BACKGROUND OF KRISPY KREME DOUGHNUTS

Krispy Kreme Dougnuts was founded on July 13, 1937 in Winston-Salem, North
Carolina, United States by Vemon Rudolph. The company became a publicly-traded
company in April 2000. Krispy Kreme Doughnuts produces approximately 5.5 million
doughnuts a day consisting of 20 varieties. Krispy Kreme Doughnuts serves customers in
395 stores where 40 stores are in the United States and the rest are in 10 foreign countries
namely Australia, Canada, Hong Kong, Indonesia, Japan, Kuwait, Mexico, the
Philippines, South Korea and the United Kingdom. 282 stores are owned by franchisees
while 113 stores owned by the corporation.

THE VISION OF KRISPY KREME DOUGHNUTS

Our vision guides every aspect of our business by describing what we need to accomplish
in order to continue achieving sustainable growth.

1) People: Being a great place to work where people are inspired to be the best they
can be.
2) Portfolio: Bringing to the world a portfolio of quality doughnuts brand that
anticipate and satisfy people's desires and needs.
3) Partners: Nurturing a winning network of customers and suppliers, together we
create mutual, enduring value.
4) Planet: Being a responsible citizen that makes a difference by helping build and
support sustainable communities.
5) Profit: Maximizing long-term return to shareowners while being mindful of our
overall responsibilities.

THE MISSION OF KRISPY KREME DOUGHNUTS

Our mission declares our purpose as a company. It serves as the standard against which
we weigh our actions and decisions. It is the foundation of our Manifesto.

1) To make people happy while enjoying our products.

2) To inspire moments of optimism through our brand and our actions.

3) To create value and make a difference everywhere we engage.

LONG-TERM OBJECTIVES

Positioning itself as the leading high-quality donut maker and retailer in its established
market, and to expand its market around the world, with emphasis on domestic
expansion. And to set themselves apart from other donut makers in the industry through
its many distinguishing attributes.

STRATEGY

On-premise KKD sales include direct in-store sales to customer visiting inside or coming
through the drive through window. Discounted sales for community organization
fundraising purposes are also included in on-premises sales. Off-premises sales include
fresh doughnuts distribution of branded, unbranded, and/or private-label doughnuts to
grocery and convenience stores.

DEVELOPMENT OF VISION AND MISSION STATEMENT FOR THE

ORGANIZATION

Vision: To be the customer’s doughnut of choice by offering an affordable product with

universal appeal.

Mission statement. Based on the mission statement provided by KKD, it has not fulfilled
the overall criteria of an effective mission statement. It has not explained about the
products and services, markets, technology, concern for survival, growth and
profitability, concern for public image and concern for employees.

Suggestions:

i) Products and services. Our doughnuts, which are made from a secret recipe that has
been in our company since 1937, have a one-of-a kind taste that generations of loyal
customers have grown to love.

ii) Markets. Currently, Krispy Kreme can be found in 17 countries, including the United
States, Australia, Bahrain, Canada, Indonesia, Japan, Kuwait, Lebanon, Malaysia,
Mexico, the Philippines, Puerto Rico, the Republic of Korea, Qatar, the Kingdom of
Saudi Arabia, the United Arab Emirates, and the United Kingdom.

iii) Technology. Our vertically integrated, automated system is designed to create high
quality, consistent doughnuts in an efficient manner. Quality control starts with our
manufacturing plant, which produces proprietary Krispy Kreme mixes our state-of-the-
art laboratory runs quality tests on all key ingredients and each batch of mix.
 iv) Concern for survival, growth and profitability. The company will conduct its
operations prudently and will provide accurate profits and growth which will assure
shareholders satisfaction and the success of KKD.

v) Concern for public image. Krispy Kreme is also committed to strong local
community relationships. Our store operators support their local communities through
our popular fundraising programs and the sponsorship of local events.

vi) Concern for employees. To recruit, develop friendly personnel of exceptional caliber
by providing good working conditions and benefits on the basis of performance and
opportunity of growth.

