot and fresh. A second key resource the company possesses is the Krispy Kreme supply chain. The companys integrated supply chain is extremely beneficial because it ensures a standardized quality across all Krispy Kreme stores; in other words, if you buy at Krispy Kreme in Washington, your doughnut should taste the same as if you had purchased it from the original North Carolina store. Additionally, the vertical supply chain ensures that price increases wont be fueled by rising supplier costs, but rather other things such as rising energy costs and the agricultural industry that will affect competitors in the market as well. Performance Over the past three years Krispy Kreme has been performing very poorly, though they are slowly beginning to turn things around under new management. At the end of the second quarter (July) 2010 they were able to show positive net income for the third quarter in a row. Compared to the end of the second period last year they were able to increase net income from a loss of $157,000 to positive income of $2.2 million.52 Additionally, the company recognized growth in all four of their business segments. Company stores brought in revenues of $60 million which appeared somewhat flat because despite increases in same store and off-premises sales, some locations were closed or refranchised.53 Franchisees in the United States increased revenues by 15.1% to $2.1 million, while international franchises were able to increase revenues by 5.3% to $4 million.54 Lastly the KK Supply Chain saw an 18.9% increase in revenues to $44.9 million.55 These figures, along with the income statement for the past three years, shows solid growth in the company since the new CEO James H. Morgan has taken over (Appendix A). This may be because of the new strategies being undertaken by Morgan and his new management team or

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because the recession is slowly ending, though competitor Starbucks saw little change in revenues due to the recession. Because two of Krispy Kremes closest competitors are privately held, the company can only be compared to Starbucks, who, while not seeing as much growth as Krispy Kreme, has been able to maintain relatively stable revenues and net incomes over the past three years (Appendix B). This shows that Starbucks, while a much larger company, is performing well overall and Krispy Kreme should continue on its current track to remain competitive with them in order to survive. Krispy Kremes Efficiency It is very difficult to determine whether or not the company is being run efficiently today. What we can say is that in 2003 Krispy Kreme traded at a high of about $11 per share, but since then it has not seen shares over $656; however, if you look at Krispy Kremes performance more recently we can see that they have been outperforming their sector and the S&P 500 since April of 2009.

Source: Krispy Kreme Doughnuts, Inc. Financials - www.reuters.com

Another measure that is commonly used among investors to determine how a company is performing is the price to earnings, or P/E, ratio which shows how expensive a stock is compared

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to other stocks, or in other words, how much one has to pay for a dollar of earnings. Currently Krispy Kremes TTM (trailing twelve month) P/E ratio is 83.78 as compared to an industry average P/E ratio of 14.2557; this high P/E ratio can mean only one of three things: their stock is low risk, they have high expected growth rates, or the market is wrong and they are overpriced. Since Krispy Kreme has a beta of 1.75 and the industry average beta is 0.80 it can be concluded that they are not low risk. Also, since American capital markets tend to be efficient it is safe to assume that Krispy Kreme is a high growth stock which is supported by the fact that their projected growth rate being 50%.58 This analysis has so far only provided an investors perspective, but it is important to understand what all of these ratios mean to the company as a whole. First, based on the analysis, the market believes that Krispy Kreme is turning around as a company and will likely achieve exceptionally high growth in the near future; in other words, this indicates that the market has a great deal of faith in companys current management. But if Krispy Kreme is being run efficiently today then why did we spend the last few pages talking about how Krispy Kreme has only posted positive earnings in two quarters out of the past five plus years, that they are not doing a good job of managing costs, and are struggling with underperforming stores because of poor expansion decisions? There are several possibilities, but the likely conclusion is this: Krispy Kreme is at a turnaround point in their business. While they are beginning to implement responsible cost cutting strategies and are selling off underperforming stores, they still have a long way to go. Overall, it appears they are being run efficiently today, but just as in the past this could change as a result of poor management decisions at any time.

