Strategy Plan

Strategy & Business PolicyAssignment

Zoi KarakostaKyriaki Zafeiriadou

Efstathios SimeonidisKostas Takolas

Executive Summary

Introduction of the industry and the company

Strategic Challenges and Environment Analysis

Analysis of the Competitive Environment

Assessment of the Strengths and

Strategy Formulation & Selection

Strategy Evaluation

Company Profile

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 which over 20 varieties of high-quality doughnuts, are sold and distributed together with complementary products, such as a broad array of coffees and other beverages.

(85)Company

Stores

(144)DomesticFranchise

Stores

(417)International

FranchiseStores

KKD Supply Chain

Product LineDoughnuts and Related Products

20 varieties of high-quality doughnuts, including the signature Original Glazed® doughnut.

88% of sales

Complementary products

Kool Kreme® and baked goods including sweet rolls, pecan rolls, muffins and bagels.

Beverages

Frozen drinks, juices, sodas, milks. New hot beverages - espresso, cappuccino and hot chocolate

11%

History1937: Vernon Carver Rudolph, the founder of Krispy Kreme

opens his own doughnut shop at Winston-Salem, North Carolina1939: Rudolph registered the trademark “Krispy Kreme” with the United States Patent and Trademark Office. The business grewrapidly and the number of shops also grew.

1950s – 1960s : doughnut process steps such as Proofing, cooking, glazing, screen loading, and cutting became entirely automatic.

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 Krispy Kreme back from Beatrice Foods.

1999, the Company opened its first store in California and began its national expansion

April 2000, Krispy Kreme held an initial public offering of common stock

December 2001, the Company opened its first internationalstore, in Canada, and began its international expansion.

The Company reacquires several franchise markets in the United States 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.

Industry OverviewQSR - Quick Service Restaurants

+3%QSR Industry Grows 3% the last 10 years.

Recession Proof

Shift from TraditionalRestaurants

Low Consumer Confidence

High Competition

Less Disposable Income

Increasing Prices(Fuel, Commodities)

Strategic Challenges

Develop and Test Domestic Small Shop Formats

Enhance Focus on Shop Operations

Develop, Test and Deploy New Products

Improve Off-Premises Business

Build On International Success

Enhance Franchisee Support

Mission & Vision

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

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

sion

Mis

sion To share our superior classic taste and constantly enriching emotional

experiences.

Be the world’s delicacy company and satisfy doughnut lovers through our classic value bites.

Political Environment Analysis1 Environmental Regulation

Food Industry businesses need to be very careful in environmental issues such as waste management.

2 Certifications by Government AuthoritiesCertifications in terms of health, Safety and Sanitation issues are needed to operate in international level.

3 Food Industry – Related RegulationsNeed for consistent ingredients approved by FDA & International organizations. New ingredients could be banned so should be carefully developed & certified.

4 International Trade RegulationsGlobal 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 RegulationsLicensing and cooperation with franchisees is administered and regulated differently in countries around the world.

Economic Environment Analysis1 Consumer Confidence is in decline

The bleak economic outlook causes consumers to cut spending

2 High UnemploymentLeads to Smaller Disposable Income and less visits to QSRs

3 Changing Consumer TrendsWork and life habits, types of businesses, shift in wealth, changes the way and the patterns people consume food and related products

4 Currency Fluctuations and InflationRevenue generation from international business could be impacted

5 Record-Level high PricesIn commodities such as agricultural products (flour, sugar) and fuel

Social Environment Analysis1 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 productsDoughnuts (like burgers) are included in food products considered unhealthy, causing obesity.

4 Focus is shifting towards freshly produced foodLike custom-made sandwiches from freshly delivered material.

5 Consumer is more demandingThere is a growing need to serve a broader spectrum of consumers by offering related products.

Technological Environment Analysis

1 Unique Equipment for Doughnut-Making ProcessWe 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 ExploitationEmbrace the new marketing trend with social media campaigns to increase consumer reach.

