Krispy Kreme Doughnuts
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Krispy Kreme Doughnuts

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Go through the rise and fall of Krispy Kreme Doughnuts, Inc.

Go through the rise and fall of Krispy Kreme Doughnuts, Inc.

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Krispy Kreme Doughnuts Krispy Kreme Doughnuts Presentation Transcript

  • Krispy Kreme Doughnuts, Inc Marketing Case Analysis Course: MBA 524 Instructor: Mary A. Higby Date: April 22, 2008 Presented by: Jack Szczepaniuk Chun-Chiang Chan
  • Summary
    • Introduction to Krispy Kreme
    • Krispy Kreme Downturn
    • Krispy Kreme Finances
    • S.W.O.T.
    • What is the Problem?
    • Critical Issues
    • Alternatives
    • Our Recommendation
  • Introduction to Krispy Kreme
    • Founded by Vernon Carver Rudolph in 1933
    • First donut shop (partnered) was in Paducah, KY
    • Operations were moved to Nashville, TN
    • Focused on selling to grocery stores
    • Rudolph opened his own shop in Winton-Salem,NC in 1937 with $25 dollars and a 1936 Pontiac
  • Introduction to Krispy Kreme
    • Out the door
    • Around the corner
    • Down the block
  • Introduction to Krispy Kreme
    • Automatic doughnut cutting machine
    • Air-pressure doughnut pourer
    • Donut “hole” does not exist
    • Entire process is automated
    • “ Hot Original Glazed”
    • The Red Light
  • Krispy Kreme U.S.
  • Krispy Kreme Worldwide
  • Krispy Kreme Stock
    • Opened on the NASDAQ on April 5, 2000 (KREM)
    • Bought Digital Java Coffee Company in April 2001
    • Moved up to the NYSE on May 17, 2001 (KKD)
  • Krispy Kreme Downturn
    • Low-carb, low-sugar doughnuts
    • Increase cost in ingredients
    • Too many stores in too little time
    • Lack of advertising has caught up with KK
  • Krispy Kreme Finance
    • Iss 4/6/2000: $9.60
    • 12/28/2001: $45.75
    • 1/31/2003: $30.41
    • 8/18/2003: $49.37
    • 11/5/2003: $44.31
    • 5/5/2004: $32.37
    • 5/10/2004: $20.30
    • 10/27/2005: $4.05
    • 1/16/2007: $11.42
    • 1/16/2008: $2.23
    • 4/18/2008: $3.11
  • Krispy Kreme Finance–Income Statement 31.06 48.56 -198.34 -135.76 -42.24 Net Income 0 -1.28 -40.05 0 0 Discontinued Operations 0 0 -1.23 0 0 Accounting Change 0 -1.28 -41.29 0 0 Total Extraordinary Items 31.06 49.85 -157.05 -135.76 -42.24 Income After Tax 19.72 33.15 9.67 -0.78 1.21 Income Tax - Total 50.78 82.99 -147.38 -136.54 -41.03 Income Before Tax -3.47 0.16 -0.06 5.67 5.11 Other, Net -2.01 -5.85 -7.72 -23.44 -19.55 Interest Income (Expense), Net Non-Operating 56.26 88.68 -139.6 -118.77 -26.58 Operating Income 9.08 -0.53 161.85 90.9 28.49 Unusual Expense (Income) 14.68 22.31 31.93 28.92 21.05 Depreciation/Amortization 30.07 45.23 55.3 67.73 48.86 Selling/General/Administrative Expenses, Total 110.08 155.7 109.49 68.77 71.82 Gross Profit 380.64 493.65 598.28 474.59 389.38 Cost of Revenue, Total 490.73 649.35 707.77 543.36 461.2 Total Revenue 490.73 649.35 707.77 543.36 461.2 Revenue 2003 2004 2005 2006 2007  
