Case Study:

Krispy Kreme Doughnuts, Inc.,

2015

Prepared by
JESSICA LOURDES I. JARO, CPA
MARY JANE S. MANUEL
COLEEN ABIGAIL D. BELTRAN
ALONA M. TABASON
APRIL RESURRECCION A. CRUZ

Group 2: GSBM Masters in Management in

Business Administration

In fulfillment of Strategic Management class

AY 2022-2023

Submitted to
Dr. NEIL BERMUDEZ, PhD
Table of Contents
I. Case Background ....................................................................................................... 2
II. Environment Analysis ............................................................................................... 4
A. General Environment............................................................................................. 4
B. Operating Environment ......................................................................................... 8
C. Internal Environment ........................................................................................... 13
D. External Factor Evaluation Matrix ...................................................................... 17
E. Internal Factor Evaluation Matrix ....................................................................... 18
F. Competitive Profile Matrix ................................................................................... 20
G. Assumptions ........................................................................................................ 20
G.1. General Environment Stability ........................................................................ 21
G.2. Industry Growth Prospects.............................................................................. 23
G.3. Company's Competitive Position .................................................................... 25
III. Problem Statement supported with evidences .................................................... 25
Sample of Evidences................................................................................................ 26

1
I. Case Background

Krispy Kreme Doughnuts, Inc. is a well-known doughnut and coffee chain headquartered

in Winston-Salem, North Carolina, with a global presence in 23 countries. The company

was founded in 1933 and has a rich history of producing and selling its signature special

glazed doughnuts. Their mission statement emphasizes a commitment to a quality,

collaborative, and customer service approach[1]. Their way of distribution includes various

retail outlets and international locations. The company's core strategy revolves around

offering hot and fresh doughnuts a one-of-a-kind taste, and they also sell their products

in various retail locations. As they operate through four segments- the company stores,

domestic franchise, international franchise, and KK Supply Chain, today the company is

transitioning toward smaller factory shops to focus on retail rather than wholesale

customers, and the plan is to expand their international store count.

The doughnut market in the United States is a significant industry with competition from

Dunkin' Brands and others. The trend towards healthier eating habits and changing

consumer preferences is affecting the industry. They also have main competitors that

include Dunkin' Brands, Tim Hortons, and Starbucks, with Dunkin' Brands holding the

largest market share. With this, Krispy Kreme is shifting its focus from wholesale to retail

and expanding its international presence. Consequently, the company is also taking

measures to guard against potential takeovers and address the growing demand for

healthier food options, addressing the challenges posed by potential takeovers and

focusing on creating a three-year strategic plan that aims to balance between Krispy

2
Kreme roots as a fresh, retail-oriented doughnut brand and its evolving position in a global

market.

3
II. Environment Analysis

A. General Environment

Although there are many different aspects of the external environment that surround the

donut industry, in general, there are three main factors : coffee prices, healthy eating

practices, and regulated labeling of products. Healthy practices are becoming

increasingly frequent, according to this case study. Fast-food companies are becoming

more conscious of what their consumer base is looking for in their menus, thus they have

begun introducing healthier alternatives to their menus, as well as product labeling and

ingredients utilized. The problem with donut shops is that their main product is donuts,

which is perceived as a high-calorie, sugar laden food by the general consumers.

Although donuts are still considered a treat for satisfaction and enjoyment and is still seen

as a growing industry. Also, coffee is complementary goods offered by donut shops;

however, it is subject to price fluctuations, thereby directly affecting the general

environment of this donut industry. Lastly, the increasing pressure of regulatory bodies

overseeing the labeling of product ingredients also affects the donut market.

The following section of this paper discusses the pertinent case facts relative to the

above-mentioned forces and identifies these as either as opportunities or threats. These

will then be taken into consideration in the external factor evaluation matrix to be

presented in the succeeding section of this paper.

A.1 Opportunities

A.1.1. SOCIO-CULTURAL-DEMOGRAPHIC

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 ● The general consumers still desire a tasty doughnut and

consider it a treat despite the budding interest for healthy food

and snack in the 2015 timeline. (para. 22, p. 403).

A.1.2. TECHNOLOGICAL

• The continued product innovation of donut products opens

avenues for growth in the industry (para. 22, p. 403).

• The advances in technology such as the newly introduced

customer-based data systems help donut makers understand

the preferences and demands of their target consumers and

markets, providing consumers with better experience and

increased satisfaction (para. 26, p. 403).