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Risks Facing Krispy Kreme

Competition The companys biggest competitor is Dunkin Donuts who is very similar in that they sell donuts and coffee and they operate chain restaurants in much the same way as Krispy Kreme. Dunkin Donuts, however, is a larger company that is expanding geographically into areas where Krispy Kreme is located. On a smaller scale they face competition from local bakeries, candy stores, coffee shops, etc.59 Krispy Kreme also competes in the consumer packaged foods division of the retail grocery industry and as mentioned before their greatest competition in this market is Hostess. Krispy Kreme is far less experienced in the packaged foods industry as their historical focus has been mainly on their on-premise sales. Additionally, their products have significantly shorter shelf lives than their competitors products as they arent filled with as many preservatives. The company aims to maintain a reputation for fresh products and as such must deliver and ensure products are restocked at these places much more frequently than the competition which uses time and money. Costs Krispy Kreme turned a profit in the second quarter (ended July) of 2010 for the first time in over five years; however, determining how well a company is controlling their costs is much more complicated than simply looking at operating profits. One problem that has led to high costs for Krispy Kreme is that they have focused too heavily on developing fewer large and costly factory store locations. A problem with this model is that customers are not willing to drive very far to go get donuts so with fewer, larger locations Krispy Kreme is not able to reach as wide of a customer base.60

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Additionally, Krispy Kreme has another problem that is driving costs far too high they expanded too rapidly in the United States in the 1990s and early 2000s under poor management which has led to the company loosing focus on improving same store sales and profitability. Currently management is taking steps to fix this problem, but the fact of the matter is that high revenues do not always lead to high profits.61 There are several ways to track how well a company is controlling costs. First we can look at gross margin - gross margin is stated as a percentage and it measures how much money is left after all variable costs of production have been subtracted from sales; all other things being equal, high gross margins are good. If you refer to the provided table you will notice Krispy Kreme has the lowest gross margin of the comparables. This tells us that Krispy Kreme is having some trouble controlling costs because for each dollar of sales, they are spending more money on production than Starbucks, a competitor in the packaged bread goods market - Einstein Noah, and much more than the restaurant industry as a whole. (Note: Other key competitors Dunkin Donuts and Hostess are privately held so financial ratios are unavailable).
Company: Krispy Kreme Restaurant Industry Average Starbucks Einstein Noah Gross Margin Asset Turnover Return on Asset 13.55% 2.04 2.8% 40.63% 1.16 5.47% 25.19% 1.79 15.85% 19.59% 2.3 38%

Source: Krispy Kreme Doughnuts, Inc. Financials - www.reuters.com

Many companies operate on very low gross margins yet they are extremely profitable because those firms have very high asset turnover ratios; all other things being equal, the higher the asset turnover ratio, the better. In the business world asset turnover ratio and gross margin tend to be inversely related, so if Krispy Kreme is being run efficiently their low gross margin must be a result of high asset turnover; however, based off of these numbers one can conclude

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that Krispy Kreme is only doing ok at controlling costs because while their gross margin is low, their asset turnover ratio is relatively high. Lastly, looking at return on assets it is clear that the company has by far the lowest percentage ROA. According to financial theory return on asset is closely related to gross margin and asset turnover, so if Krispy Kreme were effectively controlling costs it would be expected for them to have a favorable return on assets. By looking at all three of these ratios it is clear that they are doing a poor job of controlling costs. (Note: To keep things consistent trailing twelve month ROA was used, if we look at Krispy Kremes five year average ROA it is negative). Expansion In the last section we briefly mentioned that Krispy Kreme engaged in a costly expansion strategy, at least within the United States. As mentioned previously they became a publicly traded company in April 2000 which generated a lot of positive publicity and exposure causing investors became anxious for Krispy Kreme to expand their business; the company followed suit by rapidly expanding until late 2003 when they realized that their high store sales were not sustainable and many stores began losing money.62 This, coupled with the fraudulent accounting practices used to hide these losses in earnings, forced CEO Scott Livengood into early retirement in 2005 and replaced by Daryl Brewster.63 Brewster settled the lawsuits facing Krispy Kreme and he began closing underperforming stores in the U.S. while pursuing an aggressive overseas expansion program; despite all of his efforts Krispy Kremes stock price continued to fall until 2008 when he resigned and was replaced with current CEO James H. Morgan.64 This shows why the company still owns underperforming stores in less than desirable locations today. If Krispy Kreme is unable to improve same store sales they will continue to underperform because their costs will be too high keeping their profits low.