  • KK Finance–Balance Sheet (Asset) 410.49 656.6 480.28 410.86 349.49 Total Assets 0 0 0 0 0 Other Assets, Total 5.23 13.31 9.23 19.32 16.86 Other Long Term Assets, Total 1 6.56 2.12 0.04 0 Note Receivable - Long Term 11.22 14.58 5.97 8.6 3.22 Long Term Investments 49.15 0 1.69 1.11 0.84 Intangibles, Net 0.2 197.16 32.69 29.18 28.09 Goodwill, Net 202.56 287.49 309.21 205.58 168.65 Property/Plant/Equipment, Total - Net 141.13 137.5 119.36 147.03 131.82 Total Current Assets 9.82 14.83 17.38 32.49 12 Other Current Assets, Total 3.48 0 0 0 0 Prepaid Expenses 24.37 29.82 28.59 23.76 21.01 Total Inventory 2.85 7.97 0 34.97 34.97 Receivables - Other 0 0.75 0.94 1.15 0 Notes Receivable - Short Term -1.45 -1.27 -11.38 -13.66 -2.75 Provision for Doubtful Accounts 35.83 46.09 40.64 39.18 29.51 Accounts Receivable - Trade, Gross 45.44 63.09 44.77 37.68 27.6 Accounts Receivable - Trade, Net 48.28 71.82 45.71 73.8 62.57 Total Receivables, Net 22.98 0 0 0 0 Short Term Investments 32.2 21.03 27.69 16.98 36.24 Cash & Equivalents 55.18 21.03 27.69 16.98 36.24 Cash and Short Term Investments           Assets 2003 2004 2005 2006 2007  
  • KK Finance – Balance Sheet (L+S) 410.49 656.6 480.28 410.86 349.49 Total Liabilities & Shareholders’ Equity 273.35 436.41 240.94 108.67 78.96 Total Equity -1.61 -0.77 0.78 1.43 1.27 Other Equity, Total 102.4 143.09 -55.25 -191.01 -233.25 Retained Earnings (Accumulated Deficit) -0.56 -0.38 -0.2 0 0 Additional Paid-In Capital 173.11 294.48 295.61 298.26 310.94 Common Stock 0 0 0 0 0 Preferred Stock - Non Redeemable, Net 0 0 0 0 0 Redeemable Preferred Stock 137.14 220.19 239.34 302.18 270.53 Total Liabilities 5.22 22.26 26.45 29.18 29.69 Other Liabilities, Total 5.19 2.15 0.39 0 0 Minority Interest 9.85 0 3.91 0.85 0 Deferred Income Tax 57.19 137.11 90.95 118.24 105.97 Long Term Debt 57.19 137.11 90.95 118.24 105.97 Total Long Term Debt 59.69 58.67 117.64 153.92 134.87 Total Current Liabilities 9.08 0 0 0 0.02 Other Current Liabilities, Total 3.3 8.14 48.1 4.43 1.73 Current Port. of LT Debt/Capital Leases 12.28 8.12 8.48 0.11 0 Notes Payable/Short Term Debt 20.98 23.3 43.62 140.48 125.25 Accrued Expenses 14.06 19.11 17.44 8.9 7.87 Accounts Payable           Liabilities and Shareholders' Equity 2003 2004 2005 2006 2007  
  • KK Finance – Cash Flow 51.91 82.67 84.92 1.87 22.11 Cash from Operating Activities -0.41 4.32 2.65 2.28 2.8 Other Liabilities 0.57 1.03 7.97 0 0 Taxes Payable 0.74 -7.12 8.28 0.44 -9.05 Payable/Accrued -0.33 -0.97 -4.06 -2.97 6.85 Other Assets -8.52 -4.07 2.14 4.12 2.56 Inventories -6.98 -18.73 10.98 3.86 0.5 Accounts Receivable -14.92 -25.53 27.97 7.73 3.66 Changes in Working Capital 18.01 37.14 11.8 10.77 17.6 Other Non-Cash Items 2.09 2.24 1.62 4.34 -6.47 Equity in Net Earnings (Loss) 0.93 0.94 198.54 87.76 28.52 Unusual Items 0 0 1.23 0 0 Accounting Change 21.03 40.32 213.2 102.87 39.65 Non-Cash Items 0.06 -3.49 10.12 -1.89 -0.01 Deferred Taxes 14.68 22.81 31.98 28.92 21.05 Depreciation/Depletion 31.06 48.56 -198.34 -135.76 -42.24 Net Income/Starting Line             2003 2004 2005 2006 2007  
