Company Overview

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