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I. Company Overview

A. Industry and Products:

Krispy Kreme is a doughnut company, operating in the Quick Service Restaurant Industry and the

Baked Goods Production Industry. Revenues are primarily due to retail doughnut sales through company stores

and sales of materials through the KK supply chain, which is the sale of dough mix and equipment to

Franchisees at a markup. A minority of revenues are derived from the domestic and international franchises.

Krispy Kreme has been moderately profitable for the last three years, with a net income percentage ranging

from 5% to 6%.

B. Consumer Segments and Marketing:

The customer base is wide, diverse, and fragmented. Krispy Kreme customers do not have a common

identity, except that they aren’t nutritionists.The current marketing strategies consist of word­of­mouth, social

media marketing through facebook, and a smart­phone app. Krispy Kreme’s Classic marketing strategies

include “Doughnut Theatre”, where the customers watch the doughnuts get made at factory stores, and the “Hot

Doughnuts Now” sign, letting customers know that they can receive a free glazed doughnut fresh off the line.

II. SWOT Analysis

A. External environment analysis

1. General Environment Analysis – PEST Analysis

Political: Political risks on the quick service restaurant industry are few and consist mainly of minimum wage

changes and employment law changes.

Economic: Because Krispy Kreme is not an essential food item fluctuations in the economy may affect sales.

Social: Food habits are changing and more people are aware of what they eat, and may not choose Krispy

Kreme as their first option because of the ingredients used in the donuts, and the high calorie content.

Technological: There are few new technologies affecting the food industry, but they can improve efficiency,

and distribution thanks to technological advancements. For example, by offering delivery.

2. Industry Analysis

a. Industry Life Cycle

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Because of the large amount of different competitors, the quick service restaurant industry is in the

maturity stage of the industry life cycle. There is a continuous war on cutting prices in order to lead the

industry. Thus, resulting in fluctuations in profit margins.

b. Porter’s five force model

Rivalry among existing competitors is high. There is high concentration of rivals including Starbucks, Dunkin

Donuts, McDonalds, local “mom and pop” shops, etc. These competitors in the industry are all competing for

the same customers. Although product differentiation is limited, there is a lot of differentiation by product

range, brand and store ambience, and therefore the number of prime locations available are limited too.

Threat of new entrants is low because large capital requirements are required to build multiple stores. As

already mentioned, favorable locations are already occupied, and also Krispy Kreme and its competitors enjoy

economies of scale in distribution and raw materials.

Threat of substitutes is high. There are a lot of choices of alternatives with similar products that satisfy the

need of sweets and coffee. These include healthier ingredients, organic products, etc. Moreover, specialty

eateries compete based on convenience and opportunity to attract customers since switching cost is low.

Bargaining power of suppliers is low since Krispy Kreme is a vertically integrated business. Also, they have a

large number of suppliers to choose from and wide availability of raw materials.

Bargaining power of buyers is high since there is a lot of competition in the industry, and also there are no

switching costs. Consumers actually are getting more health conscious and the consumption of sweet food like

doughnuts and other fast food is becoming less common.

3. Competitor Analysis:

The major competitor’s to Krispy Kreme are McDonald’s, Yum!, Starbucks, and Dunkin Donuts. In the

resale sector (supermarkets, gas stations, retail), the main competitors are Hostess, Little Debbie and

Entenmann’s. Starbucks and McDonald’s have significantly more stores and market power than Krispy Kreme.

Dunkin’ plans to expand its store count and McDonald’s strategy is to hold a bigger portion of the breakfast

market with its “All­Day Breakfast” and focus on breakfast food and the McCafe line. In addition, the

competitor’s offer more variety in product offerings. Dunkin Donuts focuses on a “coffee first” strategy which

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is a better strategy than the “donut first” approach that Krispy Kreme takes because most people think of

wanting coffee first and then pair it with a donut.

4. Summary of Opportunities and Threats

There is a lot of opportunity for expansion into foreign markets. Another opportunity is the option to

supply “hot donuts” constantly instead of waiting. One major threat is the power that Dunkin’ Donuts has with

its premium coffee which makes it hard for Krispy Kreme to market a coffee/doughnut combination. In

addition, major cities are starting to ban trans fats, which puts pressure on Krispy Kreme to be healthier. Lastly,

competition is strong and there is a high presence of substitutes with McDonald’s franchises, Starbucks

locations, and the “mom and pop” doughnut shops on many street corners.

B. Internal Organizational Analysis

1. Resource Based View:

Tangible Resources: Krispy Kremes most valuable tangible resource is its secret yeast­based recipe that

distinguishes Krispy Kreme’s doughnuts from other doughnut companies; however, Krispy Kremes company

stores are not very profitable.

