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 been able to offset that by successfully differentiating its product. This line of the business was the source for most of the issues that plagued the company after it expanded too rapidly.
The second key element, besides the intense competition in the industry, is where the industry fits in the context of consumer choice. Aside from competition, consumers could also choose not to eat doughnuts. An aging population more concerned with health, the Atkins diet fad, and the declining novelty of Krispy Kreme challenged the brand. It needs today to find loyal customers to serve as the foundation for building a business for the long-run.
Overall, the attractiveness of the industry is minimal. This is a tough place to make a business. Dunkin is massive. Tim Horton's is the second-largest doughnut chain in the US, but is wildly popular in Canada, which supplies it with a steady cash flow for expansion. Mom-and-pop shops have low barriers to entry and have proven formidable competitors for any one individual KK store. The margins are small once the novelty factor wears off, and because consumers have low switching costs and many potential substitutes, Krispy Kreme has only limited bargaining power with which to influence consumer decision-making. Doughnuts are not an attractive industry.
Core Competencies
By all accounts, Krispy Kreme does doughnuts...
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