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In the companys 10K report they claim that international sales have been a very important component of Krispy Kremes growth as they currently operate more stores internationally than domestically; in fact, management thinks that international expansion is probably the most profitable expansion Krispy Kreme has engaged in. Domestic Company stores Franchise stores Total 83 141 224 International 358 358 Total 83 499 582

Source: 2010 Krispy Kreme Annual 10K Report

Though generally profitable, even this international expansion has met with some failures. For example, in August 2008 Krispy Kreme expanded into Hong Kong and opened a total of seven locations, but by October that same year all seven locations were closed down.65 In more recent news, as previously mentioned the companys Australian stores are suffering and nearly half are being closed. Overall, Krispy Kremes international operations, despite a few setbacks, are performing well, but there is always risk involved when entering foreign markets. Economic Risk Krispy Kreme is part of the quick service restaurant industry which provides the lowest cost restaurant experience to their customers. This means that as the economy goes down Krispy Kreme may actually gain some customers who would have otherwise chosen to eat at a casual dining establishment. However, even if this is the case as economic conditions worsen consumer spending tends to decrease in all areas so it is likely that Krispy Kreme will experience a decrease in sales if economic conditions worsen.66 26 | P a g e

Changing Consumer Preferences Recently many Americans are beginning to prefer healthier food products. As a result many quick service restaurants have added salads to their menu or added menu items that are perceived as healthier choices by their customers. Even Dunkin Donuts offers a flat bread sandwich for their customers. However, at this point Krispy Kreme has made no attempt to add healthier choices to their menu. In fact, Krispy Kremes menu consists of donuts, coffee, and ice cream products. None of the previously mentioned products are perceived as healthy by the average consumer so if more consumers begin to demand healthier menu choices this could mean a significant reduction in sales for Krispy Kreme.67

Key Problem
As mentioned before, Krispy Kreme is running into problems because they are unable to effectively control costs. One of the biggest reasons that they are having trouble controlling costs is that historically they have focused too heavily on expansion and not enough on increasing same store sales. In addition, their expansion was based on large, expensive factory stores which have not only been expensive to open and operate, but they fail to provide enough locations to reach a wide consumer base. These large factory stores require a large amount of fixed costs causing the break-even points to be quite high. In order to prevent the closure of more stores and ensure future survival Krispy Kreme must focus on more effectively managing costs and reaching a wider customer base.

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Recommendations
Recommendation One Since their initial public offering in 2000 Krispy Kreme has focused on aggressive expansion and it hasnt been until more recently that the companys management has realized that they need to focus on growing same store sales and rationalizing supply routes. According to Krispy Kremes 10k reports one factory store can supply several outlet stores using a hub and spokes distribution system. While a potentially effective idea, setting up this type of store system is very expensive and there are a great deal of fixed costs associated with continuing operations. The bottom line is that Krispy Kreme is still having trouble controlling their costs and one of the best ways for them to eliminate cost at this point could be to downsize. The first recommendation for Krispy Kreme is to begin a companywide analysis of all corporately owned stores to determine which ones are generating the greatest amount of sales and more importantly the highest return on investment. Next, management should find the locations that are consistently underperforming and sell them off. Selling those locations that are simply sucking revenue from the company will generate money that can be used to make more profitable investments. Additionally, selling off underperforming stores will allow Krispy Kreme to focus more attention on their operations in areas where they are profitable which will help focus managements attention on same store sales and reducing costs. Recommendation Two Krispy Kremes business model emphasizes an enjoyable customer experience. For example, all of their factory store locations feature the Doughnut Theater, or a viewing window that allows customers to see the donut making process. In the past this business model has required large factory store locations. The main problem with large factory stores is that

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customers are only willing to drive a short distance for doughnuts and developing a few large stores is much less effective at reaching customers. The second recommendation is to simply implement a new store model based on smaller factory stores in all new business locations. Smaller stores require less real estate and lower fixed costs while providing the ability to serve a wider customer base with more locations. Krispy Kremes current management has been experimenting with smaller factory store locations which still feature the Doughnut Theater; in this way they are preserving the same enjoyable customer experience that Krispy Kremes customers have come to depend on, but making it more convenient for consumers to reach stores. Recommendation Three The third recommendation involves changing Krispy Kremes menu a little bit to better meet the changing needs of consumers; in todays market more and more consumers are focusing on health conscious products. Despite the companys previous attempt to alter products to be more health conscious by removing all trans fats, doughnuts are still not very healthy and are generally considered a snack food. For example, many people may not want to go to Krispy Kreme simply because they are looking for a meal and not just a doughnut. One way they could improve their same store sales and appeal to a wider customer base would be to add a few healthier lunch items to their menu. Right now the majority of their daily sales, at 35%, occur during the period of 6 a.m. to 11 a.m. simply because doughnuts are typically consumed in the morning; in contrast, the lowest percentage of their daily sales, at 13%, occurs between 11:00 a.m. to 2:00 p.m. because they do not offer a diverse enough menu that includes lunch items.68 Competitors have realized what Krispy Kreme clearly has not as Dunkin Donuts currently offers a flat bread sandwich among other things and Starbucks has added a few healthy lunch items to