EXTERNAL OPPORTUNITIES AND THREATS

OPPORTUNITIES

1. It is anticipated that the remaining stores will receive the new beverage program, primarily
expresso and frozen beverage in the next 12 to 18 months.
2. Krispy Kreme plans to continue to open stores internationally in Japan and Spain and increase
their presence in countries where they currently operate.
3. Krispy Kreme will develop a new “low calorie” doughnut selection.
4. Krispy Kreme will offer the tea drinking British with its own custom brews of coffee.
5. Krispy Kreme Doughnut is planning to concentrate on development efforts primarily in Asia and
Middle-East.

THREATS

1. Dunkin Donuts has over seven thousands stores in 2007 up from 5438 stores two years earlier.
2. Starbucks approximately have 12 thousands retail stores worldwide.
3. Tom Horton’s is the largest restaurant chain in Canada.
 COMPETITIVE PROFILE MATRIX (CPM)

Krispy Kreme
Critical Success Dunkin Donuts Tim Hortons
Weight Doughnuts
Factors
Rating Score Rating Score Rating Score
Advertising 0.19 1 0.19 3 0.57 2 0.38
Product quality 0.20 4 0.80 4 0.80 4 0.80
Price
0.09 2 0.18 4 0.36 3 0.27
competitiveness
Management 0.04 1 0.04 3 0.12 3 0.12
Financial position 0.08 2 0.16 4 0.32 3 0.24
Customer loyalty 0.12 3 0.36 4 0.48 2 0.24
Global expansion 0.2 3 0.60 4 0.80 2 0.40
Market share 0.08 1 0.08 3 0.24 2 0.16
Total 1.00 2.41 3.69 2.61

EFE Matrix

Key Internal Weight Rating

Weighted
Factors Score

Opportunities

6. It is anticipated that the remaining stores will receive the new

Beverage program, primarily expresso and frozen beverage in
The next 12 to 18 months. 0.05 4
0.2
7. Krispy Kreme plans to continue to open stores internationally
In Japan and Spain and increase their presence in countries where
They currently operate. 0.15 2
0.3
8. Krispy Kreme will develop a new “low calorie” doughnut
selection. 0.20 3
0.6
9. Krispy Kreme will offer the tea drinking British with its own
custom brews of coffee. 0.10 1
0.10
10. Krispy Kreme Doughnut is planning to concentrate on
development efforts primarily in Asia and Middle-East. 0.15 2
0.3

Threats

4. Dunkin Donuts has over seven thousands stores in 2007 up from

5438 stores two years earlier. 0.25 4
1.00
5. Starbucks approximately have 12 thousands retail stores
worldwide. 0.05 1
0.05
6. Tom Horton’s is the largest restaurant chain in Canada. 0.05 2
0.10

Total
2.65
IFE Matrix

Key Internal Weight Rating

Weighted
Factors Score

Strengths

1. Company stores average weekly sales per store increased 1.6% 0.08 3 0.24
to approximately $51,000

2. Krispy Kreme’s total revenues from franchise fees rose $2.3 0.09
4 0.36
Million in fiscal 2007.

3. Sales of mixes and other supplies were partly offset by a 26% 0.08
4 0.32
increase in epuipment, furniture, fixtures and similar items.

4. In fiscal 2007, 60 new international stores were opened. 0.18 3 0.54

5. Franchise revenues consisting mostly of franchise fees and 0.10 3 0.30

Royalties increased over 14% to $21 million in fiscal 2007 from
$18 million one year earlier.

Weaknesses

1. Sales to franchise stores decreased 10% to $114 million in fiscal 0.08 1 0.08
2007.

2. Company stores revenues decreased 18% to $326 million in 0.11 1 0.11

fiscal 2007 from $398 million in fiscal 2006.

