Krispy Kreme experienced rapid growth from 2001-2004 through an aggressive expansion strategy of company-owned stores and franchising. However, from 2005 they began to decline as this strategy was no longer effective. A SWOT analysis reveals strengths in brand awareness but weaknesses in management and financial practices. While their business model of generating revenue through company stores, franchising and product sales was solid, poor strategic decisions like numerous acquisitions failed. Given declining sales and increasing competition, Krispy Kreme's growth prospects as of 2005 appeared bleak unless major issues like weak leadership, over-expansion and adapting to consumer trends were addressed.

1. LI Boya
YE Zhirui
WANG Yanyi
CHENG Qiaomei
Providence Klugan
Ogochukwu Chrystle Oguamanam

2. History
· 2001-2004
rapid growth
· 2000Digital Java
acquisition
· 2001 go public
· 1990s aggressive
expansion
· 1982 bought by
Joseph Mcaleer
· 1960 standardization
of making process
· 1950s 29shops
· 1933 creation by
Vernon Redolph
· 2005
decline

3. Q1:
What are the chief elements of Krispy Kreme’s
strategy? Was it working?

4. Strategy in Growth stage
1990's --- 2004
Cost-leadership
Differentiation
Economic scale
Unique product
Grow capability
Atmosphere
Aggressive expansion
Experience
Franchising
Emotional leisure
Reduce advertising Trend & popularity
Go public
Brand awareness
Go international
Combine with coffee
Mix strategy
Our Mission
To touch and enhance lives through
the joy that is Krispy Kreme.
Our Vision
To be the worldwide leader in sharing
delicious tastes and creating joyful
memories.

5. Strategy in Mature Stage
Form 2004
Keep going expansion
Rely on customer loyalty
Strategy Innovation:
Acquisition Motana Mils(2003) – failed
Low-carbohydrate diet(2004) – failed
Questionable acquisition seven-unit franchise

6. Q2:
Identify and explain the key elements of their
business model

7. Business Model
On-premise
Business
Business 1:
companyowned stores
Off-premise
Business
Business 2:
franchised
stores
Business 3:
doughnut
mixed
Business 4:
supermarket
and
convenience
store

8. Business Model
Krispy Kreme's business model involved generating revenues and
profits from three sources
1. sales at company-owned storees
2. royalties from franchised stores and franchise fees from new store
openings
•
store in the 2,400 to 4,200-square-foot
•
franchise fee: $20,000 to $40,000 for each store
pay 4.5% royalty fee and 1.0% of revenues
3. sales of doughnut mixes, customized doughnut-making equipment,
and coffees to franchised stores.

9. Q3:
What does a SWOT analysis reveal about Krispy
Kreme’s overall situation, including an evaluation
of their financial performance? Do a comparative
strengths and weaknesses assessment using
McKinsey.

10. Financial Performance
Dollar amounts in thousands
Year
Revenues
Growth Rate
Jan.2000 Jan.2001 Jan.2002 Jan.2003 Jan.2004 Jan.2005 Jan.2006
220,243
300,715
394,354
491,549
665,592
707,766
543,361
36.54%
31.14%
24.65%
35.41%
6.34%
-23.23%

11. Financial Performance
Year 2005
• Stock Price: -88%
• Stores: -30

12. SWOT&TOWS





Opportunities
 New ways of selling
 New promoting
concept
 Present menu offerings
Threats
 Health campaign
 Competition
 Increasing cost of
ingredients
 Consumer’s habits
change
Strengths
Quality
Brand Awareness
Market share
Various products
Vertically integrated
Weaknesses
Communication
 Management & Control
 Cannibalization (erode)
 Financial practice
SO
Marketing
&
Social network
WO
New markets
&
Improving management
ST
Promoting healthy
products
&
Economic scale
&
CSR
WT
Avoid developing existing
markets by existing
products

13. Mckinsey 7S Model
1.Hard Elements
1) Strategy (Mixed)
2) Structure (Own stores & Franchises)
3) Systems (Everyone contributes to the
value)
2. Soft Elements
1) Shared values (Hot fresh magic
products)
2) Skills (Baking skill, recipe)
3) Style (Ineffective relationship)
4) Staff (Inexperienced, lack of knowledge)

14. Q4:
On the basis of your assessment above,
what do you think of Krispy Kreme’s growth
prospects? Just how good are they?

15. GROWTH PROSPECTS
•
Historical basic product with variations –
KK is known for its doughnuts, let that be
the basic product. Other products should
be added to the menu based on customer
demand.
•
Vertical integration principle – at this
stage, in order to reduce cost, increase
revenues and subsequent profitability

16. GROWTH PROSPECTS
•
Customer experience – make every
doughnut a fun and adventurous
experience for the customers. Let them
feel and be involved
•
Diversify the sales locations – open stores
in strategic locations, with dense
population

17. GROWTH PROSPECTS
• Franchise – maintain effective
communications with franchises,
ensure that they uphold the KK
brand and quality and monitor them
effectively

18. GROWTH PROSPECTS REALITY
• For KK, the growth prospects
as at the end of 2005 seem
quite bleak. Though they had
optimistic projections for sales,
revenues and store growth, the
actual results were well below
what was expected

19. GROWTH PROSPECTS REALITY
80
$ m l l i on
i
70
60
com
pany st or es
50
f r anchi sed st or e
aver age
syst em de
wi
aver age
40
30
20
10
0
Q
3
2004
Q
4
2004
Q
3
2005
Average weekly sales
Q
2
2005
Q
3
2005

20. GROWTH PROSPECTS REALITY
30
25
20
com
pany st or es
%
15
syst em de
wi
10
5
i ncr ease i n
syst em de sal es
wi
0
-5
- 10
Q
3
2004
Q
4
2004
Q
1
2005
Q
2
2005
f i scal year
Changes in store sales
Q
3
2005

21. GROWTH PROSPECTS - OTHER
• Porter’s five forces; though not
a traditional model for
assessing growth prospects of
a company, the five forces can
be used to determine the
possibility for future growth for
KK in this industry

22. GROWTH PROSPECTS - OTHER
•
•
•
•
•
Competition and rivalry
Substitutes (and complements)
Bargaining power of suppliers
Threat of new entrants
Bargaining power of buyers

23. GROWTH PROSPECTS - OTHER
• Ansoff’s growth model
• Market penetration – existing
products, existing market
• Market development – existing
products, new markets
• Product development – new
product, existing market
• diversification

24. Q5:
What major issues do you think that Krispy
Kreme management needs to address?

25. Major issues
• Low-carbohydrate diets
Adversely impacted several food categories
“this phenomenon has affected us most heavily in our offpremises sales channels. "(Livengood, former CEO)
• Accounting and financial reporting obligations
In late July 2004, SEC launched an inquiry into the
company’s accounting practices regarding certain
franchise buybacks.
In December 2004, KKD identified accounting errors
related to its acquisition of two franchises

26. Major issues (cont’d)
• Weak senior management team
Inappropriate tone at the top of the organization
Unqualified management ( GAAP)
• Too many stores in too little time
450
410
400
357
350
300
250
200
150
TO
TAL
144
100
50
0
2000
2004
2006

27. Q6:
What recommendations would you make to
Krispy Kreme management to improve upon the
strategy or otherwise sustain the company’s
growth and profitability?

28. RECOMMENDATIONS
• Develop stronger control of franchises recruitment in
order to concentrate on succesful actual stores
• Adapt to consumers desires
• Enforce marketing strategies
• Establish regular control of the accounting records and
hire qualified personel
• Be more precise in their mission and vision to reposition
themselves (better long-term vision)

29. THANK YOU !!!!!