Intangible Resources: Krispy Kreme has 65% brand recognition, 4.2 million facebook fans, and a smart­phone

app, all contributing to Krispy Kremes unique ability to connect with their customers; however, customer

awareness of Krispy Kreme’s other product offerings is low, as evidenced by Krispy Kreme’s inability to

compete in the beverage space (specifically with coffee).

Capabilities: The “Doughnut Theatre” feature provides entertainment for customers, while reinforcing

freshness and quality. Krispy Kreme is also a well­regarded local sponsor and fund­raiser. Krispy Kreme has

replaced advertising with the distribution of free doughnuts to media outlets.

2. Value Chain Analysis

Value Creating Activities: Premium ingredients are blended with proprietary processing equipment to create a

doughnut with unique flavor and texture. “Doughnut Theatre” provides customers with a unique experience.

3. Financial Ratio Analysis

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Profitability: While profits are consistent, Krispy Kreme underperforms when compared to competitors and

industry averages. (see Appendix 5A) Krispy Kreme struggles profitably because company stores are the least

profitable, but make up the most substantial portion of revenues (see Appendix 5B)

Financing: Krispy Kreme has adopted a low debt approach to growth. Accordingly, the company finances

using internally and externally generated equity. As such, Krispy Kreme has among the lowest debt ratios in the

industries in which it competes, with an exception related to Dunkin’ Donuts’ Debt to Equity ratio, which we

consider to be an outlier due to negative equity on Dunkin’ Donuts’ 2015 balance sheet. For that reason,

Dunkin’ Donuts has been set aside for debt to equity comparison purposes. (see Appendix 5C)

4. Product Life Cycle Analysis

Krispy Kreme Doughnuts is currently in the maturity stage, due to high brand awareness, wide

distribution, and lower prices to remain competitive. However, it is lacking in product adaptations to make

aware brand distinctiveness. Even though society as a whole is moving towards health conscious eating habits,

competing specialty doughnut shops are gaining popularity because when people do “splurge”, they are

preferring artisanal crafted treats. Krispy Kreme Doughnuts is also losing out to those customers who are

looking for more than just a doughnut, but a specialty shop with culture and a “hip” vibe. (See Appendix 6A,

6B)

5. Market Analysis:

Given that Krispy Kreme first opened in 1937 and the doughnut itself started much earlier, means that

there’s been at least 79 years of people eating these circular dough treats. Therefore, the diffusion of innovation

of these doughnuts has expanded well beyond the late majority if not the laggards, of their targeted market.

6. Summary of Strengths and Weaknesses

Krispy Kreme enjoys the strengths of having minimal debt on its balance sheet and having a vertically

integrated value chain including manufacturing and distribution for total control. It is also in the maturity stage

of product life cycle and thus receives international brand awareness as well as a fully developed domestic

market. They also are prized for their high quality doughnuts made with its traditional secret recipe. Some

weaknesses Krispy Kreme faces are significantly less profits than its close competitors, lacks broad

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international permeation, and is losing its brand distinctiveness. It is also very unhealthy which is more

noticeably unfavored by the growing population and lacks ordering or delivery capabilities.

7. Analysis of Ongoing Strategies

We question the low debt approach to financing when the current economic climate is providing such

low interest rates.

We are critical of the company’s ability to compete in the beverage space, which is crowded with many

other heavy hitters like Starbucks, Dunkin’ Donuts, and McDonalds.

We are supportive of the company’s commitment to differentiation based on quality and experience.

III. Mission and Vision

Mission: “To touch and enhance lives through the joy that is Krispy Kreme”

Vision: “To be the worldwide leader in sharing delicious tastes and creating joyful moments”

We believe the current mission statement is more vision oriented and better describes the achievement

of the company’s objectives. That is why we suggest to replace the vision statement with the current mission.

As for the mission statement, we feel it should include how it plans to achieve those objectives by incorporating

some of its goals expressed by the company. Therefore, our recommended mission statement reads, “We

believe to be the worldwide leader in sharing delicious tastes and creating joyful moments for our customers,

who are the lifeblood and center of the doughnut. There is no substitute for quality, service, and impeccable

presentation wherever Krispy Kreme is sold. We must produce a collaborative team effort that casts the best

possible image in all that we do and never settles for “second best.”

IV. Summary of Findings

Three of the most critical issues our group found are related to Krispy Kreme’s accessibility,

profitability, and public awareness of product offerings. KK currently lacks in its distribution channel in terms

of limited and dispersed stores for easy accessibility. KK’s profits are significantly lower than its competitors

and have specifically stagnated, if not declined here in the domestic market. And lastly, not many people are

fully aware of KK’s diverse product offerings such as seasonal or international doughnuts, other than the

original glazed doughnut.

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A. Proposed strategy

(1) In response to the problem of accessibility, we propose are greater focus on the expansion of satellite stores

in the markets in which it competes. We also propose that Krispy Kreme include online ordering and delivery

through a partnership with a company like OrderUp, in order to increase the reach of the brand domestically.

