Strategy Plan Zoi Karakosta Kyriaki ZafeiriadouStrategy & Business Policy Efstathios SimeonidisAssignment Kostas Takolas
Introduction of the industry and the companyStrategic Challenges and Environment AnalysisAnalysis of the Competitive EnvironmentAssessment of the Strengths andStrategy Formulation & SelectionStrategy Evaluation
is a leading branded retailer and wholesaler of high-quality doughnuts,complementary beverages and treats and packaged sweets.The Company’s principal business, is owning and franchising Krispy Kreme stores, at whichover 20 varieties of high-quality doughnuts, are sold and distributed together withcomplementary products, such as a broad array of coffees and other beverages. (144) (417) (85) KKD Domestic InternationalCompany Supply Franchise Franchise Stores Chain Stores Stores
Doughnuts and Related Products20 varieties of high-quality doughnuts, including thesignature Original Glazed® doughnut. 88% of salesComplementary productsKool Kreme® and baked goods including sweet rolls,pecan rolls, muffins and bagels.BeveragesFrozen drinks, juices, sodas, milks. New hotbeverages - espresso, cappuccino and hot chocolate 11%
1937: Vernon Carver Rudolph, the founder of Krispy Kremeopens his own doughnut shop at Winston-Salem, North Carolina 1939: Rudolph registered the trademark “Krispy Kreme” with the United States Patent and Trademark Office. The business grew rapidly and the number of shops also grew.1950s – 1960s : doughnut process steps such as Proofing,cooking, glazing, screen loading, and cutting became entirelyautomatic. 1976: After Vernon Rudolph’s death, Krispy Kreme became a wholly-owned subsidiary of Beatrice Foods Company of Chicago, Illinois.1982: a group of Krispy Kreme franchisees purchased KrispyKreme back from Beatrice Foods. 1999, the Company opened its first store in California and began its national expansionApril 2000, Krispy Kreme held an initial public offering ofcommon stock December 2001, the Company opened its first international store, in Canada, and began its international expansion.The Company reacquires several franchise markets in the UnitedStates in 2003 and early 2004, often at substantial premiums Late 2003, average unit volumes began to fall leading to a period of retrenchment characterized by over 240 domestic store closings from 2004 through 2009. In fiscal 2011, growth returned to the domestic business first time since 2005.
QSR - Quick Service Restaurants QSR Industry Grows Low Consumer +3% 3% the last 10 years. Confidence High Competition Recession Proof Less Disposable Shift from Traditional Income Restaurants Increasing Prices (Fuel, Commodities)
Develop and Test Domestic Small Shop FormatsEnhance Focus on Shop OperationsDevelop, Test and Deploy New ProductsImprove Off-Premises BusinessBuild On International SuccessEnhance Franchisee Support
Mission To share our superior classic taste and constantly enriching emotional To touch and enhance lives through the joy that is Krispy Kreme experiences. To be the worldwide leader in sharing delicious tastes and creating Be the world’s delicacy company and satisfy doughnut lovers throughVision joyful memories our classic value bites.
1 Environmental Regulation Food Industry businesses need to be very careful in environmental issues such as waste management.2 Certifications by Government Authorities Certifications in terms of health, Safety and Sanitation issues are needed to operate in international level.3 Food Industry – Related Regulations Need for consistent ingredients approved by FDA & International organizations. New ingredients could be banned so should be carefully developed & certified.4 International Trade Regulations Global Businesses face challenges such as the changing regulations in the countries they operate or want to enter (such as employment laws, healthcare laws, tax systems).5 Franchising-Specific Regulations Licensing and cooperation with franchisees is administered and regulated differently in countries around the world.