3. KKD’s net loss for the second quarter of fiscal 2008 was $27 0.09 2 0.18
million compared to a net loss of 4.6 million in the comparable
period of fiscal 2007.
 7. KKD supply chain revenues decreased 16.8% to $23.7 million. 0.09 1
0.09

8. KKD total average weekly sales per store decreased 2.8% to

Approximately $37500. 0.1 1
0.1

Total 2.32

SWOT MATRIX

STRENGTHS WEAKNESSES

1. Strong brand 1. Perish ability of product

recognition and recall
2. Limited product line
2. Wide appeal of (heavy reliance on doughnut
signature glazed sales)
doughnuts
3. Overextended (i.e.,
3. Vertical integration Montana Mills acquisition)

4. Development in 4. Lack of locations in

international markets some areas

5. Strong channel of 5. Pricing in some

distribution locations

6. Quality of product

7. Expanded assortment
of offerings at KKD
stores including
beverages

8. Doughnut machine
technology
OPPORTUNITIES SO STRATEGIES WO STRATEGIES

1. Increasing popularity of 1. Development of 1. Increase products offered

coffee shops and bakery cafés
2. Popularity of American
foods and fashion in overseas
markets
3. Growth in two-income
households
4. Americans continue to
experience time-starvation
5. Entertaining opportunities
moving from home to work
environment
bakery cafés
2. Development of store
locations in overseas
markets
3. Increase locations to
be convenient for busy
traffic areas in several
markets
4. Provide special
offerings geared towards
encouraging people to
bring doughnuts to work
in locations (i.e., coffee,
sandwiches)
2. Develop Montana Mills
in a way that fits the mission
of KKD
3. Increase locations
4. Offer standardized, but
value pricing compared to
Starbucks

6. Technological
advancements (i.e., paperless
ordering, predictive modeling
software, hand held computers
for delivery drivers)
7. Channel expansion
possibilities (i.e., Internet pre-
ordering)
5. Continue to be
innovative in technological
applications that can
improve efficiency
6. Improve KKD website
and continue to nurture and
expand distribution system
 THREATS
1. Competitors like Dunkin
Donuts and Starbucks
2. Low-carb trend in eating
preferences
3. All-natural, organic,
healthy eating trends
4. Cultural differences in
breakfast and snack foods
5. Increase in eating at full-
service restaurants combined
with a decrease in the use of
fast-food restaurants
ST STRATEGIES WT STRATEGIES
1. Focus on signature 1. Develop new product
glazed doughnuts as a offerings
differentiating advantage
over competitors 2. Offer value-based and
consistent pricing
2. Offer popular bakery
café format to compete
with Starbucks
phenomenon
3. Develop low-
carbohydrate doughnuts
4. Develop doughnut
made with organic
ingredients
5. Develop a market
penetration strategy to
encourage doughnut and
coffee consumption at
other times of day
6. Offer nutritional
information with an
emphasis on new low-
carbohydrate, low-calorie,
or organic offerings
SPACE MATRIX

Financial Strength

1. Company’s Return on Asset is negative 0.12, compared to the industry average 1

of positive 0.2
2. There is reduction in company’s total revenue for the year when compared with 2
the previous year by $82, 166
3. Krispy Kreme Doughnuts net loss was $ 42,236 compared to the previous year 4
loss of $ 135,760

Industry Strength

1. In fiscal 2007, 60 new international stores were opened. 4

2. Area Developer Program was developed, in which royalties of sales are paid
along with franchise fees. 4
3. Krispy Kreme Doughnuts awarded development rights in the
Middle-East, Hong Kong, Macau and Tokyo. 2
4. Krispy Kreme Doughnuts concentrated on development efforts primarily
in Asia and Middle-East. 2
1
2

Environmental Stability

1. The British are accustomed to their traditional English breakfast. -3

2. Food product price inflation has been increasing. -4
3. Stock price hit a low of just under $4 a share. -5
 -12
Competitive Advantage

1. Krispy Kreme Doughnuts entices customer with its doughnut making ‘theater’ -2
2. Krispy Kreme Dougnuts has its own custom brews of coffee. -4
3. Krispy Kreme Doughnuts provides ‘low calorie’ doughnuts. -1
4. Krispy Kreme Doughnuts received a new beverage program
primariliy expresso and frozen beverages. -5
5. Krispy Kreme Doughnuts serves customers in 395 stores operating in 50 states. -2
-14