This is a functional level strategy that would add to competitive advantage by further differentiating Krispy

Kreme from competitors like Dunkin’ Donuts, who do not currently offer delivery.

(2) In response to the problem of profitability, we propose a global strategy in which Krispy Kreme

significantly increases its focus on expanding into foreign markets, because international franchises are Krispy

Kreme’s most profitable segment. Currently operating in 24 countries, there is still tremendous opportunity for

the company to expand all over the globe, offering localized versions of their malleable product.

(3) In response to the problem of low public awareness of product offerings, we propose a business level

strategy, in which the company would further differentiate from the competition by offering the world’s first

and best fresh gluten­free donut. This would contribute to competitive advantage by tapping into a new niche

market of consumers, who are becoming more conscious about gluten­intake. In addition to this, we propose a

corporate level strategy, in which the company adopts a international brand image by domestically marketing

and selling donuts that have been developed for foreign markets. This new brand image would contribute to

competitive advantage by bringing attention to the company, and by providing customers with an even more

unique dining experience.

V. Conclusion

In summary, we believe that Krispy Kreme has the ability to capture a larger market domestically and

internationally with the strategies we suggest. In our analysis, we discovered that Krispy Kreme does have a

great brand image and reputation, but they lack market share and successful advertising. They are faced with

threats by other competition and government regulations, but opportunities are present in expansion and

entering the delivery market. Offering delivery to consumers, creating a gluten free doughnut, and expanding

internationally into other countries and domestically into satellite stores would provide the company with a

competitive advantage and enable Krispy Kreme to capture more of the market share, which would ultimately

result in more profit.

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References

Bixler, B. (2014, March 25). Top Donut Franchises: Dunkin Donuts' vs. Krispy Kreme. Retrieved from

http://www.franchisechatter.com/2014/03/25/franchise­chatter­guide­how­dunkin­donuts­and­krispy­kreme­are

­dominating­the­donut­franchise­segment/

Chandran, A., Lamoreux, M., Rice, A., & Seunsom, J. (2012). Krispy Kreme Doughnuts: Refilling the Hole in a

Sweet Strategy. Texas A&M University, pp. 247­258.

Dunkin' Brands. (2016, Februaru 18). Dunkin Brands Investor Relations. Retrieved from dunkinbrands.com:

http://investor.dunkinbrands.com/sec.cfm?view=all

Fast Food Menu Prices ­ Don't Be Surprised By The Cost of Fast Food. (n.d.). Retrieved May 05, 2016, from

http://www.fastfoodmenuprices.com/

Krispy Kreme Donuts, Inc. (2016, January 31). SEC Archives. Retrieved from sec.gov:

http://www.sec.gov/Archives/edgar/data/1100270/000120677416005268/kkd_10k.htm

Krispy Kreme Doughnuts. (n.d.). Retrieved May 05, 2016, from https://www.krispykreme.com/about/Our­Story

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Mourdoukoutas, P. (2013, April 25). Dunkin Brands or Krispy Kreme? Retrieved from

http://www.forbes.com/sites/panosmourdoukoutas/2013/04/25/dunkin­brands­or­krispy­kreme/#253b9cee5610

Starbucks. (2015, December 31). SEC Archives. Retrieved from sec.gov:

http://www.sec.gov/Archives/edgar/data/829224/000082922415000038/sbux­9272015x10k.htm

The History of the Doughnut. (n.d.). Retrieved May 05, 2016, from

http://www.smithsonianmag.com/history/the­history­of­the­doughnut­150405177/?no­ist

Yum! Brands, i. (2014, December 27). SEC Archives. Retrieved from sec.gov:

https://www.sec.gov/Archives/edgar/data/1041061/000104106115000007/yum10k12272014.htm

Appendices

Appendix 1: SWOT Analysis – summary

Strengths

∙ Brand/logo awareness

∙ Reputation

∙ Longevity in the market

∙ Fundraising

∙ Low debt

Weaknesses

∙ Lack of advertising/poor customer

awareness of products

∙ Loss of uniqueness

∙ Limited menu/store

∙ Poor profitability

Opportunities

∙ International expansion

∙ Delivery option

∙ Advertising

Threats

∙ High competition

∙ Increased health­consciousness

∙ Government regulation

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Appendix 3: Competitor Analysis

Appendix 5: Financial Analysis

5A: Krispy Kreme is significantly less profitable than close competitors, and the industry average.

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5B: Krispy Kreme’s business segments vary both in terms of their contribution to total revenues, and in their

respective operating margins.

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5C: Krispy Kreme is significantly less leveraged than close competitors and industry averages.

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6A: Product Life Cycle

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Appendix 6B: Competitive Prices