A.1.3. ECONOMIC

● There is a perceived market growth for well-established industry

players in the market with prospective worldwide market

appearing to be promising for American donut companies and

other emerging donut companies, although the case study did

not provide quantitative data of this growth potential (para. 29,

p. 403).

A.1.4. ENVIRONMENTAL

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 • Economic and environmental conditions according to analysts

will not greatly impact the coffee prices (para. 23, p. 403).

A.1.5. POLITICO-LEGAL

• Because of limited data on this aspect, the politico-legal

environment of the donut industry is focused on franchising and

ease of doing business in foreign markets which could be in

varying conditions in every state and/or country. Nonetheless,

we are in a position that this could open venues for business

growth (para. 14, p. 400).

A.2. Threats

A.2.1. SOCIO-CULTURAL-DEMOGRAPHIC

● People are becoming more health aware in their diet and

food choices in the United States and throughout the world

(para. 22, p. 403).

● Low carb diets are still quite popular across the world, and

many people have made it a way of life. (para. 22, p. 403).

A.2.2. TECHNOLOGICAL

• Our team believes that the technological developments in the

donut industry should be seen as an opportunity for growth and

not as a threat to the business environment.

A.2.3. ECONOMIC

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 ● Coffee prices have been volatile due to droughts in Brazil,

fungal diseases, and destruction of the rainforest. Rising

inflation may increase cost expenses. (para. 24, p. 403)

● A global recognition of "fair trade" has also contributed to

increased production cost by paying farmers a fair

compensation in educational programs for their farming efforts.

(para. 24, p. 403)

A.2.4. ENVIRONMENTAL

● The fungal infection cost $1 billion in lost income in 2014, and

coffee output might plummet by up to 40% in the future years.

(para. 24, p. 403)

A.2.5. POLITICO-LEGAL

● Firms competing in the fast food market, especially doughnut

shops, are increasingly conscious of product labeling and

ingredients as society gets more litigious. (para. 22, p. 402)

● Some cities and governments throughout the world are enacting

legislation that limits the size of soft drinks and other sugary-

laden snacks. (para. 22, p. 402)

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B. Operating Environment

The operating environment of the donut industry is dominated by brands that have

cemented their presence and strength in the market, such as Dunkin Donuts, Tim

Hortons, as well as Starbucks. Dunkin and Starbucks lead the market with a combined

market share of 89 percent, while Krispy Kreme and Tim Hortons make up only 5 percent

of the market. The threat of new entrants is present but perceived as low because of the

strong presence of industry leaders in the market. Likewise, the substitute products for

donuts are a significant threat due to the emerging preference for healthy innovative

options in the market. The bargaining power of suppliers is strong given the vertical

integrated supply chain of donut and coffee products. While the bargaining power of

customers is generally low and does not affect the prices of products which are mainly

set by market players.

The following case facts presented hereunder are analyzed to determine whether the

forces in the operating environment provide an avenue for growth or impedes the

growth of the Krispy Kreme Donuts.

B.1 Opportunities

B.1.1. RIVALRY AMONG COMPETING FIRMS

● The majority of Dunkin' Donuts and Baskin-Robbins locations

outside the United States are in Asia and the Middle East, with

South Korea and Japan having the most locations, leaving other

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 emerging economies in Asia with an unsaturated market open

for new entry. (para. 25, p. 403)

B.1.2. POTENTIAL ENTRANTS

· The competition brought by new entrants is low since majority of

the market is saturated by leading industry players (para. 24, p.

403).

B.1.3. SUBSTITUTE PRODUCTS

We are in the position that this aspect of the operating environment poses a threat for

the company, please refer to the discussion in the next section.

B.1.4. BARGAINING POWER OF SUPPLIERS

We are in the position that this aspect of the operating environment poses a threat for

the company, please refer to the discussion in the next section.

B.1.5. BARGAINING POWER OF BUYERS

● Customers' negotiating power is typically modest and has no effect

on product pricing, which are mostly established by market

participants, allowing firms to gain control on this aspect of the

operating environment with little influence from consumers in terms

of pricing (para. 23, p. 403).

B.1.6. INDUSTRY GROWTH

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 ● The future of doughnut shops looks bright, particularly outside of

North America, where the market is not yet saturated. (para. 22, p.

