Krispy Kreme - Case Study

Robyn Crean, Jason DiCarlo, Amy Granville, Isaiah King

Lasell College

Company Background

Krispy Kreme Doughnuts was created when Vernon Rudolph discovered an old hand-written doughnut recipe that his uncle, a Kentucky farmer, had purchased in 1933. Today, Krispy Kreme Doughnuts, Inc. is an iconic international doughnut and coffeehouse chain using the same secret recipe that Rudolph’s uncle purchased in New Orleans, currently locked up in a safe in Winston-Salem.¹ In the beginning, Krispy Kreme was solely a wholesale bakery baking doughnuts for local grocery stores. However, the local residents couldn’t get enough of the intoxicating aroma from the factory leading Rudolph to the decision of selling directly to the community. Rudolph ordered, “Cut a hole in the factory wall and sell ’em out on to the street.”²

By the 1950’s Krispy Kreme became a regional chain with thirty shops located throughout the Southeast. After Rudolph’s death in 1973, Krispy Kreme was sold to Beatrice Foods who ultimately led the company downhill. The relationship between Beatrice Foods and Krispy Kreme has been described as “a bad marriage” by former CEO, Scott Livengood. Livengood also stated, “Beatrice didn’t care so much if the stores made money, as long as we sold doughnuts to supermarkets. She didn’t want to invest in stores or expand the company.”³

In 1982 a group of twenty-two franchises joined together and purchased Krispy Kreme in a leveraged buyout. The company now in the hands of individuals who cared about the brand implemented a new innovative marketing effort to re-vamp the brand. The concept of the “Doughnut Theater” was then born. This idea allowed customers to watch the entire doughnut making process right in the store. Other efforts to help entice business include “Hot Doughnut Now” signs, which were placed in every retail branch. These signs were lit to notify consumers whenever fresh doughnuts were finished baking. Customers could then walk in and receive a free glazed doughnut.⁴

Soon after, Krispy Kreme was experiencing rapid expansion. By the end of 1999, Krispy Kreme had 144 shops in 27 states and revenues climbing to $220 million. In April 2000, Krispy Kreme became a publicly traded company.⁵ In December of the following year, Krispy Kreme opened a store in Toronto, Canada; one of 49 stores added that year. Due to exponential growth rates in May 2004, many sales became flat leading Krispy Kreme to experience their first unprofitable quarter. With this negative outcome and other issues within the company, Krispy Kreme’s long-time CEO Scott Livengood stepped down and was replaced by Stephen Copper. Hoping that he could turn things around, Cooper began the recovery process. However, this proved to be too much for him to handle because shortly after he handed the reins over to Daryl Brewster. Brewster’s turnaround strategy called for Krispy Kreme to cut costs at a sustainable level to prevent bankruptcy as well as adapting to the health-conscious consumer and expanding internationally. Krispy Kreme continued to struggle, even with Brewster’s strategy in place. Soon after, James Morgan took over the business. Under Morgan’s leadership the company had its first consecutive profitable years in 2010-2011 since the firm reached its peak in 2004.

In 2012 Krispy Kreme celebrated its 75^th^ anniversary of selling “Melt in Your Mouth Joy” doughnuts. On June 1, 2014 Tony Thompson was appointed President and CEO of Krispy Kreme.⁶ Most recently, Krispy Kreme opened its 1,000^th^ store in Kansas City. Krispy Kreme has implemented many innovative ideas in efforts to keep the company relevant. The company has also introduced new healthier menu items such as oatmeal, yogurt, and juice at select locations. The company also offers a smaller, “bit sized” doughnut as well as a whole wheat doughnut option as healthier alternatives. They have also introduced a variety of coffee, crullers, seasonal/holiday-inspired doughnuts, ice cream and doughnut sundaes, and a line of “chillers” which are Krispy Kreme’s version of a smoothie and doughnut milk shakes. Although there are numerous flavors of doughnuts, mini doughnuts, and doughnut holes, the Original Glazed has always been the most popular product sold by the company.

By experimenting with different markets to delve into, the company has managed to stay relevant and create new revenue streams. Krispy Kreme also created a prominent presence abroad which has proven to be very important to the company. Though the company has had its ups and downs, Krispy Kreme will always maintain a role as one of the leading doughnut brands in the world.