Environmental Stability Average: -12 / 3 = -4

Competitive Advantage Average: -14 / 5 = -2.8
Industry Strength Average: 12 / 4 = 3
Financial Strength Average: 7 / 3 = 2.33

Directional Vector Coordinates: X-axis: -2.8 + 3 = 0.2

Y-axis: -4 + 2.33 = -1.67

Krispy Kreme Doughnuts should pursue competitive strategies. An organization that is

competing fairly well in an unstable industry.

FS

CA IS

ES
 BCG Strategy

Division Sales ($) Percent Profits ($) Percent RMSP IG Rate

Sales (%) Profits (%)
(%)
Company 326199 70.7 36102 50.27 0.6 07
Stores
Franchise 21075 4.6 16473 22.93 0.1 00
KK 113921 24.7 19241 26.80 0.3 04
Supply
Chain
Total 461195 100 71816 100

RELATIVE MARKET SHARE POSITION

INDUSTRY
SALES
GROWTH RATE
%
The Grand Strategy Matrix
 A QSPM for Krispy Kreme Company
STRATEGIC ALTERNATIVES
Joint Venture Joint Venture
in Europe in Asia
Key Factors WeightAS TAS AS TAS
Opportunities
1. One European currency Euro .10 4 .40 2 .20
2. Rising health consciousness in selecting foods .15 4 .60 3 .45
3. Free market economies arising in Asia .1.0 2 .20 4 .40
4. Demand for doughnuts increasing 10 percent annually.15 3 .45 4.60
5. NAFTA .05 - - - -
Threats
1. Unstable increment in global income .10 3 .30 4 .40
2. Dunkin Donut’s lead the primary market .05 - - - -
with 27.4 percent shares.
3. Unstable economies in Asia .10 4 .40 1 .10
4. Only have 20 varieties of doughnuts compared with .05 3 .15 3.15
the main rival.
5. Low value of the dollar .15 4 .60 2 .30

Strengths
1. Profits rose, 23 percent .10 4 .40 2 .20
2. New North American division .10 - - - -
3. New health conscious donuts are successful .10 4 .40 2 .20
4. Nasser Al, Kharafi, the largest individual stakeholder .10 2 .20 4.40
with 13.8 percent.
5. One-fifth of all managers' bonuses is based on overall .05 - -
- -
corporate performance
6. Capacity utilization increased from 60 percent to .15 3 .45 4 .60
80 percent
Weaknesses
1. Recent retrenchment or closure of store. .05 - - - -
2. Restructuring cost $302 million. .05 - - - -
3. The company's European operation is losing money .15 2 .30 4 .60
4. The company is slow in globalizing .15 4 .60 3 .45
5. Pretax profit margin of 8.4 percent is .05 - - - -
only one-half industry average.
Sum Total Attractiveness Score 1.0 5.45 5.05

AS = Attractiveness Score; TAS =

Total Attractiveness Score
Attractiveness Score: 1 = not acceptable; 2 = possibly
acceptable; 3 = probably acceptable; 4 = most acceptable.

The sum total attractiveness score of 5.45 indicates that the joint venture in
Europe is a more attractive strategy when compared to the joint venture in Asia.
RECOMMENDED SPECIFIC STRATEGIES

Krispy Kreme Doughnuts should pursue competitive strategies which are market penetration and
market development.

MARKET PENETRATION

Krispy Kreme Doughnuts has to increase customer traffic to their websites, drive
awareness of products and they offered, promote repeat purchases, develop incremental
product, and strengthen and broaden the Krispy Kreme Doughnuts brand name. It is
believed that effective marketing effort result from their focus on continuously improving
customer experiences which drives word of mouth promotion and repeat customers’
visits. Word of mouth remains the most powerful customer acquisition tool and greater
for the trust of customers have placed in Krispy Kreme Doughnuts.