1 Consumer Confidence is in decline The bleak economic outlook causes consumers to cut spending2 High Unemployment Leads to Smaller Disposable Income and less visits to QSRs3 Changing Consumer Trends Work and life habits, types of businesses, shift in wealth, changes the way and the patterns people consume food and related products4 Currency Fluctuations and Inflation Revenue generation from international business could be impacted5 Record-Level high Prices In commodities such as agricultural products (flour, sugar) and fuel
1 Low-Calories Diet Consumers are increasingly worried about the calories & nutritional value of their food.2 Health-Conscious and CSR-aware public Consumers are increasingly aware of the CSR notion and demand companies to give back to society.3 Avoidance of unhealthy-perceived products Doughnuts (like burgers) are included in food products considered unhealthy, causing obesity.4 Focus is shifting towards freshly produced food Like custom-made sandwiches from freshly delivered material.5 Consumer is more demanding There is a growing need to serve a broader spectrum of consumers by offering related products.
1 Unique Equipment for Doughnut-Making Process We manufacture the equipment for our doughnuts so any innovation will come from us.2 Longer shelf life of products To facilitate this, we need to find modifications in the production process.3 Social Media Exploitation Embrace the new marketing trend with social media campaigns to increase consumer reach.4 Knowledge Sharing with Franchisees Use information & communication technology to enable remote collaboration.5 Mobile Applications Growth More and more customers are using mobile smartphones to connect with their favorite brands.
LOW - MED Threat of new Entrants LOW - MED LOW HIGH MED CompetitivePowerProducts Risk of Substitute ofof Buyers Bargaining Rivalry in Suppliers Threat of new entrantsthe Industry Bargaining Power Market is of Consumers products are plentiful(biscuits, chocolates) Suppliers has low capital is both substituted Agricultural New storehighly fragmented easilywith major players and local stores Main product (Doughnut) requirements Individual LOW - MED Bargaining Power ofare regulated occupied by leaders HIGHLOW Fuelsweets/treats start be offer treats like doughnutsBargaining Power of Key Store locationscategory dependRivalry impulse buy The prices shops can Competitive on an Local coffee Costs are Low Intensity to Switching Suppliers Buyers Leaders the sole economies mix concentratesecret and more differentiated We are achieve supplier of key to successful sale MajorQSR industry have more scalea& have Convenience and location isof many small purchasesrecipes and in their The competitors generated financial resources specialized equipment in their arsenal product line. Consumer easily can switchby trends are used in KKD stores We manufacture the machinery that QSR sub-category (burgers, Sales are mostly affected to another occurrence & New entrantscompetitors are established (Mr. Donut, Donut King, etc.) International other locally preferred fast key sandwiches or must expect retaliation fromfood)players due to the increased competitiveness of the industry (Starbucks case) HIGH Substitute Products
Internal Factor Evaluation (IFE) MatrixStrengths W Score Weaknesses W Score 1 1 Over reliance on one product Big Tradition & history 0,08 4 0,32 0,02 1 0,02 line 2 Centralized mix production and 2 0,05 3 0,15 Limited financial Resources 0,09 1 0,09 efficiency 3 High-off-premise availability 0,03 4 0,12 3 Quality of franchises 0,07 2 0,14 4 4 Growth dependent on new Efficiency in store operation 0,03 3 0,09 0,05 1 0,05 store opening 5 5 Small Profit margin in off Hub-spoke model 0,02 3 0,06 0,04 2 0,08 premises 6 Quality assurance 6 High cost structure in off 0,03 3 0,09 0,06 2 0,12 (mystery shopper) premises 7 7 Sole supplier of equipment & Strong community bonds 0,02 4 0,08 0,07 1 0,07 mix concentrate 8 Doughnut Theater 0,07 4 0,28 8 Poor promotion & advertising 0,08 2 0,16 campaigns 9 Unique taste & recipe 0,09 4 0,36 9 Not paying out dividends / Stock 0,05 2 0,10 price is low10 Original Glazed sign 0,03 4 0,1211 Sharing Culture of consumers 0,02 3 0,06 Total Score 2,56