403)

B.1.7. SHAREHOLDERS’ ACTIONS

Insufficient relevant information in the case study about shareholders’ actions

B.1.8. CREDITORS’ ACTIONS

No information provided in the case study on creditor’s actions

B.1.9. COMMUNITY PERCEPTION

· Industry players offer community-driven campaigns known as “local

relationship marketing” to gain favorable community perception and

continue to offer opportunities for brand development and growth in

this industry (para. 12, p. 400).

B.2 Threats

B.2.1. RIVALRY AMONG COMPETING FIRMS

● Leading market players, Dunkin’ Brands and Starbucks, have

already diversified their menu options to include healthier

choices (para. 22, p. 403).

● Competitors hold a large market share of total doughnut shops:

Dunkin’ Brands - 54%; Tim Hortons - 5%. Coffee shop market is

10
 dominated by Starbucks - 35%; Dunkin’ Brands - 25% and Tim

Hortons - 2% (para. 24, p. 403).

B.2.2. POTENTIAL ENTRANTS

· New entrants may focus on healthier snack options catering to

changing consumers (para. 22, p. 403).

B.2.3. SUBSTITUTE PRODUCTS

● The substitute product for traditional sugary donuts would be

healthy innovative doughnuts that can cater to evolving

preferences of consumers (para. 22, p. 403).

B.2.4. BARGAINING POWER OF SUPPLIERS

• Given the vertically integrated supply chain of donuts and coffee

items, the supplier's negotiating strength is considerable. In

addition, price fluctuations are greatly affected by environmental

factors such as availability of raw materials and weather

conditions (para. 23, p. 403).

B.2.5. BARGAINING POWER OF BUYERS

We are in the position that the consumers poses little threat to the pricing although the

marketing strategy and operations of the industry players must put emphasis on

changing market preferences.

11
 B.2.6. INDUSTRY GROWTH

Limited data is provided on this aspect, because of this, our group is in the position that

the industry growth poses little to no threat to the donut companies

B.2.7. SHAREHOLDERS’ ACTIONS

Insufficient relevant information in the case study about shareholders’ actions

B.2.8. CREDITORS’ ACTIONS

No information provided in the case study on creditor’s actions

B.2.9. COMMUNITY PERCEPTION

· Public perception of the high-sugar and fat products that led to

health issues (para. 22, p. 403).

12
C. Internal Environment

The main thing that sets Krispy Kreme apart is the way they market and prepare their

signature glazed donuts. They pride themselves on offering hot fresh donuts. The

operations of Krispy Kreme consist of four divisions: (1) Company Stores, (2) Domestic

Franchise, (3) International Franchise, and (4) KK Supply Chain. However business is

mainly divided into two categories: retail and wholesale. Moreover, Krispy wants to align

its operations and management with its goal of increasing its retail sales and cater more

to individual customers. Below are the strengths and weaknesses of Krispy Kreme’s

internal environment:

C.1 Strengths

C.1.1. MARKETING

● KKD is well-known for serving hot fresh doughnuts (para. 10, p.

399).

● KKD has grown to become a global brand (para. 14, p. 400).

C.1.2. PRODUCTIONS/OPERATIONS

● KKD is gradually moving its emphasis from wholesale to a

stronger retail presence (para. 18, p. 401).

● KKD operates domestically and internationally, with store

presence in 38 states in the US and in 23 other countries (para.

14, p. 400).

13
 C.1.3. FINANCE

· The company had an outstanding 2013 and the firm’s stock price

was up over 100 percent, revenues increased by 6 percent, and

net income increased to 65 percent (para. 19, p. 401).

C.1.4. ORGANIZATION AND MANAGEMENT

● KKD has well-organized divisions catering to its major

operations comprising four divisions (1) Company Stores, (2)

Domestic Franchise, (3) International Franchise, and (4) KK

Supply Chain (para. 14, p. 400).

C.1.5. HUMAN RESOURCES

· Their mission statement highlights a dedication to excellence,

collaboration, and customer service (para. 7, p. 399).

C.1.6. RESEARCH AND DEVELOPMENT

This aspect of the internal environment of KKD should be improved, based on case

facts.

C.1.7. INFORMATION SYSTEM

· Customers can purchase the products at both Keurig and KKD

websites (para. 8, p. 399).

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C.2 Weaknesses

C.2.1. MARKETING

● Sole focus on traditional sugar-glazed donuts for the prolonged

period with minimal advertising/marketing on varying and new

product offerings (para. 3, p. 398).