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their selection; its about time for Krispy Kreme to adjust their menu to adapt to consumer needs before they get left behind by competitors who have already done so. Implementation Plan We feel that at this time the best recommendation for Krispy Kreme is to develop some healthy lunch options for their menu. These lunch items need to be easy to prepare using the resources that are already available within the Krispy Kreme store as it would be far too costly to add additional kitchen space to all Krispy Kreme store locations. The most feasible items then would be sandwiches or similar products which are good because they do not require additional kitchen space and because they are generally perceived as healthy. The companys current management may have a couple problems with this suggestion. First being that they may feel adding lunch menu items would fundamentally change Krispy Kremes business model. While they have already discussed altering the menu, the extent to which they would be willing to do so is still unknown. Another problem management may have is that it would be too costly to change Krispy Kreme stores in order to accommodate a lunch menu; however, considering the alternatives this would be the cheapest option that would generate the most desperately needed revenue for the company. They can easily add a few lunch menu items without changing the store front at all so it will not be very costly as long as they focus on adding menu items that complement their current store model. Additionally, most customers that appreciate Krispy Kreme for their doughnuts will not even realize that the company has changed as it will still offer the same traditional products; however, those who had negative, unhealthy views of Krispy Kreme will be more willing to purchase healthier lunch options perhaps while they buy a cup of coffee during their lunch break.

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Employees will probably not see many changes though it will be important to provide them with adequate training to prepare these new menu items properly. In addition, it would be a good idea to make sure all store employees have the opportunity to try the new menu items so that they can make valid recommendations for their customers. This strategy will be noticed by Krispy Kremes competitors; however, since many of their competitors have already implemented similar strategies it will not make too many ripples in the pond. In order to avoid simply copying the competition though they will need to offer lunch menu items that are different. The customers will be the ones who really benefit from this strategy because they will still enjoy the same great customer experience except now they will be able to choose from a wider variety of menu items. Certainly this strategy will require some investment on the part of Krispy Kreme so the best way to implement this strategy without incurring large upfront cost is to experiment by adding the new menu items in only a few larger store locations at first. New menu items may call for Krispy Kreme stores to purchase additional refrigerators and new serving trays or containers as well require some research and development expense to find what items may attract consumers. Additionally, some coordination with new or existing suppliers will need to be made which may be difficult. As Krispy Kremes own supply chain currently supplies most of the necessary ingredients to stores, they will have to either contract with new suppliers or produce their own supplies for the new menu items as well. It may be easier to have outside suppliers bake the bread and produce the meats necessary for the new menu items. While this is something that will require a great deal of thought and planning by the management team, Krispy Kreme will be able to implement this recommendation without incurring a great deal of additional expense or hassle.

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Appendix A
Krispy Kreme Income Statement
All numbers in thousands Period Ending

Total Revenue Cost of Revenue Gross Profit Operating Expenses Research Development Selling General and Administrative Non Recurring Others Total Operating Expenses Operating Income or Loss Income from Continuing Operations Total Other Income/Expenses Net Earnings Before Interest And Taxes Interest Expense Income Before Tax Income Tax Expense Minority Interest Net Income From Continuing Ops Non-recurring Events Discontinued Operations Extraordinary Items Effect Of Accounting Changes Other Items Net Income Preferred Stock And Other Adjustments Net Income Applicable To Common Shares

