BACKGROUND OF KRISPY KREME DOUGHNUTS

Krispy Kreme Dougnuts was founded on July 13, 1937 in Winston-Salem, North Carolina, United States by Vemon Rudolph. The company became a publicly-traded company in April 2000. Krispy Kreme Doughnuts produces approximately 5.5 million doughnuts a day consisting of 20 varieties. Krispy Kreme Doughnuts serves customers in 395 stores where 40 stores are in the United States and the rest are in 10 foreign countries namely Australia, Canada, Hong Kong, Indonesia, Japan, Kuwait, Mexico, the Philippines, South Korea and the United Kingdom. 282 stores are owned by franchisees while 113 stores owned by the corporation.

THE VISION OF KRISPY KREME DOUGHNUTS Our vision guides every aspect of our business by describing what we need to accomplish in order to continue achieving sustainable growth.

1) People: Being a great place to work where people are inspired to be the best they can be.

2) Portfolio: Bringing to the world a portfolio of quality doughnuts brand that anticipate and satisfy people's desires and needs.

3) Partners: Nurturing a winning network of customers and suppliers, together we create mutual, enduring value.

4) Planet: Being a responsible citizen that makes a difference by helping build and support sustainable communities.

5) Profit: Maximizing long-term return to shareowners while being mindful of our overall responsibilities.

THE MISSION OF KRISPY KREME DOUGHNUTS

Our mission declares our purpose as a company. It serves as the standard against which we weigh our actions and decisions. It is the foundation of our Manifesto.

1) To make people happy while enjoying our products.

2) To inspire moments of optimism through our brand and our actions.

3) To create value and make a difference everywhere we engage.

LONG-TERM OBJECTIVES

Positioning itself as the leading high-quality donut maker and retailer in its established market, and to expand its market around the world, with emphasis on domestic expansion. And to set themselves apart from other donut makers in the industry through its many distinguishing attributes.

STRATEGY

On-premise KKD sales include direct in-store sales to customer visiting inside or coming through the drive through window. Discounted sales for community organization fundraising purposes are also included in on-premises sales. Off-premises sales include fresh doughnuts distribution of branded, unbranded, and/or private-label doughnuts to grocery and convenience stores.

DEVELOPMENT OF VISION AND MISSION STATEMENT FOR THE ORGANIZATION

Vision: To be the customer’s doughnut of choice by offering an affordable product with universal appeal.

Mission statement. Based on the mission statement provided by KKD, it has not fulfilled the overall criteria of an effective mission statement. It has not explained about the products and services, markets, technology, concern for survival, growth and profitability, concern for public image and concern for employees.

Suggestions:

i) Products and services. Our doughnuts, which are made from a secret recipe that has been in our company since 1937, have a one-of-a kind taste that generations of loyal customers have grown to love.

ii) Markets. Currently, Krispy Kreme can be found in 17 countries, including the United States, Australia, Bahrain, Canada, Indonesia, Japan, Kuwait, Lebanon, Malaysia, Mexico, the Philippines, Puerto Rico, the Republic of Korea, Qatar, the Kingdom of Saudi Arabia, the United Arab Emirates, and the United Kingdom.

iii) Technology. Our vertically integrated, automated system is designed to create high quality, consistent doughnuts in an efficient manner. Quality control starts with our manufacturing plant, which produces proprietary Krispy Kreme mixes our state-of-the-art laboratory runs quality tests on all key ingredients and each batch of mix.

iv) Concern for survival, growth and profitability. The company will conduct its operations prudently and will provide accurate profits and growth which will assure shareholders satisfaction and the success of KKD.

v) Concern for public image. Krispy Kreme is also committed to strong local community relationships. Our store operators support their local communities through our popular fundraising programs and the sponsorship of local events.

vi) Concern for employees. To recruit, develop friendly personnel of exceptional caliber by providing good working conditions and benefits on the basis of performance and opportunity of growth.

EXTERNAL OPPORTUNITIES AND THREATS

OPPORTUNITIES

1. It is anticipated that the remaining stores will receive the new beverage program, primarily expresso and frozen beverage in the next 12 to 18 months.

2. Krispy Kreme plans to continue to open stores internationally in Japan and Spain and increase their presence in countries where they currently operate.

3. Krispy Kreme will develop a new “low calorie” doughnut selection. 4. Krispy Kreme will offer the tea drinking British with its own custom brews of coffee.5. Krispy Kreme Doughnut is planning to concentrate on development efforts primarily in Asia and

Middle-East.

THREATS

1. Dunkin Donuts has over seven thousands stores in 2007 up from 5438 stores two years earlier. 2. Starbucks approximately have 12 thousands retail stores worldwide.3. Tom Horton’s is the largest restaurant chain in Canada.