4 Knowledge Sharing with FranchiseesUse 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

- M

ED

LOW

HIG

HLO

W -

MED

HIG

H

Five Forces Model

Competitive Rivalry Intensity

Bargaining Power of Suppliers

Threat of new Entrants

Bargaining Power of Buyers

Substitute Products

Competitive Rivalry in the Industry

Market is highly fragmented both with major players and local stores

Local coffee shops start to offer treats like doughnuts

Major competitors have more financial resources and more differentiatedproduct line.

International competitors are established (Mr. Donut, Donut King, etc.)

HIG

H

Risk of Substitute Products

Main product (Doughnut) is easily substituted (biscuits, chocolates)

The sweets/treats category depend on an impulse buy

Convenience and location is key to a successful sale

Consumer easily can switch to another QSR sub-category (burgers, sandwiches or other locally preferred fast food)

HIG

H

Threat of new entrants

New store has low capital requirements

Key Store locations can be occupied by leaders

Leaders achieve economies of scale & have secret recipes and in their specialized equipment in their arsenal

New entrants must expect retaliation from key players due to the increased competitiveness of the industry (Starbucks case)

LOW

- M

ED

Bargaining Power of Suppliers

Suppliers of Agricultural products are plentiful

Fuel prices are regulated

We are the sole supplier of mix concentrate

We manufacture the machinery that are used in KKD stores

LOW

Bargaining Power of Buyers

Individual Consumers

Switching Costs are Low

The QSR industry generated many small purchases

Sales are mostly affected by trends & occurrence

MED

Competitive Profile MatrixCritical Success

FactorsWeight

Global Expansion 0,15 4 0,6 3 0,45 1 0,15

Customer Loyalty 0,1 4 0,4 3 0,3 3 0,3Location-Convenience 0,07 3 0,21 4 0,28 3 0,21