Jan 31, 2010 Feb 1, 2009 Feb 3, 2008 346,520 385,522 429,319 297,185 346,545 380,014 49,335 23,467 5,903 8,191 11,774 (183) 11,103 10,685 418 575 (645) (157) ($157) 38,977 24,959 548 8,709 4,761 3,146 7,121 10,679 (3,558) 503 (4,847) (4,061) ($4,061) 49,305 26,316 47,143 18,433 (42,587) (11,411) (54,931) 9,796 (64,727) 2,324 (67,051) (67,051) ($67,051)

Source: Yahoo Finance

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Appendix B
Starbucks Income Statement
All numbers in thousands Period Ending

Total Revenue Cost of Revenue Gross Profit Operating Expenses Research Development Selling General and Administrative Non Recurring Others Total Operating Expenses Operating Income or Loss Income from Continuing Operations Total Other Income/Expenses Net Earnings Before Interest And Taxes Interest Expense Income Before Tax Income Tax Expense Minority Interest Net Income From Continuing Ops Non-recurring Events Discontinued Operations Extraordinary Items Effect Of Accounting Changes Other Items Net Income Preferred Stock And Other Adjustments Net Income Applicable To Common Shares
Source: Yahoo Finance

Sep 27, 2009 Sep 28, 2008 Sep 30, 2007 9,774,600 10,383,000 9,411,497 4,324,900 4,645,300 3,999,124 5,449,700 4,142,500 332,400 534,700 562,000 36,300 598,300 39,100 559,200 168,400 512,700 390,800 $390,800 5,737,700 4,531,200 153,300 549,300 503,900 9,000 512,900 53,400 459,500 144,000 315,500 315,500 $315,500 5,412,373 3,999,274 467,160 945,939 2,419 1,056,364 1,056,364 383,726 672,638 672,638 $672,638

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Notes
1 2

http://finance.yahoo.com/q/pr?s=KKD+Profile. (accessed November 12, 2010). Krispy Kreme Doughnuts and Coffee. http://krispykreme.com/about-us/mission-and-vision. (accessed November 12, 2010). 3 Company History. Krispy Kreme Website. http://krispykreme.com/about-us/history. (accessed November 9, 2010). 4 Krispy Kreme Doughnuts, Inc.: Company History. http://www.fundinguniverse.com/company-histories/Krispy Kreme-Doughnuts-Inc-Company-History.html. (accessed November 11, 2010). 5 Krispy Kreme Doughnuts, Inc.: Company History. http://www.fundinguniverse.com/company-histories/Krispy Kreme-Doughnuts-Inc-Company-History.html. 6 SEC probes Krispy Kreme. CNN Money. 29 July 2004. http://money.cnn.com/2004/07/29/news/midcaps/krispykreme_sec/index.htm. (accessed November 10, 2010). 7 2010, Krispy Kreme 10K Annual Report 8 Schneider, Joe. Bloomberg. http://www.bloomberg.com/news/2010-11-10/krispy-kreme-shuts-24-australian stores-after-appointing-administrators.html?cmpid=yhoo. (accessed November 12, 2010). 9 Dunkin Donuts. https://www.dunkindonuts.com/aboutus/products/. (accessed November 9, 2010). 10 Starbucks. http://www.starbucks.com/menu/food. (accessed November 9, 2010) 11 Thomson, James. Smart Company. http://www.smartcompany.com.au/retail/20101108-poor-site-selection-caused kripsy-kremecrash-sumo-salad-founder-luke-baylis-says.html. (accessed November 11, 2010). 12 Kopylovsky, Dmitry. IBISWorld Industry Report 31181 Bread Production in the US. IBISWorld. (September 2010): 4. http://ntserver1.wsulibs.wsu.edu:2384/industryus/default.aspx?indid=261. (accessed November 4, 2010). 13 Kopylovsky, 27. 14 Kopylovsky, 29-30. 15 Kopylovsky, 13-14. 16 Kopylovsky, 4. 17 Kopylovsky, 12. 18 Kopylovsky, 21. 19 Kopylovsky, 21. 20 Kopylovsky, 20. 21 Kopylovsky, 19. 22 Kopylovsky, 9. 23 Kopylovsky, 14. 24 Kopylovsky, 9. 25 Kopylovsky, 16. 26 Kopylovsky, 17. 27 Kopylovsky, 12. 28 Kopylovsky, 14. 29 Kopylovsky, 24. 30 Kopylovsky, 21. 31 Kopylovsky, 24. 32 Dunkin Donuts Website. https://www.dunkindonuts.com. (accessed November 9, 2010). 33 Dunkin Donuts Website. 34 Dunkin Donuts Press Kit. http://news.dunkindonuts.com/press_kits.cfm?presskit_id=2. (accessed November 10, 2010). 35 Dunkin Donuts Press Kit. 36 Dunkin Donuts Website. 37 Dunkin Donuts Press Kit. 38 Company Profile for Starbucks Corp (SBUX). http://www.hoovers.com/company/Starbucks_Corporation/rhkchi1-1njg4g.html. (accessed November 11, 2010). 39 Starbucks Website. http://www.starbucks.com. (accessed November 09, 2010). 40 Starbucks Website.