  • Krispy Kreme Finance – Cash Flow 32.2 21.03 27.69 16.98 36.24 Net Cash - Ending Balance 21.9 32.2 21.03 27.69 16.98 Net Cash - Beginning Balance 10.3 -11.17 6.66 -10.71 19.26 Net Change in Cash 0 0 0.34 -0.01 0 Foreign Exchange Effects 50.03 76.11 -34.21 0.14 -15.48 Cash from Financing Activities 41.5 58.55 -35.21 1.55 -15.05 Issuance (Retirement) of Debt, Net 7.14 19.52 1.18 0.15 0 Issuance (Retirement) of Stock, Net 0 0 0 0 0 Total Cash Dividends Paid 1.4 -1.96 -0.18 -1.57 -0.43 Other Financing Cash Flow 1.4 -1.96 -0.18 -1.57 -0.43 Financing Cash Flow Items -91.64 -169.95 -44.39 -12.7 12.63 Cash from Investing Activities 0.93 -2.87 8.35 -0.4 -1.4 Other Investing Cash Flow -41.14 -13.96 -3.47 -12.22 -0.82 Purchase of Investments 33.1 33.14 0 0 9.59 Sale/Maturity of Investment 2.14 0.46 28.66 7.33 9.66 Sale of Fixed Assets 0 0 0 2.54 2.5 Sale of Business -4.97 -108.4 -3.62 0.43 -2.9 Acquisition of Business -9.94 -91.63 29.92 -2.32 16.64 Other Investing Cash Flow Items, Total -81.7 -78.32 -74.31 -10.38 -4.01 Purchase of Fixed Assets -81.7 -78.32 -74.31 -10.38 -4.01 Capital Expenditures 2003 2004 2005 2006 2007  
  • Krispy Kreme Finance 1.21 0.54 0.20 3.45 1.31 0.47 P/S (ttm): 1.21 1.10 N/A 1.47 1 N/A PEG (5 yr expected): 23.91 19.92 N/A 24.22 19.89 N/A P/E (ttm): N/A 0.59 -1.586 1.400 0.888 -0.944 EPS (ttm): -22.36K 8.81M -30.66M 264.34M 675.74M -59.65M Net Income (ttm): 1.14% 5.72% -3.47% 20.42% 9.72% 0.10% Oper Margins (ttm): 147.18M 41.75M 25.57M 461.55M 1.47B 19.00M EBITDA (ttm): 32.41% 28.56% 16.13% 26.82% 57.24% 11.21% Gross Margin (ttm): 1.07B 402.90M 256.83M 1.86B 9.82B 430.56M Revenue (ttm): 20.90% 7.10% 5.20% 10.50% 17.50% -11.70% Qtrly Rev Growth (yoy) : 759 4.70K 1,603 525 172,000 3,875 Employ­ees: 1.29B 204.46M 53.85M 6.29B 12.81B 201.84M Market Cap: Specialty Eateries Industry Restaurants Industry Caribou Tim Horton’s Starbucks Krispy Kreme Doughnuts
  • Strengths of Krispy Kreme
    • Signature hot Original Glazed doughnut
    • People know Krispy Kreme
    • Hot light
    • January 28,2007, 395 Store worldwide, of which 113 were owned, 282 were owned by franchisees
  • Weaknesses of Krispy Kreme
    • Not flexible – difficulties reordering when non-Hot light stores are sold out
    • Franchisees close stores
    • No other standout products (weak menu)
    • Bad relations with franchisees (cost of equipment, packaging, ingredients, etc)
    • Corporate Structure (CEO retired)
  • Opportunities for Krispy Kreme
    • Reputation –Fundraising program has helped non-profit organizations raise millions of dollars in needed funds
    • Worldwide sales
    • May steal back customers
    • Untouched domestic locations
  • Threats to Krispy Kreme
    • Dunkin’ Donuts, Tim Horton’s, Starbucks, and other National Chains/Specialty Eateries
    • KK stores went up too fast
    • Store locations too scattered
    • Increasing cost of ingredients
    • Increasing utility and fuel costs
  • What is the Problem?