External Factor Evaluation (EFE) MatrixOpportunities W Score Threats W Score 1 QSR sector sales up 3% over the 1 Disputes with franchisees 0,10 3 0,30 0,10 3 0,30 past 10 yrs possible 2 Grocery stores doughnuts sales 2 Profitability sensitive to changes 0,08 3 0,24 0,04 1 0,04 rise 1% in sales volumes of stores 3 Grocery stores doughnuts sales 3 Sales volume sensitive to 0,09 4 0,36 rise 2% seasonality and weather 0,03 2 0,06 4 New lines of supply of premium conditions 0,05 2 0,10 coffee varieties 4 Domestic small store operating 0,08 2 0,16 5 New store opening to target model not yet proven 0,07 1 0,07 global markets 5 Potential infringement of 0,01 4 0,04 6 Merge acquisition or co-branding trademarks in other countries 0,07 1 0,07 with local stores 6 Main competitors significantly 7 Utilize distribution network to bigger both domestically and 0,10 2 0,20 penetrate more convenience 0,07 2 0,14 internationally stores 7 International consumers prefer 0,04 2 0,08 8 Penetrate local traditional food mostly local pastry shops 0,03 2 0,06 markets 9 Collaborate with NGOs for 0,01 2 0,02 promoting CSR Total Score 2,2710 Modernize store facilities and 0,03 1 0,03 equipment
Strengths Weaknesses [S3,O2,O3]: Develop off-premise business to penetrate more [O6,W1]: Combine co-branding opportunities with groceries & supermarket by taking advantage of our distribution new product testing to reach a broader spectrum of network. consumers and differentiate our product lines.Opportunities [S7,O9]: Promote value of social responsibility awareness through [O10,W3]: Improve off-premise profit margin focusing existing bonds with communities. on enhanced packaging graphics, longer shelf life and [S2,O10]: Adopt modern equipment by using cost savings from rationalized delivery routes. our centralized production system. [S2,O4]: launch new premium coffee lines to address new [O5,O6,W3,W1]: Empower co-operation with consumer trends. franchisees by increasing support, training, providing them with operational tools and giving them initiatives to achieve guaranteed and consistent quality. [S4,T2,T3]: Enhance shop operations (service quality, hospitality, [W8,T2]: Plan Cross-Market product awareness waste management, labor force) to stabilize demand and reduce through special event programs, recruiting local vulnerability to fluctuations in sales expertise with proven experience in the field.Threats [S1,S5,T6]: Use the unaided brand awareness and the economies [T7,W7]: In markets with highly skewed preference of scale achieved with the hub-and-spoke model in order to towards local pastry stores, we can penetrate by compete with larger and better-financed competitors globally. exploiting our capability to provide them with specialized equipment and mix concentrates creating a potential of forward integration with some of them.
Key Factors Weight Alternative 1 Alternative 2Opportunities 1 QSR sector sales up 3% over the past 10 yrs 0,10 2 0,2 4 0,4 5 New store opening to target global markets 0,07 1 0,07 3 0,21 6 Merge acquisition or co-branding with local stores 0,07 3 0,21 1 0,07 8 Penetrate local traditional food markets 0,03 1 0,03 3 0,09Threats 1 Disputes with franchisees possible 0,1 1 0,1 4 0,4 2 Profitability sensitive to changes in sales volumes of stores 0,04 3 0,12 2 0,08 4 Domestic small store operating model not yet proven 0,08 4 0,32 2 0,16 Main competitors significantly bigger both domestically and 6 internationally 0,10 4 0,4 2 0,2 7 Intern. consumers prefer mostly local pastry shops 0,04 1 0,04 4 0,16Strengths1 Big Tradition & history 0,08 4 0,32 2 0,162 Centralized mix prod. and distribution efficiency 0,05 4 0,2 1 0,054 Efficiencies in store operations possible 0,03 4 0,12 3 0,095 Hub-spoke model operations 0,02 4 0,08 2 0,04Weaknesses1 Over reliance on one product line 0,02 2 0,04 3 0,062 Limited financial Resources 0,09 3 0,27 4 0,363 Quality of franchisees 0,07 2 0,14 4 0,284 Growth dependent on new store opening 0,05 2 0,1 4 0,27 Sole supplier of equipment & mix concentrate 0,07 4 0,28 3 0,21Total Score 1,00 3,04 3,22
1: Focus on Domestic Expansion 2: Focus on International Expansion 1. New markets unexplored (China, Russia, Brazil, India] 2. Prospective economic growth of new markets 1. Centralized structureAdvantages 3. Follow popular trend of food industry for globalization 2. Quality is in our control and internationalization 3. Community Relationship are well-established 4. Global spread keeps shareholders more satisfied and increases share prices 4. Hub-Spoke Model very popular 5. Tim Hortons not yet expanding internationally Starbucks image has withered and is considered expensive 1. Small store model not yet provenDisadvantages 2. Competition more intense 1. Global economic slowdown 3. Competitors very well financed compared to KKD 2. Service Quality Difficult to Monitor 4. Local expansion has already failed once 3. Limited Financial Resources