They also should participate in cooperative advertising arrangement with certain

of their vendors in other third parties. This associates programs directs customers to the
websites by enabling independent websites to make millions of products available to the
audiences with fulfillment perform by Krispy Kreme Doughnuts or third parties. Krispy
Kreme Doughnuts will pay commissions to participants in the associates program when
their customer referrals result in product sales.

In order to increase market share for present product, Krispy Kreme Doughnuts
should transform itself into a company selling its products in B2C electronic commerce.
Online selling will be provided to customers with large amount of orders. Special
requests such as extra flavors or combination of different flavors for the donuts will be
made available for online customers.
 MARKET DEVELOPMENT

Krispy Kreme Doughnuts should expand and generate their profit to cater Asian
and Middle-East. According to the article, Asian and Middle-Eastern love sweet snacks
and doughnut eating instantly becomes a new trend among themselves. Therefore, Krispy
Kreme Doughnuts should focus more on them.

Nowadays, Krispy Kreme Doughnuts have website in limited language in order to

fulfill the need of their customers such as from Japan, China, and Germany. Krispy
Kreme Doughnuts should create in Multilanguage.

According to the Krispy Kreme Doughnuts’ income statement, the company did
not allocate any amount of money for research and development from the year 2005 to
2007. Therefore in order to maintain provide the good services to their customers, Krispy
Kreme Doughnuts must create a Research and Development program to increase the
innovation and quality of the products they provide.

Increase marketing expenditures in order to reach new population segments and

fastest growing trends and tendencies such offer customers the lowest prices possible
through low everyday product pricing. Krispy Kreme Doughnuts also should strive to
improve their operating efficiencies.

RECOMMENDED LONG TERM OBJECTIVES

• Increase net income 10% in 2004

• Create a good relationship with shareholder and measure all programs and
the effectiveness of investments analytically.
• And to continue offer quality products using the best technology available
and at a reasonable price.
RECOMMENDED COST

Referring to Krispy Kreme Doughnuts’ income statement, from 30 Jan 2005 until
28 Jan 2007, Krispy Kreme Doughnuts did not spend any money at all on the research
and development of its products.

Based on Krispy Kreme Doughnuts’ balance sheets, the amount of money spent
by the company in property plant and equipment are $168654 (2007), $205579 (2006)
and $309214 (2005).

Based on the recommended strategies, Krispy Kreme Doughnuts should allocate

an amount of $150 million for research and development in order to improve and
innovate its products for customers’ satisfaction. Apart from that, Krispy Kreme
Doughnuts should increase the money spent for property plant and equipment to
approximately $500000 as an effort to increase the company’s productivity and the
effectiveness of the operation.

COMPARISON OF RECOMMENDED STRATEGIES AND ACTUAL

STRATEGIES

RECOMMENDED STRATEGIES ACTUAL STRATEGIES

• increase their marketing •

expenditure
• expand and generates profit to cater
Asian and Middle-Eastern
• introducing new other products
categories
• promote repeat purchases and word
of mouth
• launched Amazon websites in
France, Japan, and Canada
• launch new categories, example
office product store
• in process of building efficiencies
of scale.
IMPLEMENTING RECOMMENDED STRATEGIES AND EXPECTED RESULT

1. Strategy: Market Penetration

 To increase customer traffic and create customer awareness of Krispy Kreme
Doughnuts’ products
 Promote repeat purchases and word of mouth for existing products in present
market
 Focus marketing strategies to find out what the customers tend to buy
 Develop incremental product revenue opportunities
 Strengthen and broaden the Krispy Kreme Doughnuts brand name
 Forge a joint venture with companies
Expected Result:
 Improving customer experiences
 Greater for the trust of customers have placed in Krispy Kreme Doughnuts
 Higher and stable market share
 Increase in popularity

2. Strategy: Market Development

 Expand in new areas and geographic regions to Krispy Kreme Doughnuts

business
 Create Multilingual website
 introducing new other products categories
 improving the company’s operating efficiencies
 Research and development program