Advertising 0,05 3 0,15 4 0,2 2 0,1

Product Quality 0,1 4 0,4 3 0,3 3 0,3

Product Diversity 0,08 1 0,08 3 0,24 2 0,16

Customer Service 0,1 3 0,3 2 0,2 3 0,3

Financial Position 0,2 3 0,6 2 0,4 2 0,4

Market Share 0,08 4 0,32 3 0,24 1 0,08

Sales Distribution 0,07 3 0,21 2 0,14 2 0,14

Total 3,27 2,75 2,14

Internal Strengths & Weaknesses

Strengths W Score

1 Big Tradition & history 0,08 4 0,32

2 Centralized mix production and efficiency 0,05 3 0,15

3 High-off-premise availability 0,03 4 0,12

4 Efficiency in store operation 0,03 3 0,09

5 Hub-spoke model 0,02 3 0,06

6 Quality assurance (mystery shopper) 0,03 3 0,09

7 Strong community bonds 0,02 4 0,08

8 Doughnut Theater 0,07 4 0,28

9 Unique taste & recipe 0,09 4 0,36

10 Original Glazed sign 0,03 4 0,12

11 Sharing Culture of consumers 0,02 3 0,06

Weaknesses W Score

1 Over reliance on one product line 0,02 1 0,02

2 Limited financial Resources 0,09 1 0,09

3 Quality of franchises 0,07 2 0,14

4 Growth dependent on new store opening 0,05 1 0,05

5 Small Profit margin in off premises 0,04 2 0,08

6 High cost structure in off premises 0,06 2 0,12

7 Sole supplier of equipment & mix concentrate 0,07 1 0,07

8 Poor promotion & advertising campaigns 0,08 2 0,16

9 Not paying out dividends / Stock price is low 0,05 2 0,10

Total Score 2,56

Internal Factor Evaluation (IFE) Matrix

External Opportunities & Threats

Opportunities W Score

1 QSR sector sales up 3% over the past 10 yrs 0,10 3 0,30

2 Grocery stores doughnuts sales rise 1% 0,08 3 0,24

3 Grocery stores doughnuts sales rise 2% 0,09 4 0,36

4 New lines of supply of premium coffee varieties 0,05 2 0,10

5 New store opening to target global markets 0,07 1 0,07

6 Merge acquisition or co-branding with local stores 0,07 1 0,07

7 Utilize distribution network to penetrate more convenience stores

0,07 2 0,14

8 Penetrate local traditional food markets 0,03 2 0,06

9 Collaborate with NGOs for promoting CSR 0,01 2 0,02

10 Modernize store facilities and equipment 0,03 1 0,03

Threats W Score

1 Disputes with franchisees possible 0,10 3 0,30

2 Profitability sensitive to changes in sales volumes of stores 0,04 1 0,04

3 Sales volume sensitive to seasonality and weather conditions

0,03 2 0,06

4 Domestic small store operating model not yet proven 0,08 2 0,16

5 Potential infringement of trademarks in other countries 0,01 4 0,04

6 Main competitors significantly bigger both domestically and internationally

0,10 2 0,20

7 International consumers prefer mostly local pastry shops 0,04 2 0,08

Total Score 2,27

External Factor Evaluation (EFE) Matrix

SWOT MatrixStrengths Weaknesses

Opportunities

[S3,O2,O3]: Develop off-premise business to penetrate more groceries & supermarket by taking advantage of our distribution network.[S7,O9]: Promote value of social responsibility awareness through existing bonds with communities.[S2,O10]: Adopt modern equipment by using cost savings from our centralized production system.[S2,O4]: launch new premium coffee lines to address new consumer trends.

[O6,W1]: Combine co-branding opportunities with new product testing to reach a broader spectrum of consumers and differentiate our product lines.

[O10,W3]: Improve off-premise profit margin focusing on enhanced packaging graphics, longer shelf life and rationalized delivery routes.

[O5,O6,W3,W1]: Empower co-operation with franchisees by increasing support, training, providing them with operational tools and giving them initiatives to achieve guaranteed and consistent quality.

Threat

s

[S4,T2,T3]: Enhance shop operations (service quality, hospitality, waste management, labor force) to stabilize demand and reduce vulnerability to fluctuations in sales[S1,S5,T6]: Use the unaided brand awareness and the economies of scale achieved with the hub-and-spoke model in order to compete with larger and better-financed competitors globally.

[W8,T2]: Plan Cross-Market product awareness through special event programs, recruiting local expertise with proven experience in the field.

[T7,W7]: In markets with highly skewed preference towards local pastry stores, we can penetrate by exploiting our capability to provide them with specialized equipment and mix concentrates creating a potential of forward integration with some of them.

Quantitative Strategic Planning MatrixKey Factors Weight Alternative 1 Alternative 2

Opportunities

1 QSR sector sales up 3% over the past 10 yrs 0,10 2 0,2 4 0,45 New store opening to target global markets 0,07 1 0,07 3 0,216 Merge acquisition or co-branding with local stores 0,07 3 0,21 1 0,078 Penetrate local traditional food markets 0,03 1 0,03 3 0,09

Threats

1 Disputes with franchisees possible 0,1 1 0,1 4 0,42 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

6Main competitors significantly bigger both domestically and internationally 0,10 4 0,4 2 0,2

7 Intern. consumers prefer mostly local pastry shops 0,04 1 0,04 4 0,16

Strengths

1 Big Tradition & history 0,08 4 0,32 2 0,16

2 Centralized mix prod. and distribution efficiency 0,05 4 0,2 1 0,05

4 Efficiencies in store operations possible 0,03 4 0,12 3 0,09

5 Hub-spoke model operations 0,02 4 0,08 2 0,04

Weaknesses

1 Over reliance on one product line 0,02 2 0,04 3 0,06

2 Limited financial Resources 0,09 3 0,27 4 0,36

3 Quality of franchisees 0,07 2 0,14 4 0,28

4 Growth dependent on new store opening 0,05 2 0,1 4 0,2

7 Sole supplier of equipment & mix concentrate 0,07 4 0,28 3 0,21

Total Score 1,00 3,04 3,22

Advantages / Disadvantages1: Focus on Domestic Expansion 2: Focus on International Expansion

Advantages

1. Centralized structure

2. Quality is in our control

3. Community Relationship are well-established

4. Hub-Spoke Model very popular

1. New markets unexplored (China, Russia, Brazil, India]

2. Prospective economic growth of new markets

3. Follow popular trend of food industry for globalization and internationalization

4. Global spread keeps shareholders more satisfied and increases share prices

5. Tim Horton's not yet expanding internationallyStarbucks image has withered and is considered expensive

Disadvantages

1. Small store model not yet proven

2. Competition more intense

3. Competitors very well financed compared to KKD

4. Local expansion has already failed once

1. Global economic slowdown

2. Service Quality Difficult to Monitor

3. Limited Financial Resources

Competitive Strategy

Offer a differentiated product line of complementary tastes and beverages along with the flagship doughnut products.

