Krispy Kreme Case Analysis Group IV
Krispy Kreme Case Analysis Group IV
Krispy Kreme Case Analysis Group IV
GRADUATE SCHOOL
STRATEGIC MANAGEMENT
(Group IV Rowena Miranda, Homer Deo Datu Estavillo, Maricar Telan)
I. CASE BACKGROUND
Krispy Kreme is an international chain of doughnut stores that was founded by Vernon Rudolph in
1937 in Winston-Salem, North Carolina, United States. Fueled from a secret receipe his uncle
purchased for making doughnuts from someone in Lake Charles, Louisiana; Krispy Kreme has evolved
into a publicly traded company with 523 stores worldwide both company owned and franchise as of
February 2009.
Vision and Values
Vision: To be a global leader in doughnuts and complementary products, while creating magic
moments worldwide.
Values: (with acknowledgement to Founder, Vernon Rudolph)
we believe...
Krispy Kreme, while selling assorted doughnuts, its signature item is a glazed doughnut that is
traditionally served warm. To maintain the quality of its offerings both for its company and franchise
stores, Krispy Kreme controlled he manufacturing of all proprietary doughnut mixes and doughnutmixing equipments. Also, products from third party distributed through the stores are provided by
Krispy Kreme.
Growth History
1950s
Expansions including an early store in Savannah, Georgia, and elsewhere in the South.
1960s
Krispy Kreme was known throughout the Southeast, and it began to expand into other areas.
1976
Krispy Kreme Doughnut Corporation became a wholly owned subsidiary of Beatric Foods of
Chicago, Illinois. The headquarters for Krispy Kreme remained in Winston-Salem.
1982
A group of franchisees buy-back the company from Beatrice Foods in 1982 to concentrate in the
line of business.
1990s
Krispy Kreme began another phase of rapid expansion in the 1990s, opening stores outside the
southeastern United States where most of their stores were located. Then, in December 2001,
Krispy Kreme opened its first store outside the U.S. in Mississauga, Ontario, Canada, just
outside Toronto. Since 2004, Krispy Kreme has rapidly expanded its international operations.
From a small bakery when it is founded, the company grew to a public company with revenue amount
of $ 384 million as of February 2009. The store also grew to 523 worldwide.
Financial Scandal
The company has been accused of channel stuffing by franchisees, whose stores reportedly "received
twice their regular shipments in the final weeks of a quarter so that headquarters could make its
numbers".Krispy Kreme was also dogged by questionable transactions and self-dealing accusations
over the buybacks of franchisees, including those operated by company insiders. A report released in
August 2005 singled out then-CEO Scott Livengood and then-COO John W. Tate to blame for the
accounting scandals although it did not find that the executives committed irregularities.
A turnaround plan in December 2005 aimed to close unprofitable stores in order to avoid bankruptcy.
Although based on informal advertising such as word-of-mouth, in 2006, Krispy Kreme moved into
television and radio advertisements, beginning with its "Share the Love" campaign with heart-shaped
doughnuts.
On February 19, 2007, Krispy Kreme began selling the Whole Wheat Glazed doughnut in an attempt to
appeal to the health conscious. The doughnut has 83.736 kJ (20 kilocalories in most countries, or 20
Calories in the US) fewer than the original glazed (754 kJ vs. 837 kJ) and contains more fiber (2 grams
vs. 0.5 grams). As of January 2008, the trans fat content of all Krispy Kreme doughnuts was reduced to
0.5 of a gram or less. The U.S. Food and Drug Administration, in its guidelines, allows companies to
round down to 0 g in its nutrition facts label even if the food contains as much as 0.5 of a gram per
serving. Krispy Kreme benefited from this regulatory rule in its subsequent advertising campaign,
touting its doughnuts as "trans fat free" and having "0 grams trans fat!".
International Operations
Besides the stores that Krispy Kreme operate in the United States and Canada, there are also locations
in the United Kingdom, Australia, Lebanon, Turkey, Dominican Republic, Kuwait, Mexico, Puerto
Rico, South Korea, Malaysia, Thailand, Indonesia, the Philippines, Japan, China, the United Arab
Emirates, Qatar, Saudi Arabia, Bahrain,Hong Kong (20062008), andEthiopia.
Socio-Cultural Environment
Opportunities
As a company with worldwide presence,
the world population is estimated to
increase yearly by 0.8% or around 80
million. This opportunity will propel the
growth of the company. Also, the
Threats
As the diet-preference of
customers shifting significantly
to low-curb or customers
becoming diet-conscious.
Political/Legal Environment
Technological Environment
Economic Environment
Rivalry
Bargaining Power of
Consumer
Bargaining Power of
Suppliers
Opportunities
As the Krispy Kreme brand is very
successful in its unique marget segmet,
competitive rivalry will be an
opportunity for the market segment to
economic growth.
The company's signature graze donut is
unique and have its own market
position. This unique differentiation of
its market will provide a better
opportunity for the company and
bargaining power of consumer will not
be a much problem for its strategy.
The economy of scale as big company
will render the bargaining power of
suppliers lesser impact to the Company.
In effect, due to its economy of scale,
the company can get better cost price for
its raw materials.
The Krispy Kreme brand is well
Threats
Success of new product concepts
that can limit the potential
growth of the company.
Price will surely decrease due to
rivalry.
Consumers always find lower
priced products are more
attractive than higher priced
products. This consumer attitude
will be a threat to the company to
attract consumers.
Association for suppliers is a
problem to company due to
unique increase or decrease in
their prices.
New entrants will surely position
Barriers