Expected Result:

 Krispy Kreme Doughnuts’ customers can search the information related to the
products and the company easily.
 Reach new population segments and fastest growing trends and tendencies
 Can pass along the associated savings to their customers in the form of lower
prices.
 Increase the innovation and the quality of products provided
AGENDA FOR ACTION

Strategy Time
Market penetration strategy
 To increase customer traffic and January 2009 – December 2012
create customer awareness of
Krispy Kreme Doughnuts
 Promote repeat purchases and word January 2009 – December 2012
of mouth in present market
 Build a joint venture with Holiday
Villa, as a breakfast menu in their
hotels.
Market development strategy
 Expand in new areas and January 2009 – December 2012
geographic regions to Krispy
Kreme Doughnuts Business
 Create Multilangual website June 2009 – December 2009

 Research and development program January 2009 – December 2009

RECOMMENDED SPECIFIC ANNUAL OBJECTIVES

One of the recommended specific annual objectives is to continue expanding in all

potential countries, while maximizing total commitment in becoming one of the leaders
in the industry. Krispy Kreme Doughnuts also wants to expand geographically,
increasing the number of customers and to keep improving in various aspects. By
working hard and having fun we seek to offer the best working environment for our
employees, promoting career opportunities, and to increase our responsibility towards
environment and the society.

RECOMMENDED POLICIES

Customer Satisfaction Policy

1. Products

It is our main priority to provide only the best ingredients in our products. Top quality
flour, flavors, sugar and etc are carefully selected to ensure customers’ satisfaction. We
also never compromise in producing each of our products. For instance, all of our
employees wear appropriate clothing such as gloves, aprons and cap in order to ensure
the level of hygiene in our products. We only get our supply for raw material from
qualified and reliable suppliers without any compromise. This is done in order to ensure
that only the best material is used and also to ensure the smoothness of the company’s
operation since the material is supplied as scheduled.

2. Services

We guarantee that each order that is made by our customer will be delivered within 20-30
seconds for doughnuts and 40 seconds for beverage. Other than that, we guarantee that
our products remained fresh and hot within 30 minutes of purchase. We ensure that our
employees for every franchise around the world can communicate and interact well with
the local customers. Our employees will be equipped with related communication skills
through various courses that are conducted.
Employee Welfare

Each of our employees will definitely be protected under the law of the government of
the countries to ensure our employees’ welfare and rights being taken care of. Senior
citizen will be offered a place for employment in our premises in order to help them take
care of themselves. Proper benefits will be provided for eligible employees such as
maternity leave, annual leave, bonuses and increment.

Premise Policy

We guarantee that each of premise worldwide meet the international standard in terms of
hygiene, design, safety and comfort. This is to ensure that our customers are satisfied
with the quality of our premise.

Community Service Policy

We will allocate an amount of money from our profit for charity purpose. Our company
is committed in helping out societies around the world such the less fortunate, orphanage,
old folks and victims of war and natural disaster.

RECOMMENDED PROCEDURES FOR STRATEGY REVIEW AND

EVALUATION

• Financial reports annually and quarterly if necessary

• Customer feedback program
• Top level management meetings to assure goals are achieved
• Determine corrective actions after the first year if annual objectives weren’t
accomplished
KUALA LUMPUR INFRASTRUCTURE UNIVERSITY COLLEGE (KLIUC)
BACHELOR OF ACCOUNTANCY (BAC)
STRATEGIC MANAGEMENT (BBM 303)

GROUP PROJECT:
KRISPY KREME DOUGHNUTS CASE STUDY

PREPARED BY:
VICKNOBASHANTH S/O MURUGAYIN (KI071109)
MUHAMMAD AZRI ( )
VIVEK SARATI S/0 SANDRASIGARAN (KI 071105)

PREPARED FOR:
MADAM KAMALJEET KAUR

DATE OF SUBMISSION:
10 th SEPTEMBER 2009