General Environmental Analysis

Political Trends

Krispy Kreme must adhere to many different codes including: Code of Business Conduct and Ethics, Code of Ethics for Chief Executive and Senior Financial Officers, Chief Executive Officer Succession Policy, Corporate Governance Guidelines, Policy and Procedure with Respect to Related Person Transactions.

First, Code of Business Conduct and Ethics is a code of conduct which is a set of organizational rules regarding values, beliefs, ethics, and matters of legal compliance. Organizational members are responsible for adhering to the code of conduct and will be held accountable for failure to do so.⁷ Codes of conduct prohibit behavior and inform employees of what is expected of them. Also outlined in the code are penalties for failure to comply. A few common topics in Business Codes that arise are: Conflicts of interest, Confidential information, Employment discrimination, Use of the organization’s property, Financial reporting and accounting, Health and safety issues, Political contributions and campaigning in the office, and Legal compliance issues relevant to the organization.

The Code of Ethics for Chief Executive and Senior Financial Officers is similar to the Code of Business Conduct and Ethics, however the Chief Executive Officer and senior financial officers are subjected to additional policies. One rule states, The CEO and each senior financial officer shall promptly bring to the attention of the General Counsel any information he or she may have concerning alleged evidence of a material violation of the securities or other laws, rules or regulations applicable to the Company and the operation of its business, by the Company or any agent thereof, or of a material violation of the Code of Business Ethics or of these additional procedures.⁸

Next is the Chief Executive Officer Succession Policy. This policy is a guideline to a change in executive leadership in a company. Krispy Kreme has created a plan to insure stability and accountability of the company in preparation for a planned or unplanned change in leadership.

The Corporate Governance Guidelines provide a framework for the governance of Krispy Kreme. Corporate governance involves balancing the interests of shareholders, management, customers, suppliers, financiers, government and the community. Not only does it provide a framework for attaining objectives but it also covers every area of management.⁹

Krispy Kreme has quite a few government regulations to stay compliant to, including local regulation. Their stores are subject to licensing through government authorities such as health, sanitation, safety, and fire agencies. In order to meet these regulations, they must respect zoning, land use, and environmental factors. Another regulation that must be met is the food product regulation. Krispy Kreme must meet all federal state and governmental rules. “For example, the ingredient list, product weight and other aspects of our product labels are subject to state and federal regulation for accuracy and content. Most states periodically check products for compliance. The use of various product ingredients and packaging materials is regulated by the United States Department of Agriculture and the Federal Food and Drug Administration.”

There are few other political factors that affect the success of Krispy Kreme. One political interference would be the minimum wage and employment law changes. Most of the Krispy Kreme employees and staff are usually individuals with little experience or education. Although the company does take time to train these individuals, they are usually paid minimum wage. Therefore, Krispy Kreme is affected by the minimum wage increases.¹⁰

More political factors that affect the company are the government efforts to reduce the risks of obesity. Although it is highly doubtful that the government will enforce laws banning high fat and unhealthy food options, the possibility still exists.¹¹

Economic Trends

Due to the rise and fall of the economy, consumer spending has tightened. Where customers are more critical about where they spend their money, Krispy Kreme has been affected by selling a product that is considered to be a non-essential food item. Therefore, the company may feel a pressure in sales. Due to limited customer spending, the fight for sales against competitors has intensified.¹²

Other economical factors affecting the business would be the rise of wheat and soybean oil prices. These are key ingredients in Krispy Kreme doughnuts which have reached record high prices.¹³ Also, Krispy Kreme is taking a big hit from return rates from the company’s wholesale partners whose rate are higher than normal. One of the biggest issues affecting the economic achievement of Krispy Kreme is their overuse of discounted promotions. Although these promotions entice numerous consumers to purchase doughnuts or other products, the cut in costs from the many promotions are actually hindering the success of the business.

