Phase I – External Analysis
Company Overview
• Creator – Joe LeBeau – On- and off-premise sales of “light, warm, melt-in-your-mouth” doughnuts
• 1954 – Revenues less than $1M
• 1974 – Revenues reached $58M
• 1976 – Krispy Kreme bought by Beatrice Foods
• 1982 – $22M LBO from Beatrice Foods
• 1989 – Revenues rose to $117M, then flattened for next six years
• 1992 – Corporation merged and went public. IPO of 3.45M shares
• 2001 – Revenues of $220M, profits of $6M, 2-for-1 stock split
Industry Attractiveness
Competitive Strength
The G. E. Matrix
Critical Success Factor Analysis
Critical Success Factors – Total Weighted Score
Market Analysis
• Who is the market?
– All people regardless of age or income
• Where is the target market?
– High-density, high-traffic areas
• What are customers’ current needs?
– Something fast, tasty, and inexpensive
• Market growth rate?
– 3% per year
Market Share
Environmental Analysis
• Demographics changes
– Metropolitan population shifts
• Socio-cultural trends
– Greater consumption of fast-food-type items
• Corporate-cultural trends
– More corporate meetings (such as video conferencing) vs. corporate travel gives rise to greater consumption in the workforce
Krispy Kreme Doughnuts
Phase II –
Internal Analysis
Total Revenues ($M)
NIAT ($M)
Working Capital ($M)
Current Ratio
Quick Ratio
Debt-to-Equity Ratio
Z-Score
Safe Region
> 2.99
Gray Region
1.81 – 2.99
Bankrupt Region
< 1.81
Financial Conclusion
Krispy Kreme is performing well and is in excellent financial condition
• Total revenues consistently increased over the past five years at an average of 30%/yr
• NIAT is growing (by over 100% in 2001)
• Nearly $30M in working capital in 2001
• Current and quick ratios are well above 1.0 for 2000 and 2001
• Debt-to-equity ratio is only 35% in 2001
• Z-Score is in the safe region for 2000 and 2001 and rising
Strengths
• Customer perception of quality doughnuts and coffee
• Strong brand image
• Strong management
• Low advertising costs
– Word of mouth
– Local media publicity
– Product giveaways
• Highly differentiated
– Production entertains people while they wait in line
Core-Competence Analysis
Weaknesses
• No new products
• Space needs for each outlet
– Must accommodate production
Opportunities
• Introduce new beverage products
– Premium quality coffees
– Espresso-based drinks
– Frozen beverages
• Expand internationally
• Expand to U.S. secondary markets
• Increase franchising by lowering requirements (but not standards)
• Create new types of donuts
Threats
• Society’s movement towards a more health-conscious lifestyle
• Increased entry of competitors in current geographical markets
– Tim Horton’s
– LaMar’s Donuts
Phase III –
Alternatives Analysis
GBA687/8
Spring 2003
Key Strategic Issues
Should KK …
Ø …continue to develop new franchises and/or open own stores?
Ø …merge with or acquire other rivals?
Ø …start advertising campaigns?
Ø …expand from a single product to multi-product operations?
Ø …differentiate its pricing structure?
Key Strategic Issues (cont.)
Ø Will competitors gain strength through mergers and acquisitions?
Should KK …
Ø …expand to Asian countries and Europe?
Ø …expand to secondary markets such as smaller US cities?
Ø …turn its donut mix and supply business into a profit center (i.e., supply others)?
Key Strategic Issues (cont.)
Should KK …
Ø …continue to invest in improvements and renovations for its stores and invest in training?
Ø …focus more on manufacturing, distribution, and R&D of products and equipment instead of marketing?
Krispy Kreme Has Three Strategic Alternatives
n Status Quo (focus on manufacturing, cost-control, quality, and distribution)
n Broaden product line
n Expand to Europe and Asia
1. Status Quo (Focus on Manufacturing, Cost-Control, Quality, and Distribution)
2. Broaden Product Line
3. Expand to Europe & Asia
Criteria Matrix
Krispy Kreme Doughnuts, Inc.
Phase IV –
Recommendations
2002 Recommendations
• Increase revenues 30%
• Increase NIAT 65%
Programs
• Add five new franchises in North America
• Maintain differentiation and strong brand equity
• Improve equipment and manufacturing
• Reduce capital expenditures for remodels and new stores
2002 Recommendations (cont.)
• If competition increases in the areas in which KK has stores, and revenues lag projections by 15%,
then Krispy Kreme should offer some incentives, such as temporary discounts or quantity discounts, to spur sales
2004 Recommendations
• Increase revenues 35%/yr
• Increase NIAT 45%/yr
Programs
• Increase franchise-startup rate to eight per year
• Continue to control costs and maintain quality
• Expand distribution channels to supermarkets and other similar outlets
• Increase investment in R&D
• Invest in a small amount of billboard advertising
2004 Recommendations (cont.)
If costs to remodel stores increase, causing NIAT to lag projections by 15%, then
Krispy Kreme should slow down the rate of remodeling and search for less costly remodelers
THE END