COMPETITIVE PROFILE MATRIX (CPM)

Critical Success

FactorsWeight

Krispy Kreme

DoughnutsDunkin Donuts Tim Hortons

Rating Score Rating Score Rating Score

Advertising 0.19 1 0.19 3 0.57 2 0.38

Product quality 0.20 4 0.80 4 0.80 4 0.80

Price

competitiveness0.09 2 0.18 4 0.36 3 0.27

Management 0.04 1 0.04 3 0.12 3 0.12

Financial position 0.08 2 0.16 4 0.32 3 0.24

Customer loyalty 0.12 3 0.36 4 0.48 2 0.24

Global expansion 0.2 3 0.60 4 0.80 2 0.40

Market share 0.08 1 0.08 3 0.24 2 0.16

Total 1.00 2.41 3.69 2.61

EFE Matrix

Key Internal Weight Rating WeightedFactors Score

Opportunities

6. It is anticipated that the remaining stores will receive the new Beverage program, primarily expresso and frozen beverage in The next 12 to 18 months. 0.05 4 0.2

7. Krispy Kreme plans to continue to open stores internationally In Japan and Spain and increase their presence in countries whereThey currently operate. 0.15 2 0.3

8. Krispy Kreme will develop a new “low calorie” doughnut selection. 0.20 3 0.6

9. Krispy Kreme will offer the tea drinking British with its own custom brews of coffee. 0.10 1 0.10

10. Krispy Kreme Doughnut is planning to concentrate on development efforts primarily in Asia and Middle-East. 0.15 2 0.3

Threats

4. Dunkin Donuts has over seven thousands stores in 2007 up from 5438 stores two years earlier. 0.25 4 1.00

5. Starbucks approximately have 12 thousands retail stores worldwide. 0.05 1 0.05

6. Tom Horton’s is the largest restaurant chain in Canada. 0.05 2 0.10

Total 2.65

IFE Matrix

Key Internal Weight Rating WeightedFactors Score

Strengths

1. Company stores average weekly sales per store increased 1.6% 0.08 3 0.24to approximately $51,000

2. Krispy Kreme’s total revenues from franchise fees rose $2.3 0.09 4 0.36

Million in fiscal 2007. 3. Sales of mixes and other supplies were partly offset by a 26% 0.08 4 0.32

increase in epuipment, furniture, fixtures and similar items. 4. In fiscal 2007, 60 new international stores were opened. 0.18 3 0.54

5. Franchise revenues consisting mostly of franchise fees and 0.10 3 0.30 Royalties increased over 14% to $21 million in fiscal 2007 from $18 million one year earlier.

Weaknesses

1. Sales to franchise stores decreased 10% to $114 million in fiscal 0.08 1 0.082007.

2. Company stores revenues decreased 18% to $326 million in 0.11 1 0.11fiscal 2007 from $398 million in fiscal 2006.

3. KKD’s net loss for the second quarter of fiscal 2008 was $27 0.09 2 0.18

million compared to a net loss of 4.6 million in the comparable period of fiscal 2007.

7. KKD supply chain revenues decreased 16.8% to $23.7 million. 0.09 1 0.09

8. KKD total average weekly sales per store decreased 2.8% to Approximately $37500. 0.1 1 0.1

Total 2.32

SWOT MATRIX

STRENGTHS

1. Strong brand recognition and recall

2.      Wide appeal of signature glazed doughnuts

3.      Vertical integration

4.      Development in international markets

5.      Strong channel of distribution

6.      Quality of product

7.      Expanded assortment of offerings at KKD stores including beverages

8.      Doughnut machine technology

WEAKNESSES

1.    Perish ability of product

2.      Limited product line (heavy reliance on doughnut sales)

3.      Overextended (i.e., Montana Mills acquisition)

4.      Lack of locations in some areas

5.      Pricing in some locations

OPPORTUNITIES

1.      Increasing popularity of coffee shops and bakery cafés

2.      Popularity of American foods and fashion in overseas markets

3.      Growth in two-income households

4.      Americans continue to experience time-starvation

5.      Entertaining opportunities moving from home to work environment

6.      Technological advancements (i.e., paperless ordering, predictive modeling software, hand held computers for delivery drivers)