Although there are a few negative economic factors, there are some positive. Krispy Kreme is able to purchase key supplies at volume discount prices that competitors may not be receiving. Krispy Kreme is very selective in choosing suppliers and requires potential suppliers to meet certain standards in regards to quality and reliability. The economy overall is not a prominent factor determining Krispy Kreme’s success because they are not affected by the gross domestic product indicators or unemployment numbers unlike most companies.¹⁴

Sociological Trends

A huge sociological factor affects the success of Krispy Kreme would be the awareness and concern about health and ingredients in food. Where consumers are becoming more aware and cautious about what they are putting in their bodies, they have become more critical about where they spend their money to purchase food items. Due to outbursts across the world of boycotting trans fats and other ingredients, Krispy Kreme has responded by creating a whole wheat doughnut option that removes trans fats from their products. Krispy Kreme has also eliminated the use of artificial colors in their doughnuts. Also, they protect earth environment with CO2 free production methods.

However, although the concept of obtaining a healthier lifestyle has become a rising trend, Krispy Kreme should remain afloat. Going out to eat is a social habit exercised by most individuals which most likely will not change.¹⁵ Therefore, companies like Krispy Kreme can thrive, but they will need to adjust their food options to stay competitive.

Krispy Kreme also gives back by participating in various social contribution activities. Many of their stores sponsor children suffering from hunger through the “Coin Collection for Love” event. Our commitment to corporate social responsibility is also evident\ in our sponsorship for various charity events including disabled support events, underprivileged children, neighbor support, etc.¹⁶

Technological Trends

In order to stay ahead of the competition, brands must embrace new technology, however, in the food industry, technology has little influence over the purchase and preparation of food. Newer technology can be used to enhance efficiency, production, and distribution. Although ecommerce is on the rise, this technology does not greatly impact the food industry. ¹⁷

Krispy Kreme has created an app in order to keep up with the millennial demographic. Krispy Kreme’s Hot Light is a useful app that alerts its followers when doughnuts are “hot off the line.” Users also have the option of setting their preferred locations as well as offered directions to others. Also to entice customers, Krispy Kreme has created “My Krispy Kreme Treats” customer loyalty app. This app which can be downloaded on both iOS and Android smartphones allows customers to earn rewards point which are redeemable for free products at any of their locations.¹⁸

Other technological advancements that Krispy Kreme has begun to incorporate are paperless ordering, predictive modeling software, and hand held computers for their delivery drivers.

Demographic Trends

Krispy Kreme competes in both the restaurant industry and retail. In the restaurant industry; which includes fast food, fast-casual, and full service segments, Krispy Kreme provides a universal product and global brand marketed to everyone, everywhere of all ages and incomes. Consumer demographics are in line with the general population. The food service industry is often affected by the preferences and perception of consumer. Changes in preferences are a risk for Krispy Kreme, lessening the demand for doughnuts, which reduce sales. Krispy Kreme also sells doughnuts to supermarkets, gas stations, and retailers such as Wal-Mart for resale.

Industry Analysis

Krispy Kreme competes within two major industries and they are identified as the “Quick Service Restaurant” and the “Baked Good Production” segments. QSR represents the largest segment within the restaurant industry and is known for steady growth over long periods of time. The Baked Good Production industry is recognized by Krispy Kreme at the wholesale level and doesn’t require as many resources as QSR.

Both of these markets are presently experiencing slow growth and overall change because many channels are saturated and also because product differentiation is hard to implement within the donut industry. Although change and innovation do not occur, it still remains to be a very appealing billion-dollar industry. Amongst Krispy Kreme, there are many entities that also compete within the donut industry including, Dunkin Donuts, Tim Horton’s, Shipley’s Do-Nuts, and other small sized bakeries.

Organizations within this environment share many structural similarities. These similarities ultimately contribute toward the overall attractiveness of the donut industry. In this particular environment the common themes regarding structure were high fixed costs, low switching costs for customers, relatively low product differentiation, as well as the maximization of profits through royalty payments.

Due to low product differentiation and the high concentration of competitive rivals, these industries are openly known to be extremely competitive. For example, Dunkin Donuts operates 14 times the amount of retail locations Krispy Kreme has, although they still fall behind them financially. Dunkin Donuts is Krispy Kreme’s closest competitor in sales, product offering, and worldwide presence. This is the result of Krispy Kreme outpacing Dunkin Donut in the area of important industry metrics. Profit margins, return on assets, return on equity, and equity to debt stand as the metrics dictating this particular industries attractiveness. Additionally, this industry has very low customer switching costs, which negatively affect customer loyalty.