Expand cautiously in the US by using an efficient and cost-effective model for both on-premise and off-premise operations

Expand internationally by more than doubling the number of our international shops over the next five years

Strategy EvaluationRummelt’s Criteria

Consistency:International expansion has started in 2001 and is our stable source of economic growth.

Feasibility:An effective and proven growth model that is followed by the top corporations in the industry.

InternalFactors Consonance:

The failure of the domestic franchising model points toward strategic repositioning.

Advantage:The unique taste and distinctive features combined with our increased focus on franchise operations will make us the most attractive choice

ExternalFactors

Strategy Evaluation

S

T

A

I

R

Sustainable: We will strengthen our relationship with our long-term partners, the franchisees

Timing: The best time for expansion, as we experienced growth in the number of stores for the first time since 2005

Advantage: Our unique taste, secret recipe and franchising experience a guide for sure-footed success

Implementation: We cannot repeat mistakes of the past - use proven techniques and tools

Resources: Hire experienced managers and empower the department devoted to franchising

Strategy Evaluation

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

8393

207144 165

334

229 258

68

298

417

811

Domestic Company Domestic Franchise

Domestic (Total) International

Evolution of Number of StoresInternational Stores

Domestic Stores

Strategy Evaluation

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

238.9

330

483.2

650

274.6

325.2

510

Domestic Company

Domestic Franchise

Domestic (Total)

International

Evolution of Sales ($m) International Stores

Domestic Stores

Key Implementation Aspects

Human Resources

Finance & Accounting

Research & Development

Franchisees may not endorse the company cultureWorldwide expansion is a labor- and cost-intensive processPossible need for transformation to penetrate diverse countries/markets.

New Training methodsNew Franchisee Approval ProcedureIncrease Resources devoted the franchise operationsHire New Executives From the Market [new experience]Franchisee FeedbackIncrease Employee Participation

Worldwide expansion could hurt initial financial figuresRecent examples point the need to minimize/transfer risk to franchiseesThere is a shortage of credit all over the globe

Commission-based franchisee financing scheme

Bonus Incentive payout

Throttle cost savings from domestic company stores consolidation to international expansion

We need to develop new products that are brand-relevant.We need to follow the trend for healthy productsDifferent markets might have different packaging needsWe need to extend the shelf-life

Conduct employee and consumer testing programsResearch low-fat alternatives to our productsLocalize packaging and seasonal products (Christmas, Valentine’s day, etc.)Experiment with the shelf-life of our off-premise produce.

Key Implementation Aspects

Marketing Operations Information Systems Management

Increase customer appealIncrease brand equity and awarenessEnsure store appearance perfection

Improve Packaging GraphicsAggressive AdvertisingNew store design guides to franchiseesCross-market product development

Efficiency must be at maximum levels while ensuring top-notch qualityFranchisees need help on maximizing sales, profits and brand equity

Modernize store equipment and facilitiesProvide new operational toolsProvide know-how on improving shop economicsIntroduce strict QA methods

A global organization is more open to security threats.Technology exploitation is a key strategic success element

Implement Security-enhanced Extranets with the FranchiseesImplement Daily/Weekly sales report from storesTop-notch POSUse ERP for SCM and demand management

Franchisees need help from our expertise in store selection & starting upWe need to be actively involved, not “distant”

Increase developer associates devoted to franchiseesDispatch company managers to help with store openings & deploymentImplement regular Skype meetings & conferences

Conclusion

Thank You!!!Strategy & Business PolicyAssignment

Zoi KarakostaKyriaki Zafeiriadou

Efstathios SimeonidisKostas Takolas