KRISPY KREME DOUGHNUTS CASE STUDY

PRESENTED BY:

MIR OMER IRFAN.ROUP AHMAD RESHI.

FOUNDED: In North Carolina1937 INDUSTRY: Restaurant HEADQUARTERS: Winston-Salem, North Carolina.

PRODUCTS: Doughnuts(30 kinds), soft drinks (espresso, chillers),hot drinks (coffee)

REVENUE : 510.21 million USD (2006) 362 million USD (2011)

NET INCOME: 88.45million USD (2006) 7.6 million USD (2011) EMPLOYEES : 4,250 3,700 (2011)

KRISPY KREME PROFILE

MISSION:

To touch and enhance lives through the joy that is Krispy Kreme.

VISSION:

To be the worldwide leader in sharing delicious tastes and creating joyful

memories.

MISSION AND VISSION

VALUES (WITH ACKNOWLEDGEMENT TO THEIR FOUNDER VERNON RUDOLPH)

We believe... Consumers are our lifeblood, the center of the doughnut There is no substitute for quality in our service to consumers Impeccable presentation is critical wherever Krispy Kreme is

sold. We must produce a collaborative team effort that is

unexcelled. We must cast the best possible image in all that we do We must never settle for "second best;" we deliver on our

commitments. We must coach our team to ever-better results.

Values

• Krispy Kreme is the name of an international chain of doughnut stores that was founded by VERNON RUDOLPH in 1937 in Winston-Salem, North Carolina. The parent company of Krispy Kreme is Krispy Kreme Doughnuts, Inc. and is based in Winston-Salem, North Carolina, United States.

• In 1933 Rudolph began selling the yeast doughnuts in Paducah and delivered them on his bicycle.

• In 1950 expansion took place with introduction of automatic dough cutter.

HISTORY

• By the 1960s, Krispy Kreme was known throughout the southeastern United States.

• In 1976, Krispy Kreme Doughnut Corporation became a wholly owned subsidiary of Beatrice Foods of Chicago, Illinois.

• In 2000, KKD was successful in raising significant capital with its Initial Public Offer.

• In 2003, a pilot project in Mountain View, California, to sell doughnuts through car windows and sunroofs at a busy intersection (with wireless payment) failed.

CONTINUED….

• In January 2008, the fat content of all Krispy Kreme doughnuts was reduced to 0.5 of a gram or less.

• In July 2010, Krispy Kreme introduced a doughnut that included the soft drink Cheerwine, which was to be sold in grocery stores in North and South Carolina.

• In 2004, KKD suffered from losses. The company blamed a diet-conscious public pursuing the low carbohydrate for its problems. Thus contractions started in 2005.

• in 2006, Darryl Brewester CEO.(left in 2008),Jim Morgan , but the sales were decliningin US.

CONTINUED….

Krispy Kreme began another phase of rapid expansion in the 1990s, opening stores outside the southeastern United States where most of their stores were located.

On April 5, 2000, the corporation went public on the NASDAQ using the ticker symbol KREM.

On May 17, 2001, Krispy Kreme switched to the New York Stock Exchange, with the ticker symbol KKD, which is its current symbol.

Although based on informal advertising such as word-of-mouth, in 2006, Krispy Kreme moved into television and radio advertisements, beginning with its "SHARE THE LOVE" campaign with heart-shaped doughnuts.

GROWTH

The first Krispy Kreme store to open outside North America was in Perth, Australia, in the city of Sydney. At first the operation was successful, opening 53 other stores around the country.

Besides the stores that Krispy Kreme operate in the United States and Canada, there are also locations in the United Kingdom, Australia, Lebanon, Turkey, Dominican Republic, Kuwait, México, Puerto Rico, South Korea, Malaysia, Thailand, Indonesia, the Philippines, Japan, China, the United Arab Emirates, Qatar, Saudi Arabia, Bahrain Hong Kong (2006–2008), and Ethiopia.

In August 2011, Krispy Kreme's Japan operation planned to increase the number of stores from 21 to 94, and its Mexico operation announced the number of stores would increase from 58 to 128 in five years.

In the United Kingdom Krispy Kreme continues its expansion and has plans and funding in place to open further stores in 2012.

INTERNATIONAL OPERATIONS

FREESTANDING:• Most free-standing Krispy Kreme stores are constructed

with a long window between the customer area and the kitchen, allowing customers to watch the operation of the doughnut-making machines.