Offer a differentiated product line of complementarytastes and beverages along with the flagship doughnutproducts.Expand cautiously in the US by using an efficient andcost-effective model for both on-premise andoff-premise operationsExpand internationally by more than doubling thenumber of our international shops over the next fiveyears
Rummelt’s CriteriaInternal External Consistency: Consonance: Factors International Factors The failure of the expansion has domestic franchising started in 2001 and model points is our stable source toward strategic of economic growth. repositioning. Advantage: Feasibility: The unique taste An effective and and distinctive proven growth features combined model that is with our increased followed by the top focus on franchise corporations in the operations will make industry. us the most attractive choice
Resources: Hire experienced managers and R empower the department devoted to franchising Implementation: We cannot repeat mistakes of the I past - use proven techniques and tools Advantage: Our unique taste, secret recipe and franchising A experience a guide for sure-footed success Timing: The best time for expansion, as we experienced growth in T the number of stores for the first time since 2005 Sustainable: We will strengthen our relationship with our long-termS partners, the franchisees
International Stores Evolution of Number of Stores 811 Domestic Company Domestic Franchise Domestic (Total) International 417334 298 Domestic Stores 229 258207 144 165 9368 83 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
650 Evolution of Sales ($m) International Stores 483.2 510 Domestic Company 325.2 Domestic Franchise 330 274.6 Domestic (Total) 238.9 International Domestic Stores2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Human Finance & Research & Resources Accounting DevelopmentFranchisees may not endorse the Worldwide expansion could hurt We need to develop new products thatcompany culture initial financial figures are brand-relevant. We need to follow the trend forWorldwide expansion is a labor- and Recent examples point the need to healthy productscost-intensive process minimize/transfer risk to franchisees Different markets might have differentPossible need for transformation to There is a shortage of credit all over packaging needspenetrate diverse countries/markets. the globe We need to extend the shelf-lifeNew Training methods Conduct employee and consumer Commission-based franchisee testing programsNew Franchisee Approval Procedure financing scheme Research low-fat alternatives to ourIncrease Resources devoted the productsfranchise operations Bonus Incentive payout Localize packaging and seasonalHire New Executives From the products (Christmas, Valentine’sMarket [new experience] Throttle cost savings from domestic day, etc.)Franchisee Feedback company stores consolidation to international expansion Experiment with the shelf-life of ourIncrease Employee Participation off-premise produce.
Information Marketing Operations Management SystemsIncrease customer appeal Efficiency must be at Franchisees need help from maximum levels while A global organization is moreIncrease brand equity and our expertise in store ensuring top-notch quality open to security threats.awareness selection & starting up Franchisees need help on Technology exploitation is aEnsure store appearance We need to be actively maximizing sales, profits and key strategic success elementperfection involved, not “distant” brand equity Modernize store Implement Security-enhanced Increase developer associatesImprove Packaging Graphics equipment and facilities Extranets with the Franchisees devoted to franchiseesAggressive Advertising Provide new operational Implement Daily/Weekly sales Dispatch company managersNew store design guides to tools report from stores to help with store openings &franchisees Provide know-how on deployment Top-notch POSCross-market product improving shop economics Use ERP for SCM and demand Implement regular Skypedevelopment Introduce strict QA meetings & conferences management methods