The threat of new donut powerhouse entrants at the national level is very low. First off, it takes a significant amount of capital to establish a network of stores. According to the Business Journal, it takes roughly a half of a million dollars to become a Krispy Kreme franchisee. (http://www.bizjournals.com/triad/blog/2013/01/how-much-would-it-cost-to-open-a.html) Competing alongside the QSR’s largest firms makes it virtually impossible to capture economies of scale. In order to compete on a national scale, the right amount of brand equity must be established. Brand equity is build through many investments made in time, as well as advertisement dollars. Even though there isn’t much Krispy Kreme has to worry about when it comes to potentially large corporations becoming a new competitor, there is some vulnerability at the local level. Mom-and-pop shops automatically pose as a legitimate threat toward Krispy Kreme because the capital requirements for an individual firm are not high.

Suppliers have very little, if any, bargaining power mainly because most businesses in this industry had a vertically intergraded business model. Firms who choose to exercise this tactic gained access to a wide availability of necessary raw materials. (http://www.economist.com/node/13396061) It is also highly unlikely that suppliers in the donut industry will enter the same business as its clients. Companies such as Krispy Kreme have been known for locking in contracts with their suppliers, further lessening the bargaining power held by the suppliers. The low switching cost between vendors also is a factor that plays against the suppliers as well. In fact, the only buyers with the power to shake things up are firms in the wholesale sales channel.

Due to its branding, customer-experience, secret recipes, and curiosity, Krispy Kreme has positioned itself as the best differentiated brand in the donut industry. Their belief of fluffily donuts over cake-textured donuts is what largely separates Krispy Kreme and makes them stand out in a well-received manner. By differentiating it’s main product as a “premium donut” earned them a competitive edge and solidified Krispy Kreme’s name within the industry. (http://smallbusiness.chron.com/examples-differentiation-fast-food-69833.html) Competitors of this industry attempt to expand revenues through coffee sales, although the donut holds as absolute within the natural performing environment. Due to the excellent efforts of differentiation, the threat of substitution is low for Krispy Kreme unless donuts completely disappear no matter how conscious consumers become. The transition into conscious consumerism could unseeingly help sustain the overall donut industry through healing overindulgence. As consumers become increasingly aware, the chances of finding other useful or therapeutic purpose for consuming donuts increase. For example, a conscientious Krispy Kreme consumer of the future may determine that they may want a fresh glazed donut not because they’re hungry, but because they want to heighten their mood after a series of unfortunate events. There are cases like this that occur highly often. Although the desires of overindulgence are still present, this is due to the fact that everyone in society has yet to evolve into a conscientious consumer.

The intensity of rivalry among competitors Krispy Kreme faces is moderate to high. Krispy Kreme has for a while, been outperforming all of its competitors by a long shot. Both industries Krispy Kreme operates in have highly concentrated amounts of competitive rivals, although many of these channels are overly saturated. However, Krispy Kreme’s closest competitor, Dunkin Donuts is in debt so deep that it is forced to compete until the company goes black or an acceptable loss is set forth.

Through the analysis of The QSR and Baked Goods Production in which Krispy Kreme competes, has exemplified that these are two highly attractive and profitable industries. Through the extensive qualitative and quantitative research of the environment in which Krispy Kreme performs, high entry barriers, weak bargaining power from both seller and buyer, along with weak product substitutions and moderate rivalry among competitors were all identifiable.

Internal Analysis

• In 1995, Krispy Kreme moved into a new corporate headquarters, reshuffled its management team, and prepared to expand nationwide.

• To leverage the planned growth, the company relied on franchising instead of opening company owned stores

• This allowed Krispy Kreme to receive a steady income flow from royalty fees, expand its customer base for mix and equipment via franchises, and inflate its brand recognition.