SMALLERSTORES:• Most of the smaller stores get their donuts from other

locations rather than producing them on-site.

ATMOSPHERE:• Very well coming, with bright lighting. Seating is

limited but available. Factory tends to pull curious customers inside.

STORE LAYOUT AND DESIGN

• Factory inside the store where you can watch how the donuts are made.

• Krispy Kreme has always been known as and has had a reputation of being the best.

• When the Hot Now sign outside the store is lit you can get hot and fresh original glazed donuts.

DISTINGUISHING ASPECTSSTORE LAYOUT:

REPUTATION:

HOT NOW:

SWOT ANALYSIS OF

KRISPY KREME DOUGHNUTS

• All residents are aware of the product offering and most know of at least one location, approx 5.5 million doughnuts a day consisting of over 20 categories.

• Niche competitors, especially local retail chains, are quick to offer up new choices for dissatisfied customers.

• KKD doughnuts are available in super markets, grocery stores convenience stores.

• Strong management team.�• Strong brand equity. KKD has a unique brand and variety of

freshly made hot donuts.�• Large presence and establishment having� 395 stores with

the presence in 40 states on USA and in 10 foreign countries.

STRENGTHS

International market influence is very less.Bad communication, Not innovative, Weak.� �No major advertises 100%reliance on reputation.�lack of adequate knowledge to the customers could

lead to the eventual deterioration of the brand.Opening additional locations but no focus on

increasing current store performance Increase switching costs for competitors.

Fall in revenues and profits since year 2008.Major reduction in stock price after year 2005. Randomly closing and opening of new stores.

WEAKNESSES

• Emerging markets and expansion abroad Innovation� �• Product and services expansion• Local open kiosks and in-store locations in airports, �

bookstores, and other retail outlets.• Product Diversification (New Markets).�• Significant co-branding opportunities with

local sports teams and movie theaters. �• Though there are many complaints from local

chains when a Krispy Kreme opens, aggregate doughnut sales increase

OPPORTUNITY

THREATS

Shareholders may sell KKD stocks for lack of returns

and dividend compared to other similar firms in the

industry.

In USA and UK Majority of people are concerned

about their weight.

People are well known of the fact that sweet food

contains more calories which will result in different

Health problems.

Continued…..

• Krispy Kreme raised capital through large issues on debt in 2002.

• Doubled the number of new stores opened each consecutive year (49 stores)

• Sales of the company’s products increased steadily during the expansion, but did not produce a profit jump at the rate originally projected by the company.

SO WHAT REALLY HAPPENED?

Continued….

• Fixed assets associated with the factory stores was approximately 70% of the stockholders net worth.

• Halfway thru the F.Y. 2004, Krispy Kreme experienced(2.14)degree of operating leverage and(2.48)degree of combined leverage.

Recently, the company’s first losses were reported. The quarter that ended October 31 produced a $3 million net loss, compared to a $14.5 million profit a yearearlier´. (Barnes 2004)

On May 2004, Krispy Kreme has gotten into legal trouble with lawsuits being filed against the company and the United States Securities and Exchange Commission (SEC) looking into its accounting methods.

PROBLEMS ENCOUNTERED>>

Continued…..

• By late December 2004, Krispy Kreme’s stock had fallen from $40.00per share in March 2004 down to$10.00 -$13.00 per share.

• Krispy Kreme¶s shareholders havefiled class-action lawsuits claiming thatthey were deliberately misled aboutthe company¶s financial position

IN NUTSHELL

• Banks saved KK in 4/08 extending life of loan agreement (interest rate higher)

• Highly competitive with Dunkin Donuts, Tim �Horton's and Starbuck’s

• Focus on marketing.� �• Closing of Franchises.• Globalizing Krispy Kreme.�

CRITICAL ISSUES

• Close unprofitable stores, and focus on other domestic areas and global market.

• Diversify and expand product mix. �• Develop culturally oriented products. • Redesign current product names and descriptions � �• Redesign packaging (cups, wrappers, bags, etc.)• Holiday doughnuts. (increase)• Special event catering (wedding, etc.)

SUGESTIONS

• Unprofitability must be realized.�• Back to the basics.• Avoid being greedy again Grow slowly.� � �• Other alternatives may be implemented in the

future.• Mobilize new strategies in order to recapture the

market.

RECOMMODATIONS

THANK YOU

Have a bright future to all of you.