C.2.2. PRODUCTIONS/OPERATIONS

● Distribution is limited to KKD stores, grocery stores,

convenience stores, gas stations, locally, Meanwhile,

international distribution is limited to partnership with service

stations and convenience stores, in addition to franchise

stores. This distribution system restraints the growth

potential of KKD in terms of increasing its market share

(para. 8, 399).

C.2.3. FINANCE

KKD has purchased back a large number of shares posing threat to

investors on the financial health of the company (para. 19, p. 401).

C.2.4. ORGANIZATION AND MANAGEMENT

● KKD reports revenues by geographic region but is structurally

functional. This is not aligned with its current reporting system

which is by geographic division (para. 9, p. 399)

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 ● The company does not have a Chief Operating Officer (COO),

Chief Administration Officer (CAO), or Chief Strategy Officer

(CSO). (para. 9, p. 399)

● The company does not have vision statement to guide its

strategic management (para. 7, p. 399)

C.2.5. HUMAN RESOURCES

· The size of KKD’s human resources is considerably more than

its competitors, with a low revenue/employee return of about

63%[i] than its competitors (Exhibit 7, p. 403).

C.2.6. RESEARCH AND DEVELOPMENT

· The KKD company has only begun diversifying their menu in

early 2014 and is considered late in investing in research &

development for lower-calorie or healthier doughnut options

(para 13, p. 400).

C.2.7. INFORMATION SYSTEM

Limited data is provided on this aspect of KKD’s operations.

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D. External Factor Evaluation Matrix

Key External Factors Weight Rating Weighted

Score
Opportunities
1. Consumers still view donuts 0.10 3 0.30
as a treat and enjoy it for
satisfaction
2. Continuous product innovation 0.08 4 0.32
provides growth
3. Advances in customer-based 0.13 4 0.52
data help the industry
understand its market better
4. Industry is expected to grow 0.15 4 0.60
internationally
5. Coffee prices pose little threat 0.06 2 0.12
to the industry
Threats
1. There is a growing preference 0.15 4 0.60
for healthy food and snack
2. Adaptability to the advanced 0.08 2 0.16
technologies and innovation
3. Rising coffee and raw 0.12 3 0.36
materials prices may increase
cost expenses
4. Fungal infections affecting 0.06 2 0.12
coffee supplies major
suppliers wordwide
5. Laws restricting portion sizes 0.07 1 0.07
of soft drinks and other
sugary-laden snacks
Total 1.00 3.17

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E. Internal Factor Evaluation Matrix

Key Internal Factors Weight Rating Weighted

Score
Strengths
1. KKD is a well-established 0.05 4 0.20
donut brand with a strong
market presence domestically
and has grown to be a global
brand it is today
2. KKD is aligning its operations 0.04 3 0.12
and management to its firm
objectives and strategies
3. KKD has strong financial 0.16 4 0.64
position backed with increase
revenues, rising stock prices,
and increase net income
4. KKD has well-organized 0.13 3 0.39
divisions divided in four
5. KKD has strong dedication to 0.08 4 0.32
excellence and customer
service
6. KKD has strong partner 0.05 3 0.15
institutions where they can
market their products online
Weaknesses
1. KKD had focus on traditional 0.05 4 0.20
donuts with little effort on
product innovation
2. International distribution of 0.07 2 0.14
KKD is limited to partner firms
3. KKD has left major strategic 0.11 2 0.22
manager positions
unoccupied
4. KKD does not have an 0.04 1 0.04
existing vision statement that
will guide the company
5. KKD has low 0.07 2 0.14
employee/revenue return
compared to its major
competitor

18
 6. KKD has only lately 0.15 3 0.45
considered product
innovation
Total 1.00 3.01

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F. Competitive Profile Matrix
Critical Weight Krispy Starbucks Dunkin
Success Kreme Brands
Factors Doughnuts, Group
Inc.
Rating Weighted Rating Weighted Rating Weighted
Score Score Score

Brand 0. 4 0.40 4 0.40 4 0.40

Reputation 10
Price Strategy 0. 3 0.45 3 0.45 4 0.60
15
Product 0. 3 0.45 4 0.60 2 0.30
Quality 15
Marketing and 0. 2 0.20 3 0.30 4 0.40
Promotion 10
Financial 0. 3 0.30 4 0.40 4 0.40
Position 10
Customer 0. 2 0.30 4 0.60 3 0.45
Loyalty 15
Market 0. 2 0.20 4 0.40 4 0.40
Presence 10
Social 0. 3 0.45 3 0.45 3 0.45
Responsibility 15
Total 1 2.75 3.60 3.40

Rating values: 4= major strength, 3= minor strength

2= minor weakness, 1= major weaknesses

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G. Assumptions

G.1. General Environment Stability

Krispy Kreme Doughnuts has stable and consistent consumer preferences that create

demand, especially for their signature hot, fresh, and special glazed doughnuts. As long

as the economy remains strong it can provide a secure environment for its planned

expansion. In addition, the socio-cultural trends on the fondness for sweet treats and

indulgent foods will be a great edge for customer demand.