• By the end of 1999, the company’s portfolio included 144 shops in 27 states, and revenues had climbed to $220 million—up 40% from just two years earlier

• Krispy Kreme made its IPO in April 2000 with a split-adjusted price of $9

• By the close of 2003, the stock was selling at a price just a bit over $49 per share

• The company had expanded by 433 stores, had reached $700 million in revenues, and had earned $88 million in operating profit

• As it turned out, the rapid expansion of the previous five years had not been carefully or effectively planned

• As new franchises saturated the market and the novelty value of the firm’s products faded, it became obvious that the early success of many stores was sustainable

• Many of the once-profitable stores began to flounder and, in May 2004, Krispy Kreme experienced its first unprofitable quarter as a public company

• Krispy Kreme implemented a new turnaround strategy that called for cutting costs to a sustainable level as a path to prevent the firm’s bankruptcy

• Closed over 240 stores as the company retrenched to its stronghold in the Southeast

• In 2012, 66% of retail stores were located outside the United States, with estimates of having 900 stores internationally by the end of 2017

• Stock price bottomed out at less than $4 a share in January 2008

• Revenue eventually increased at the end of 2012, Krispy Kreme looked to open as many as 100 new stores domestic and internationally

• Krispy Kreme earns the majority of revenue through the sale of doughnuts

• Doughnut sales comprise over 88% of all retail sales while the remainder comes from selling beverage and complementary items

• Maintenance of consistent gross profit margins and modest revenue growth of 4.5 and 11.4% in 2009 and 2010, respectively, have allowed Krispy Kreme to contribute to its bottom line and return to profitability

• Showed Net Income of $166 million and a 41% profit margin in fiscal year ending January 2012

• Krispy Kreme maintains wholesale contracts with a wide variety of grocery stores, convenience stores, and other large accounts—including Wal-Mart, Kroger, and Sheetz

Value Chain

1. Doughnut recipe

• Unique taste

• Produced, controlled, and consistent

• Distributed to all stores and franchises

1. Manufacturing

• Design and manufacture of the doughnut making equipment

• This is then sold to stores for profit and ensures consistency of end product

1. Retail Distribution

• Mixture and equipment is distributed to large factory stores

• Mix of factory stores that supply smaller stores

• Outsourced retail channels in service stations and Wal-Mart

1. Store Experience

• Worldwide Locations

• Freshly baked and produced doughnuts each day

• Original glazed recipe

• Simple product line

{width=”8.20625in” height=”9.270833333333334in”}

{width=”8.52361111111111in” height=”5.5in”}{width=”8.208333333333334in” height=”4.5in”}

{width=”8.456944444444444in” height=”9.622222222222222in”}

{width=”7.947916666666667in” height=”4.25in”}{width=”8.447916666666666in” height=”5.121527777777778in”}Interactive Chart

{width=”5.033333333333333in” height=”6.729166666666667in”}{width=”6.288888888888889in” height=”3.9375in”}

{width=”4.269444444444445in” height=”4.864583333333333in”}

{width=”4.25in” height=”3.8541666666666665in”}

Competitor Analysis

• Primarily competes in the Quick-Service Restaurant (QSR) segment of the restaurant industry

• It also competes on a wholesale level in the Baked Goods Production Industry

• Competitive rivals include: Dunkin Donuts as their closest competitor, Starbucks, Tim Horton’s, Shipley’s Do-Nuts and other smaller bakeries

• Dunkin Donuts has 628.2M in sales compared to Krispy Kreme having just 403.22M

• Dunkin Donuts is offered in 30 countries while Krispy Kreme is only in 20 countries

• The firm is able to generate higher ROA and ROE as compared to Dunkin Donuts

• Krispy Kreme has a significantly lower leverage ratio as compared to Dunkin’s extremely high 195%

• They face less direct competition from McDonald’s, Starbucks, and coffee shops because of their inability to market coffee sales

• Krispy Kreme also faces some competition with pre-packaged goods such as Little Debbie, Hostess and Sara Lee

• As is the case with its competitors, Krispy Kreme has made a concerted effort as of late to expand revenues through coffee sales, but the dominant element of the Krispy Kreme business model continues to be doughnut sales

• Dunkin Donuts generates approximately 60% of sales revenue from coffee and other beverages; Krispy Kreme continues to lag far behind in that regard with only 4% of its sales coming from coffee. They do have a plan to double coffee sales within the next two years, but they still don’t match up to companies such as Dunkin Donuts and Starbucks

• One of the largest concerns in the overall competitive environment is the changing demands of consumers

• As consumers become increasingly health conscious, the doughnut industry becomes more vulnerable to the threat of substitution, especially considering that each original glazed Krispy Kreme doughnut has 200 calories and 12 grams of fat

{width=”5.5625in” height=”3.8645833333333335in”}

SWOT Analysis

Krispy Kreme Doughnuts, Inc. (KKD) is a very successful well known company that possesses various strengths. Krispy Kreme’s appeal extends to all demographics, which is an impressive strength to the company. KKD are enjoyed by all individuals regardless of age, size, race, and income.