7.      Channel expansion possibilities (i.e., Internet pre-ordering)

SO STRATEGIES

1.      Development of bakery cafés

2.      Development of store locations in overseas markets

3.      Increase locations to be convenient for busy traffic areas in several markets

4.      Provide special offerings geared towards encouraging people to bring doughnuts to work

5.      Continue to be innovative in technological applications that can improve efficiency

6.      Improve KKD website and continue to nurture and expand distribution system

WO STRATEGIES

1.      Increase products offered in locations (i.e., coffee, sandwiches)

2.      Develop Montana Mills in a way that fits the mission of KKD

3.      Increase locations

4.      Offer standardized, but value pricing compared to Starbucks

THREATS

1.      Competitors like Dunkin Donuts and Starbucks

2.      Low-carb trend in eating preferences

3.      All-natural, organic, healthy eating trends

4.      Cultural differences in breakfast and snack foods

5.      Increase in eating at full-service restaurants combined with a decrease in the use of fast-food restaurants

 

ST STRATEGIES

1.      Focus on signature glazed doughnuts as a differentiating advantage over competitors

2.      Offer popular bakery café format to compete with Starbucks phenomenon

3.      Develop low-carbohydrate doughnuts

4.      Develop doughnut made with organic ingredients

5.      Develop a market penetration strategy to encourage doughnut and coffee consumption at other times of day

6.      Offer nutritional information with an emphasis on new low-carbohydrate, low-calorie, or organic offerings

WT STRATEGIES

1.       Develop new product offerings

2.       Offer value-based and consistent pricing

SPACE MATRIX

Financial Strength

1. Company’s Return on Asset is negative 0.12, compared to the industry average 1of positive 0.2

2. There is reduction in company’s total revenue for the year when compared with 2the previous year by $82, 166

3. Krispy Kreme Doughnuts net loss was $ 42,236 compared to the previous year 4loss of $ 135,760

7

Industry Strength

1. In fiscal 2007, 60 new international stores were opened. 42. Area Developer Program was developed, in which royalties of sales are paid

along with franchise fees. 43. Krispy Kreme Doughnuts awarded development rights in the

Middle-East, Hong Kong, Macau and Tokyo. 24. Krispy Kreme Doughnuts concentrated on development efforts primarily

in Asia and Middle-East. 2 12 Environmental Stability

1. The British are accustomed to their traditional English breakfast. -32. Food product price inflation has been increasing. -43. Stock price hit a low of just under $4 a share. -5

-12 Competitive Advantage

1. Krispy Kreme Doughnuts entices customer with its doughnut making ‘theater’ -22. Krispy Kreme Dougnuts has its own custom brews of coffee. -43. Krispy Kreme Doughnuts provides ‘low calorie’ doughnuts. -14. Krispy Kreme Doughnuts received a new beverage program

primariliy expresso and frozen beverages. -55. Krispy Kreme Doughnuts serves customers in 395 stores operating in 50 states. -2

-14

Environmental Stability Average: -12 / 3 = -4Competitive Advantage Average: -14 / 5 = -2.8Industry Strength Average: 12 / 4 = 3Financial Strength Average: 7 / 3 = 2.33

Directional Vector Coordinates: X-axis: -2.8 + 3 = 0.2 Y-axis: -4 + 2.33 = -1.67

Krispy Kreme Doughnuts should pursue competitive strategies. An organization that is competing fairly well in an unstable industry. FS

CA IS

ES

BCG Strategy

Division Sales ($) Percent Sales (%)

Profits ($) Percent Profits (%)

RMSP IG Rate (%)

Company Stores

326199 70.7 36102 50.27 0.6 07

Franchise 21075 4.6 16473 22.93 0.1 00KK Supply Chain

113921 24.7 19241 26.80 0.3 04

Total 461195 100 71816 100

RELATIVE MARKET SHARE POSITION

INDUSTRY SALESGROWTH RATE%

The Grand Strategy Matrix

A QSPM for Krispy Kreme CompanySTRATEGIC ALTERNATIVES

Joint Venture Joint Venturein Europe in Asia

Key Factors Weight AS TAS AS TASOpportunities1. One European currency Euro .10 4 .40 2 .202. Rising health consciousness in selecting foods .15 4 .60 3 .453. Free market economies arising in Asia .1.0 2 .20 4 .404. Demand for doughnuts increasing 10 percent annually .15 3 .45 4 .605. NAFTA .05 - - - -

Threats1. Unstable increment in global income .10 3 .30 4 .402. Dunkin Donut’s lead the primary market .05 - - - - with 27.4 percent shares.3. Unstable economies in Asia .10 4 .40 1 .104. Only have 20 varieties of doughnuts compared with .05 3 .15 3 .15 the main rival.5. Low value of the dollar .15 4 .60 2 .30

Strengths1. Profits rose, 23 percent .10 4 .40 2 .202. New North American division .10 - - - -3. New health conscious donuts are successful .10 4 .40 2 .204. Nasser Al, Kharafi, the largest individual stakeholder .10 2 .20 4 .40 with 13.8 percent.5. One-fifth of all managers' bonuses is based on overall .05 - - - - corporate performance 6. Capacity utilization increased from 60 percent to .15 3 .45 4 .60 80 percent

Weaknesses1. Recent retrenchment or closure of store. .05 - - - -2. Restructuring cost $302 million. .05 - - - -3. The company's European operation is losing money .15 2 .30 4 .604. The company is slow in globalizing .15 4 .60 3 .455. Pretax profit margin of 8.4 percent is .05 - - - - only one-half industry average.

