Wednesday, February 1, 2012

KRISPY KREME DOUGHNUTS

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KRISPY KREME DOUGHNUTS


Krispy Kreme Doughnuts, Inc. is a specialty retailer of doughnuts. The companys business owns and franchises Krispy Kreme doughnut stores, where it makes and sells over 0 varieties of doughnuts, including its signature Hot Original Glazed and nine other varieties. Each of its stores is a doughnut factory with the capacity to produce from 4,000 dozen to over 10,000 dozen doughnuts daily. The Company also sells in its stores drip coffee, other beverages, other bakery items and collectible memorabilia such as tee shirts, sweatshirts and hats. As of February , 00, there were 76 Krispy Kreme stores, of which 70 were located in 7 states in the continental U.S., five were located in eastern Canada and one was located in Australia. The Company also accomplishes off-premises sales through its direct store delivery system.


Krispy Kremes success has left many in awe. This case will talk about how Krispy Kreme has been so successful using internal and external analyses and will also take a look at its competitors. Financial reports will be used as a benchmark to measure success.


The analysis will focus on product diversification as a measure of securing market position and sustaining a competitive advantage.


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Strengths


1. Nationally known celebrity brand of doughnuts


. Honest and old-fashioned company, using original recipe and 50¡¦s restaurant interior design


. Doughnuts made fresh everyday and served hot


4. Company values held the same as when founded in 17


5. Doughnut-making theatres, customer can see how the doughnuts being made.


6. One-of-a-kind taste


7. Affordable


8. Community relationships and loyal customer base


. Accessible drive-thru


10. multi channel market penetration


11. conduct training for the human resources to standardized employees skill


1. vertically integrated supply chain


Weaknesses


1. Krispy Kreme lacks a lunch or dinner meal substitute (low variety of product diversification)


. markets are learning towards healthier food products (the calorie content of the doughnut is high)


. Long lines at opening and weekend mornings.


4. lack of advertising


5. no experience in foreign market


Opportunity


1. Expansion into a more global marketplace


. Add more stores in current target markets (100.000 + households)


. The product excitement being created by KK may well help grow the market for doughnuts and thus help overcome the relatively flat demand for doughnuts that has prevailed in recent years.


4. Expansion into premium coffee lines


5. Co-Branding opportunities


Threats


1. Getting doughnuts in new customers¡¦ hands


. Krispy Kreme needs to be more aware of competition


. Healthier products alternatives available. Increasing health conscientious „³ research confirming that doughnuts contain large amount of sugar and are high in calories grabs the headlines.


4. A proliferation of bakery departments in supermarkets had squeezed out many locally owned doughnuts shops.


Porter¡¦s 5 Forces


Supplier Power- Supplier¡¦s power is very limited in this industry due to the sheer number of possible suppliers of ingredients that are easily obtained. Supplier power is also limited by the fact that Krispy Kreme¡¦s mixing facilities have been centralized.


Buyer Power- Buyer¡¦s have abundant power in the donut industry. There are many options available to the buyer. They can make their own donuts or pick and choose from a wide range of donut stores. In order to draw customers away from the other options Krispy Kreme must use methods such as the donut theatre to lure these buyers.


Barriers to Entry- There appear to be very few barriers to entry into the donut industry. When you are specializing in one simple product such as a donut, equipment is minimal and knowledge to produce donuts is easily gained. Anyone who has cooked at home can quickly learn to cook donuts.


Threat of Substitutes- There will always be substitutes for donuts and the lean towards healthier living creates a vast range of substitutes. An example would be bagel or muffin chains offering a healthier alternative to donuts. Krispy Kreme must be aware of these alternatives and be prepared to adjust their product line to accommodate or lure potential customers.


Rivalry- There has been and may always be a large amount of rivalry between competing donut producers. The range of producers is vast, from small private bakeries to larger chains such as Dunkin¡¦ Donuts. Donuts are easily produced from relatively inexpensive ingredients. This creates competition and rivalry and Krispy Kreme should be look at expanding its product lines into new markets.


Core Competencies


Krispy Kreme has an excellent Marketing Department. They have kept a good reputation and established good rapport in the domestic market. Having excellent and swift customer service is a good business strategy that led to the development of their doughnut-making machine. The original glazed is the doughnut that most people are familiar with and is the most popular. At Krispy Kreme the glazed doughnuts are served hot off the doughnut-making machine. A main attraction for Krispy Kreme is the ability to create your doughnuts fresh to order. If you happen to be passing by the store and wondering whether or not the doughnuts are being served hot and fresh, just watch the sign on the outside of the store. If the HOT light is on, that means that the doughnuts are being made and they are at the peak of freshness.


Key Success Factor


1. Quality/Product performance


. Reputation/Image


. Manufacturing capability


4. Technological skills


5. Networking/Distribution capability


6. Product innovation


7. Financial resources


8. Advertising


. Relative cost position


10. Customer service


Competitor Analysis


The donut industry is a very competitive market. There are both major players as well as smaller retailers that have a reasonable share of this market. Krispy Kreme is in direct competition with other donut chains such as Dunkin¡¦ Donuts, Winchell¡¦s Donut House LaMar¡¦s Donuts and Canadian donut giant Tim Horton¡¦s. LaMar¡¦s Donuts have been voted the countries most favourite donut by Gourmet magazine in a nationwide poll. This coupled with the fact that LaMar¡¦s is also in the middle of a franchising boom could create some serious competition for Krispy Kreme. Secondary competition could be viewed as local bakeries, larger grocery stores or other local businesses that specialize in coffee and donuts. Starbucks and the national bagel chains would also be considered competition. Krispy Kreme¡¦s largest competitor in the US market is Dunkin¡¦ Donuts.


Most donut shops are very similar in the products they create. Ingredients are practically identical and readily available from several sources. The differences between the competitors are mainly in the variety they offer and the small distinguishing points they offer. Krispy Kreme distinguishes itself with the donut theatre, Dunkin¡¦ Donuts has good coffee and Tim Horton¡¦s offers a more selective lunch menu of soup and sandwiches.


As we can see from the weighted competitor assessment chart the competition is extremely stiff. Tim Horton¡¦s is a serious Canadian competitor, mainly due to more menu choices and extensive advertising and would cause problems when Krispy Kreme expands into Canada. In the US market Dunkin¡¦ Donuts also does extensive advertising and to compete more effectively Krispy Kreme must follow their lead.


Recommendation


Krispy Kreme has a cult-like following even though it doesnt do any advertising. Our first recommendation would be to capitalize on their brand name and recognition and to start an advertising campaign. They could look into opening kiosks in airports, bookstores and retail locations. They also may look into co-branding opportunities with local sports teams and movie theaters.





Krispy Kreme is still relatively small, so it has a lot of growth potential. It first needs to expand locally and then it should expand internationally. Dunkin Donuts has been very successful in their international expansion. Krispy Kreme does not need to be number one in an area. It can capitalize on the successful locations that Dunkin Donuts has chosen.


Because of the heightened health awareness, Krispy Kreme should offer low fat doughnuts. They could offer Internet access and a larger food menu.


Krispy Kreme may exploit the core competencies by offering their original yeast recipe, in raw doughnut form, to the customer.











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