One of Krispy Kreme’s strengths is that they are a global firm. KKD has established itself as a consumer brand with a consistent customer base in both the United States and abroad. The company has branched out into grocery and convenience stores in order to provide customers with more accessibility to the brands products. Establishing their presence in retail and wholesale environments proved to be a key component for this company’s success.

Krispy Kreme generates revenue through four different business segments: Company Stores, Domestic Franchises, International Franchises, and the KK Supply Chain. Both the company’s stores and domestic franchises operate similarly by earning revenue throughout retail operations as well as wholesaling to grocery stores, convenience stores, and other food venues. KKD has become quite popular in both convenience and grocery stores. Due to the convenience, consumers can enjoy the famous Krispy Kreme doughnuts without traveling to their retail locations and instead purchase a quantity of donuts at a local supermarket. By selling their products in stores Krispy Kreme has gained a huge advantage over the competition. Majority of Krispy Kreme’s competitors, such as Dunkin Donuts, do not sell their doughnut products in stores. This makes Krispy Kreme a vertically integrated company with three retail unit operations.¹⁹

Not surprisingly, Krispy Kreme earns most of their revenue from doughnut sales, comprising over 88% of all retail sales. The company also provides a wide variety of flavors for their doughnuts, coffee, and bakery items. Since Krispy Kreme is such a well known brand they are able to sell various types of memorabilia including mugs, hats, shirts, and toys.²⁰

Krispy Kreme’s concept of a “Doughnut Theater” has proven to be yet strength for this company. The “Doughnut Theater” is a multi-sensory experience that engulfs customers as they watch the doughnuts come off the assembly line. The “Doughnut Theater” was introduced in the late 80’s when the company was experimenting with various innovative marketing ideas. This concept exposes the doughnut-making equipment to the customers inviting them to watch the doughnut making process in stores. Visitors can observe the doughnuts through each phase starting with the doughnuts being fried, to passing through a glazed waterfall, and finally being then taken off the conveyer belt to be given to the customers.

Another innovative marketing technique that Krispy Kreme has implemented is the “Hot Doughnuts Now” sign in most retail stores. Through this technique, passing individuals are alerted when fresh doughnuts are hot off the line. Not all locations participate in this method, but the ones that do participate have received a lot of foot traffic and word-of-mouth advertising. An additional strength of KKD is their desire for growth and success. The company has worked very hard to be where they are today and is willing to keep up the momentum in order to continue their success.

Lastly, the most important strength of Krispy Kreme is their product. Krispy Kreme Doughnuts are a unique product that simply cannot be duplicated. Their competition will never be able to replicate a Krispy Kreme Doughnut unless they discover the ingredients to the secret recipe. KKD products set them apart from other doughnut shops and are the core of the company. When you think of Krispy Kreme you think of fresh, hot, glazed doughnuts and they have done a great job capturing that part of the market. Even though they offer other products, such as coffee and crullers, Krispy Kreme will always be known primarily for their doughnuts.²¹

Although Krispy Kreme has various strengths they also have just as many weaknesses. The main weakness that KKD faces is that the majority of their products are unhealthy. We are living in a more health conscious world where people are concerned about what they are eating and worry about how bad certain products are. Krispy Kreme has been placed on “The Unhealthiest Foods” list for many years. The Krispy Kreme menu clearly lacks healthy options which can be a major turn off for some consumers. Their products are known as sweat treats and therefore the company is having a hard time incorporating the health-conscious customer. The negative health effects from eating too many doughnuts include: heart conditions, high blood sugar, high blood pressure, and a lack of nutrients. Krispy Kreme famously is known for their glazed doughnuts, however the threatening truth that the consumption of doughnuts could one day cause health issues is a becoming a growing problem for the company. A Krispy Kreme Original Glazed doughnut is made from at least 50 ingredients, mostly artificial food additives that increase your risks of cancer, diabetes, heart disease, allergies, and digestive disorders. Sugar has been named Public Enemy No. 1 by the health conscious percentage of the population and a Krispy Kreme doughnut contain plenty of.