    • How will Krispy Kreme return to profitability?
    • Competitiveness
    • Efficiency
    • Franchisee relations
  • Critical Issues
    • Banks saved KK in 4/08 extending life of loan agreement (interest rate higher)
    • New CEO in fiscal 2008
    • Highly competitive w/ Dunkin Donuts, Tim Horton’s and Starbuck’s
    • Focus on marketing
    • Closing of Franchises
    • Globalizing Krispy Kreme
  • Alternative 1
    • Close unprofitable stores, and focus on other domestic areas and global market
  • A1 – Advantages and Disadvantages
    • Advantages
    • Increase capital from sold locations and properties
    • Decrease loss
    • Develop new market
    • Disadvantages
    • Lose domestic locations
    • Lose foothold in certain regions
    • Risk for international locations
    • Increase cost for new locations
  • Alternative 2
    • Diversify and expand product mix
    • Develop culturally oriented products
    • Redesign current product names and descriptions
    • Redesign packaging (cups, wrappers, bags, etc.)
  • A2 – Advantages and Disadvantages
    • Advantages
    • Attracts new customers
    • Attractive to the international market
    • More Competitive with the market
    • May keep existing customers
    • May increase items sold per purchase
    • More efficient
    • More cost effective in the long run
    • Disadvantages
    • New development and packaging costs
    • New ideas may discomfort old customers
    • Risk of not selling
  • Alternative 3
    • Themed doughnuts
      • Holiday doughnuts
      • Special order birthday doughnuts
      • Special event catering (wedding, etc.)
    • Krispy Kreme Club w/ emails, games, coupons, events
  • A3 – Advantages and Disadvantages
    • Advantages
    • Attractive young ages
    • Increase the holidays' sale
    • Loyal customers will increase
    • Increase the customers' database
    • Disadvantages
    • Remodel the production line
    • Increase the website setup cost
    • Need to find more workforce to support new activities
  • Alternative 4
    • Develop Krispy Kreme Mascot
    • Formulate marketing strategy for mascot and 2008 Beijing Olympics
    • Begin advertisements on TV and Radio
  • A4 – Advantages and Disadvantages
    • Advantages
    • Increase the visibility on market
    • Increase sales
    • Increase celebrity/icon marketing possibilities
    • More helpful on increasing the international market
    • Disadvantages
    • A huge cost of advertising expense
    • KK visibility is too low, it may not have big help
    • May be too late to plan for Olympics
    • Olympic sponsors and partners were chosen years ago
  • Our Recommendation
    • Alternative 1
    • Unprofitability must be realized
    • Back to the basics
    • Avoid being greedy again
    • Grow slowly
    • Other alternatives may be implemented in the future
    • Krispy Kreme Doughnuts, Inc
    • Marketing Case Analysis
    • Course: MBA 524
    • Instructor: Mary A. Higby
    • Date: April 22, 2008
    • Presented by: Jack Szczepaniuk
    • Chun-Chiang Chan
    • Sources
    • Krispy Kreme website www.krispykreme.com
    • The Triangle Business Journal www.bizjournals.com
    • Investopedia www.investopedia.com