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Starbucks Corp. (SBUX) Basic Chart. Yahoo Finace. http://finance.yahoo.com/q/bc?s=SBUX+Basic+Chart. (accessed November 11, 2010). 42 Starbucks Website. 43 Hostess Website. http://www.hostesscakes.com. (accessed November 11, 2010). 44 Hostess Brands, Inc Company Description. http://www.hoovers.com/company/Hostess_Brands_Inc/rhytci-1 1njg4g.html. (accessed November 11, 2010). 45 2010, Krispy Kreme 10K Annual Report 46 2010, Krispy Kreme 10K Annual Report 47 2010, Krispy Kreme 10K Annual Report 48 2010, Krispy Kreme 10K Annual Report 49 2010, Krispy Kreme 10K Annual Report 50 Management. Krispy Kreme Website. http://investor.krispykreme.com/management.cfm. (accessed November 9, 2010). 51 Board of Directors. Krispy Kreme Website. http://investor.krispykreme.com/directors.cfm. (accessed November 9, 2010). 52 Krispy Kreme Reports Earnings per Share of $0.03 for the Second . Bloomberg. http://www.bloomberg.com/apps/news?pid=conewsstory&tkr=KKD:US&sid=aPinkbFjkmlg. (accessed November 15, 2010). 53 Krispy Kreme Reports Earnings per Share of $0.03 for the Second . Bloomberg. http://www.bloomberg.com/apps/news?pid=conewsstory&tkr=KKD:US&sid=aPinkbFjkmlg. 54 Krispy Kreme Reports Earnings per Share of $0.03 for the Second . Bloomberg. http://www.bloomberg.com/apps/news?pid=conewsstory&tkr=KKD:US&sid=aPinkbFjkmlg. 55 Krispy Kreme Reports Earnings per Share of $0.03 for the Second . Bloomberg. http://www.bloomberg.com/apps/news?pid=conewsstory&tkr=KKD:US&sid=aPinkbFjkmlg. 56 Krispy Kreme Doughnuts, Inc. Financials. http://www.reuters.com/finance/stocks/financialHighlights?symbol=KKD.N (accessed November 12, 2010). 57 Krispy Kreme Doughnuts, Inc. Financials. http://www.reuters.com/finance/stocks/financialHighlights?symbol=KKD.N 58 Krispy Kreme Doughnuts, Inc. Finacials. http://www.reuters.com/finance/stocks/financialHighlights?symbol=KKD.N 59 2010, Krispy Kreme 10K Annual Report 60 2010, Krispy Kreme 10K Annual Report 61 2010, Krispy Kreme 10K Annual Report 62 2010, Krispy Kreme 10K Annual Report 63 Krantz, Matt. CEO Ousted as Krispy Kreme tries to Recover. USA TODAY. 18 January 2005. http://www.usatoday.com/money/industries/food/2005-01-18-krispy-kreme-shakeup_x.htm. (accessed November 13, 2010). 64 Augstums, Ieva M. Brewster Resigns as Krispy Kreme CEO. USA TODAY. 7 January 2008. http://www.usatoday.com/money/economy/2008-01-07-2245825613_x.htm. (accessed November 15, 2010). 65 Krispy Kreme Hong Kong in Liquidation. 27 October 2008. http://www.hkdigit.net/2008/10/krispy-kreme hong-kong-in-liquidation/. (accessed November 13, 2010). 66 2010, Krispy Kreme 10K Annual Report 67 2010, Krispy Kreme 10K Annual Report 68 2010, Krispy Kreme 10K Annual Report