With the population becoming increasingly dependent on technology, consumers want what they want, when they want it. Many companies have taken this mentality into consideration and have made ordering online readily available to the customer. Krispy Kreme has little to no presence online, which is surprising considering the technologically advanced world. KKD doesn’t have any options to order online and later pick up their order in stores. This poses as a threat to the company because individuals want easy and convenient shopping which the internet makes that possible. Due to the inconvenience, consumers might decide to purchase their doughnut elsewhere.

Another issue is that Krispy Kreme relies too much on their brand recognition when in reality they should be up updating their service in order to stay current. Krispy Kreme does little advertising and what advertising they currently do is not aggressive enough to catch buyer’s attention.

The KKD menu is also a weakness. Krispy Kreme’s menu is weak and could use some redesign to attract a larger target audience. By adding more unique products to their menu, Krispy Kreme could potentially attract more customers. The notion is that KKD sells only doughnuts when in actuality they also have other baked goods and coffee. The company has also been hit hard during times when the economy was doing poorly. Krispy Kreme has had a handful of years where they were losing money and close to going bankrupt.²²

Krispy Kreme also struggles with rapid expansion as well. They had such booming success in the company’s early years, but now moving too fast can cause major problems for the company. The rapid expansion was not fully thought or planned out and therefore resulted in exponential growth in certain store locations and huge losses and struggles in others. Due to this rapid expansion, Krispy Kreme has experienced their first unprofitable quarter and cannot afford to let that happen again.

Another weakness that Krispy Kreme faces is their corporate structure. There have been numerous board members, presidents, and CEO’s throughout the company’s history that is has proven to be a disadvantage. In the consumer or investors eyes, it is not a good look when a company’s CEO is constantly changing. By the constant fluctuation of leadership and management, to outsiders it appears as if the company does not know what they are doing.²³

Krispy Kreme has many possible opportunities to become more successful than they have been in the past. As discussed earlier, healthier food options pose as a weakness for Krispy Kreme which is a threat that they should be improving. It is apparent that the introduction of the whole wheat doughnut and the bite size doughnut options were not enough for the company to be considered a healthy dinning option. Krispy Kreme also introduced a number of juices, Naked Smoothie drinks, and yogurt options which were implemented in a few retail locations. However, these changes have not made a large impact. If Krispy Kreme focused on creating healthier options to introduce to consumers, they will be able to attract more people from the health conscious population.

Another helpful suggestion would be that Krispy Kreme should focus more on the coffee market. KKD currently offers a coffee option but it is not as successful as predicted. The coffee market is one that is very easy for KKD to enter because their product goes great with coffee. When people think of breakfast they instantly think of coffee and doughnuts because they go hand and hand. If Krispy Kreme adds new flavors or options for their coffee and advertises them properly then it is conceivable that more people would be attracted to their offer. Many people don’t know that Krispy Kreme currently sells coffee, therefore marketing correctly is the key.

Another opportunity for growth and success for Krispy Kreme are foreign markets. The company has always done well internationally but further expansion could lead to an increase in revenue and brand recognition. KKD first international shop was opened in 2001 in Canada, just outside of Toronto. Now Krispy Kreme has stores and operates in 24 different countries around the world. Each store offers different products depending on the country in which they are operating. For example, in Australia Krispy Kreme offers the Mudcake doughnut which is a devil food cake doughnut glazed and topped with a chocolate coating. In South Korea they offer the Tiramisu Soft Ring doughnut which is a thick smooth ring doughnut with mascarpone cheese filling, cocoa powder, and espresso for a blend of taste. Krispy Kreme has proven to be successful in foreign markets but continuing their growth domestically is something that they should strive for.

Today, the closest Krispy Kreme location in relation to Boston is located in Connecticut, which is approximately 80.28 miles away. Because their brand recognition is so strong, they will be able to slowly begin opening more stores across the United States while also keeping in mind the problems they faced with rapid expansion in the past. By advancing advertising efforts Krispy Kreme can remain relevant and keep their consumers in the loop. Krispy Kreme does not actively participate in much advertisement which is a main concern that needs improvement. If they become more prevalent in TV commercials, ads on the radio, and social media marketing then they might have a chance to hit a new audience.