Sum Total Attractiveness Score 1.0 5.45 5.05

AS = Attractiveness Score; TAS = Total Attractiveness ScoreAttractiveness Score: 1 = not acceptable; 2 = possibly acceptable; 3 = probably acceptable; 4 = most acceptable.

The sum total attractiveness score of 5.45 indicates that the joint venture in Europe is a more attractive strategy when compared to the joint venture in Asia.

RECOMMENDED SPECIFIC STRATEGIES

Krispy Kreme Doughnuts should pursue competitive strategies which are market penetration and market development.

MARKET PENETRATION

Krispy Kreme Doughnuts has to increase customer traffic to their websites, drive awareness of products and they offered, promote repeat purchases, develop incremental product, and strengthen and broaden the Krispy Kreme Doughnuts brand name. It is believed that effective marketing effort result from their focus on continuously improving customer experiences which drives word of mouth promotion and repeat customers’ visits. Word of mouth remains the most powerful customer acquisition tool and greater for the trust of customers have placed in Krispy Kreme Doughnuts.

They also should participate in cooperative advertising arrangement with certain of their vendors in other third parties. This associates programs directs customers to the websites by enabling independent websites to make millions of products available to the audiences with fulfillment perform by Krispy Kreme Doughnuts or third parties. Krispy Kreme Doughnuts will pay commissions to participants in the associates program when their customer referrals result in product sales.

In order to increase market share for present product, Krispy Kreme Doughnuts should transform itself into a company selling its products in B2C electronic commerce. Online selling will be provided to customers with large amount of orders. Special requests such as extra flavors or combination of different flavors for the donuts will be made available for online customers.

MARKET DEVELOPMENT

Krispy Kreme Doughnuts should expand and generate their profit to cater Asian and Middle-East. According to the article, Asian and Middle-Eastern love sweet snacks and doughnut eating instantly becomes a new trend among themselves. Therefore, Krispy Kreme Doughnuts should focus more on them.

Nowadays, Krispy Kreme Doughnuts have website in limited language in order to fulfill the need of their customers such as from Japan, China, and Germany. Krispy Kreme Doughnuts should create in Multilanguage.

According to the Krispy Kreme Doughnuts’ income statement, the company did not allocate any amount of money for research and development from the year 2005 to 2007. Therefore in order to maintain provide the good services to their customers, Krispy Kreme Doughnuts must create a Research and Development program to increase the innovation and quality of the products they provide.

Increase marketing expenditures in order to reach new population segments and fastest growing trends and tendencies such offer customers the lowest prices possible through low everyday product pricing. Krispy Kreme Doughnuts also should strive to improve their operating efficiencies.

RECOMMENDED LONG TERM OBJECTIVES

• Increase net income 10% in 2004

• Create a good relationship with shareholder and measure all programs and

the effectiveness of investments analytically.

• And to continue offer quality products using the best technology available

and at a reasonable price.

RECOMMENDED COST

Referring to Krispy Kreme Doughnuts’ income statement, from 30 Jan 2005 until 28 Jan 2007, Krispy Kreme Doughnuts did not spend any money at all on the research and development of its products.

Based on Krispy Kreme Doughnuts’ balance sheets, the amount of money spent by the company in property plant and equipment are $168654 (2007), $205579 (2006) and $309214 (2005).

Based on the recommended strategies, Krispy Kreme Doughnuts should allocate an amount of $150 million for research and development in order to improve and innovate its products for customers’ satisfaction. Apart from that, Krispy Kreme Doughnuts should increase the money spent for property plant and equipment to approximately $500000 as an effort to increase the company’s productivity and the effectiveness of the operation.

COMPARISON OF RECOMMENDED STRATEGIES AND ACTUAL STRATEGIES

RECOMMENDED STRATEGIES ACTUAL STRATEGIES

increase their marketing expenditure

expand and generates profit to cater Asian and Middle-Eastern

introducing new other products categories

promote repeat purchases and word of mouth

launched Amazon websites in

France, Japan, and Canada launch new categories, example

office product store in process of building efficiencies

of scale.