Here are the following factors that may affect the general stability of the business using

STEEP analysis of opportunities:

SOCIAL

● The social environment is considered stable despite the growing interest in

healthy food and snacks. It is assumed that most customers still want a

good doughnut and consider it a pleasure for consumption.

TECHNOLOGICAL

● The technological environment provides avenue for industry growth since

donut product innovation continues to pave the way for industry success.

Advances in technology, such as the recently adopted customer-based data

systems, assist donut producers in understanding the preferences and

expectations of their target consumers and markets, resulting in a better

experience and higher satisfaction for consumers.

ECONOMIC

21
 ● There is a perceived market expansion for well-established market

participants, with the prospective global market looking to be promising for

American donut firms and other new donut companies.

ENVIRONMENTAL

● Economic and environmental factors will have little influence on coffee

pricing.

POLITICO-LEGAL

● The donut industry's political and legal climate is focused on franchising and

the ease of doing business in international markets, which may differ in each

state and/or country. Nonetheless, it is assumed that this might offer up new

opportunities for market growth.

22
G.2. Industry Growth Prospects
This part of the paper discusses the potential for growth of the donut industry using

Porter's Five Forces Model, as follows:

RIVALRY AMONG COMPETING FIRMS

● It is assumed that there is growth potential for untapped emerging markets

globally and unsaturated competition.

POTENTIAL ENTRANTS

● Because the majority of the market is saturated by big industry companies,

it is assumed that the industry poses little competition from new entrants.

SUBSTITUTE PRODUCTS

● We believe that this component of the operational environment creates a

risk to the firm and might hinder the growth of existing market players if they

fail to adapt to changing consumer demands.

BARGAINING POWER OF SUPPLIER

● Given the vertically integrated supply chain of donuts and coffee products,

the supplier has tremendous bargaining power. Furthermore, price changes

are significantly influenced by environmental factors such as raw material

availability and weather conditions.

23
BARGAINING POWER OF CUSTOMERS

● We are in a position where consumers represent a small risk to price and

will not affect the perceived market growth for donut industry.

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G.3. Company's Competitive Position

The competitive strengths of the company based on the internal environment analysis

devised in the preceding section of this paper highlights three aspects of KKD’s

environment: (1) Marketing, (2) Operations/Management; and (3) Human Resources.

Also the competitive matrix shows the competitive advantage of KKD’s over its

competitors, which are mainly its (1) Product Quality, (2) Pricing Strategy, (3) Product

Quality; (4) Financial Position; and (5) Social Responsibility. These are the strengths of

KKD over its competitors, which they should take advantage of in developing their goals

and strategies.

III. Problem Statement supported with evidences

Krispy Kreme Doughnuts (KKD) is growing its business year after year, but its

organizational structure needs to be improved further to have a more well-defined

strategic plan that focuses on structural integration of its operations and aligning it with

its marketing strategies and geographic reporting, increased distribution networks, and

focused research and product innovation.

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Sample of Evidences

This part of the paper presents internal weaknesses of the KKD that support the statement

of the problem developed by our team for this case study:

1. KKD reports revenue by geographic region but operates systemically. This is in

contrast to its present reporting structure, which is organized by geographic

division (para. 9, p. 399).

2. Local distribution is restricted to KKD stores, grocery shops, convenience stores,

and petrol stations. International distribution is restricted to partnerships with

service stations and convenience stores, as well as franchise stores. This

distribution method limits KKD's development potential in terms of expanding

market share (para. 8, 399).

3. For a long time, the exclusive focus was on conventional sugar-glazed donuts,

with little advertising or marketing on different and new product options (para. 3,

p. 398).

[i]
63% is calculated by comparing the revenue/employee data of KKD and Dunkin Brands in Exhibit 7 of the case
study as follows: (473,000-175,000)/473,000.

26