Krispy Kreme Doughnuts faces many threats due to the market that they are present in. The biggest threat that Krispy Kreme faces is their competition. They have many competitors both domestic and abroad in various sizes. Over the past two decades, competition in the fast-food market has increased. Krispy Kreme’s biggest competitors include: Dunkin’ Donuts, Tim Hortons, Starbucks, and local bakeries. Dunkin’ Donuts has a unique selling proposition stating, “America Runs on Dunkin.” Historically, Dunkin’ Donuts is the world’s largest coffee and donut shop, serving more than 3 million coffees a day. This competitor alone makes it very difficult for Krispy Kreme to attempt further tackling the world of coffee. Dunkin’ Donuts and Starbucks have almost all of the coffee market locked up leaving Krispy Kreme with the challenge of trying to break through.²⁴

Tim Horton’s, which is a Canadian based company, focuses on “always fresh” coffee, baked goods and home-style breakfast, and lunches in a quick-service restaurant. Another threat they face is competition in local bakeries. Many people like the idea of going to their local “mom and pop” bakery to buy pastries rather than supporting a chain such as Krispy Kreme. Rivals are concerned about Krispy Kreme’s rapid growth, market share gains, and erosion of their own market positions. Therefore, competitors may be compelled to rejuvenate their menus, product quality, and strategies in order to stay ahead of the possible advances of Krispy Kreme.

Health conscious consumers are also a threat to Krispy Kreme. If consumers continue to be health and nutrition conscious, leading them to avoid doughnuts, the company may face a continued slow market growth and flat and diminishing sales.

Strategies

Beginning with Krispy Kreme’s core competencies, leadership, individuality, and philanthropy are the main themes that the organization has built their business upon. The resources that Krispy Kreme has accumulated throughout its existence are in a large thanks to the solid foundation ratified, which in return fostered a sustainable environment safe to compete in. The great internal leadership from Morgan has enabled Krispy Kreme the opportunity to exercise its resources in compliance with its core competencies, strengths, and capabilities. Therefore, in order to further increase the overall efficiency and effectiveness of a business, its operational strategies must be updated or innovated once self-identified.

Resources such as refined management tools, training manuals, and hands-on employee training are often under utilized even though these tools can do great damage especially if practiced behind great leadership. Since Krispy Kreme leadership has suggested that it is now aiming at greater investments in human capital, I think it it’s time for the firm to enhance its ambiance by incorporating the human touch. Brand equity is a very noticeable strength that Krispy Kreme can still expand upon with the help of employees whose purpose is to create a resonating experience outside of the donut theater. For example, changing the climate of a Krispy Kreme retail store to attract young professionals or the whole millennial generation will be the best target market to monetize domestically. Millennials makeup the majority of the people in the United States and are also the most educated generation to exist. Since the dining spaces have a quick turnover anyways, innovating that space into a “think tank” “incubator” or simply a place that attracts the most valuable element of any economy – an idea. This is a low cost implementation that wouldn’t require significant change to the infrastructure of the firm. The core competencies of Krispy Kreme reflect an accurate depiction of the millennial essence.

Another route leadership could consider going in the implication of joint ventures where a bakery and medical marijuana dispensary would both operate. The joint ventures would begin in states that have already completely legalized both the use of recreational and medical marijuana. Starting in states that have no laws regarding the usage of personal marijuana would prevent adverse reactions or cultural shock to areas that aren’t ready. Individuality, leadership, and philanthropy also tie in fairly accurately regarding the essence of marijuana. Furthermore, the real excitement of this implementation comes from the added revenue stream. Just like donuts, marijuana is now being package and sold as a commodity. This cash crop currently has one of the highest demands, while generating millions of dollars that eventually can be reinvested back into a local community. If this measure were to be executed, Krispy Kreme would further differentiate itself, separating itself from the current industries it identifies with. Eventually this has the potential to become the first American version of the European coffee house model.

The final implementation strategy suggested would be the most simplistic of the three regarding execution. The single most important thing all brands must make sure they are active on social media outlets. This is an essential for all brands because it’s important to have an open channel of dynamic communication toward your audience.