Krispy Kreme Case Analysis
Krispy Kreme Doughnuts Inc. certainly seemed in an excellent position in the doughnut business at this moment, however, both analysts and managers of the company have been wondering whether the high level the stock had reached could actually be sustained by the sale of doughnuts and whether in the future there is a possibility that the company's stock and, subsequently, its value, will be dropping.
Indeed, the stock exchange market had reacted to the low diversification of the company and many were keen to speculate the fact that Krispy Kreme was practically a "single- product concept," with only a limited lifespan, and many turned into stock short- sellers.
As such, I will be briefly analyzing the strategic issues that lay with the company at this moment. I will be then having a look at the internal environment, including a strength and weaknesses thorough analysis. The external environment will include threats and opportunities, as well as general remarks on the doughnuts market, on the competitors, etc. Finally, the issues that have been raised in this paper will have several recommendations in the end.
Strategic issues
The most important thing, as I have already suggested in the paragraphs here above, is the fact that the company is perceived as being a single- product company. Of course, there have been several diversifying attempts, coffee being the most serious of all, however, the company is still perceived as being a doughnut producer and that's about it.
If we look at the rivals in the business (and we will be analyzing them closer in the external environment part), we will notice that the product portfolio of Dunkin' Doughnuts, for example, is much larger and much more diverse. 50 varieties of doughnuts (compared to only 20 for Krispy), other things like muffins or brioches and especially coffee. Indeed, even if associated with doughnuts, Dunkin' Doughnuts makes excellent coffee and has formed a serious package doughnut + coffee that it sells to its customers. In this sense, the first strategic issue that needs to be addressed is the company's product portfolio: obviously, this needs to be expanded, but one also has to decide on how to expand it.
On the other hand, there is the geographical expansion of the company, which, as we have seen, is considered by the top management. However, this is something that needs to be considered carefully: an international expansion implies a high level of costs and the negative consequences, in case it doesn't succeed, may be quite catastrophic for the company.
A third strategic issue that needs to be analyzed and considered relates to the distribution system and to franchising. Is this system efficient? Can it be adopted in the event of an international expansion? These are strategic issues that the company needs to deal with.
So, we may resume by saying that there are mainly three strategic issues that Krispy will need to look into and decide on its future. The first one relates to its portfolio of products, with a low degree of diversification. The second one refers to the international expansion that the company has been planning for a period of time, while the third issues regards franchising and the distribution system, as well as the means by which this can be adopted in the opportunity of an international expansion.
Internal Environment- Strengths and Weaknesses
The company seems to have many advantages in its behalf, all residing in the company's strengths. The first and most important of them is the "enthusiasm and loyalty of the customers." Indeed, throughout the case study, this has been more than obvious. It seems to me that Krispy Kreme has managed to build from its founding onwards, a loyal clientele, a clientele which will always choose a Krispy Kreme doughnut over any other doughnut. For these people, the doughnut itself is the most important thing and they will probably never be influenced by things like Krispy Kreme coffee or other products.
Of course, this loyalty is based on the product itself, whose qualities have been appreciated throughout the decades and which has actually built the company's fame. In this sense, probably the most important strength of the company, strength on which everything else is built, is the product.
Another strength worth mentioning is the absolutely untraditional, but highly efficient system of advertising. I need to insist as little on this issue, because the system is truly magnificent.
Krispy Kreme Industry Environment Krispy Kreme (KK) operates in two industries, both of which are highly competitive. The QSR side of the business has low switching costs, moderate brand loyalty, and at the local level especially there are few barriers to entry. At the national level, barriers to entry are much higher, but intensity of rivalry, especially between Krispy Kreme and Dunkin Donuts, is high. This affects pricing power, though KK has
There is abundant opportunity in the western U.S. that KKD has yet to address. Each aspect of the strategy plan is now addressed by functional area: Market Development Over the next three years, KKD needs to first concentrate on competing more effectively in those regional markets where Dunkin' Donuts to this point has dominated the sale of donuts and related food and beverage items. This must begin with a build-out of
There has been increase in the number of franchise stores that are operating, which generate critically needed income for the company. Currently, the company is also involved in a credit agreement that contains provisions that, among other requirements, restrict the payment of dividends and requires the company to maintain compliance with certain covenants, including the maintenance of certain financial ratios (Management Discussion and Analysis (MD&a) of 10-K for 2007: 36).
Advertising for TITB is placed in high traffic, high consumer areas (subways, bus stops, etc.) Evaluation Why KK? Taste, freshness, and thinking of the office? KK looks better than competitors. Choice Something special as treat for oneself or office mates Don't just purchase one. Alleviates guilt and adds emotion to purchase Evaluation What do people think? Encourages multiple purchases. Allows for multiple opinions and feedback loop. Critique and Recommendations Krispy Kreme's advertising campaign of a combination of making it a dozen and thinking inside
Cash flow tells management about the health of the company, because it shows the level of money coming in and also shows management how much the company is spending. It does not matter if there is a lot of money coming in if that money and more is all going back out. Cash flow is a balance, and it is not just about how much Krispy Kreme is bringing
P&G's free cash flow growth rate is also superior to Gillette's, but the productivity of the free cash flow is inferior. The addition of Gillette is expected to increase P&G's bottom line. 4. The price paid by Procter and Gamble to purchase Gillette seems rather high, but the investment is expected to return in the form of increased sales and cost reductions. The 20% premium is appropriate as it is
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