IMPLEMENTING RECOMMENDED STRATEGIES AND EXPECTED RESULT

1. Strategy: Market Penetration To increase customer traffic and create customer awareness of Krispy Kreme

Doughnuts’ products Promote repeat purchases and word of mouth for existing products in present

market Focus marketing strategies to find out what the customers tend to buy Develop incremental product revenue opportunities Strengthen and broaden the Krispy Kreme Doughnuts brand name Forge a joint venture with companies

Expected Result: Improving customer experiences Greater for the trust of customers have placed in Krispy Kreme Doughnuts Higher and stable market share Increase in popularity

2. Strategy: Market Development

Expand in new areas and geographic regions to Krispy Kreme Doughnuts business

Create Multilingual website introducing new other products categories improving the company’s operating efficiencies Research and development program

Expected Result:

Krispy Kreme Doughnuts’ customers can search the information related to the products and the company easily.

Reach new population segments and fastest growing trends and tendencies Can pass along the associated savings to their customers in the form of lower

prices. Increase the innovation and the quality of products provided

AGENDA FOR ACTION

Strategy Time

Market penetration strategy

To increase customer traffic and

create customer awareness of

Krispy Kreme Doughnuts

Promote repeat purchases and word

of mouth in present market

Build a joint venture with Holiday

Villa, as a breakfast menu in their

hotels.

January 2009 – December 2012

January 2009 – December 2012

Market development strategy

Expand in new areas and

geographic regions to Krispy

Kreme Doughnuts Business

Create Multilangual website

Research and development program

January 2009 – December 2012

June 2009 – December 2009

January 2009 – December 2009

RECOMMENDED SPECIFIC ANNUAL OBJECTIVES

One of the recommended specific annual objectives is to continue expanding in all potential countries, while maximizing total commitment in becoming one of the leaders in the industry. Krispy Kreme Doughnuts also wants to expand geographically, increasing the number of customers and to keep improving in various aspects. By working hard and having fun we seek to offer the best working environment for our employees, promoting career opportunities, and to increase our responsibility towards environment and the society.

RECOMMENDED POLICIES

Customer Satisfaction Policy

1. Products

It is our main priority to provide only the best ingredients in our products. Top quality flour, flavors, sugar and etc are carefully selected to ensure customers’ satisfaction. We also never compromise in producing each of our products. For instance, all of our employees wear appropriate clothing such as gloves, aprons and cap in order to ensure the level of hygiene in our products. We only get our supply for raw material from qualified and reliable suppliers without any compromise. This is done in order to ensure that only the best material is used and also to ensure the smoothness of the company’s operation since the material is supplied as scheduled.

2. Services

We guarantee that each order that is made by our customer will be delivered within 20-30 seconds for doughnuts and 40 seconds for beverage. Other than that, we guarantee that our products remained fresh and hot within 30 minutes of purchase. We ensure that our employees for every franchise around the world can communicate and interact well with the local customers. Our employees will be equipped with related communication skills through various courses that are conducted.

Employee Welfare

Each of our employees will definitely be protected under the law of the government of the countries to ensure our employees’ welfare and rights being taken care of. Senior citizen will be offered a place for employment in our premises in order to help them take care of themselves. Proper benefits will be provided for eligible employees such as maternity leave, annual leave, bonuses and increment.

Premise Policy

We guarantee that each of premise worldwide meet the international standard in terms of hygiene, design, safety and comfort. This is to ensure that our customers are satisfied with the quality of our premise.

Community Service Policy

We will allocate an amount of money from our profit for charity purpose. Our company is committed in helping out societies around the world such the less fortunate, orphanage, old folks and victims of war and natural disaster.

RECOMMENDED PROCEDURES FOR STRATEGY REVIEW AND EVALUATION

• Financial reports annually and quarterly if necessary• Customer feedback program• Top level management meetings to assure goals are achieved• Determine corrective actions after the first year if annual objectives weren’t

accomplished

KUALA LUMPUR INFRASTRUCTURE UNIVERSITY COLLEGE (KLIUC)BACHELOR OF ACCOUNTANCY (BAC)STRATEGIC MANAGEMENT (BBM 303)

GROUP PROJECT:KRISPY KREME DOUGHNUTS CASE STUDY

PREPARED BY:VICKNOBASHANTH S/O MURUGAYIN (KI071109)

MUHAMMAD AZRI ( )VIVEK SARATI S/0 SANDRASIGARAN (KI 071105)

PREPARED FOR: MADAM KAMALJEET KAUR

DATE OF SUBMISSION: 10 th SEPTEMBER 2009