EPPM4014

PENGURUSAN STRATEGIK

CHAPTER 5 : STRATEGIES IN ACTION

“TYPE OF STRATEGIES”

SET 3

NOR AQLELY AQMAL BT MOHD KAMIL A123521

NOOR FATIHA BT MOHD YUSUF A122523

NUR AMALINA BINTI KHAIRUDIN A123420

SHAFURA BT YAAKOB A122388

NUR IZZATUL AKMA BT MOHD RIDUAN A122723

NAMA PENSYARAH:

PUAN SITI HAWA BT RADIN EKSAN

Vision statement (actual)

(8) a full services store in every U.S market that exceeds 100,00 households. (2)Expand the doughnuts market by utilizing profitable horizontal sales channel.

Mission statement (actual)

To be the (1)consumer’s doughnut of choices by offering and affordable product with universal appeal.

(1) Customer(2) Products or service(3) \markets(4) Technology(5) Concern for survival, profitability and growth(6) Philosophy(7) Self-concept(8) Concern for public image(9) Concern for employees

Objective (actual)

have a successful Krispy Kreme in every town in the United States

mission statement (proposed)

is to become the recognized leader in its targeted market for quality doughnuts and beverages.

Vision statement (proposed)

to create specialty café anchored by an authentic, fresh-doughnuts and upscale quick service menu selections.

Creates a good moments among customers while they are with us serving the best doughnuts ever.

company strategies

Krispy Kreme’s ability to align strategy and execution with the brand’s highest potential defines their capacity for vision and creativity. They place having both brand value and internal cultural values as a key priority. Using their brand as a platform, Krispy Kreme has developed strategies such as linking everything they do by, understanding, protecting, and promoting their brand, establishing the brand with the “Hot Doughnuts Now” experience, penetrating complementary, off-premises channels of sales. They are committed to building an organization based on common values of integrity, authenticity, passion, learning, sharing, and positive expectations. Their commitment to value serves as a stage for all policies and programs that affect internal and external relationships. Developing a successful strategy in standard cycle market proves to berelatively simple for Krispy Kreme. However, if looked at too simply, a companywill choose a strategy that is too narrow or too broad based on the other factors ofchoosing a strategy. Determining which customer needs to satisfy is an area where choosing the incorrect strategy can result in a decreased competitive advantage.

Currently Krispy Kreme implements a differentiation strategy, attempting to distinguish their doughnuts based on taste, quality, and simplicity.This seems to be the norm for the doughnut industry. Companies in this industry choose to compete based on their unique tastes or variety of flavors as potential competitive advantages, rather than cost. Krispy Kreme chooses to emphasize its secret yeast raised doughnut recipe. However, doughnut companies have also succeeded their cost position through vertical integration, by having an automated system, designed to create high quality, consistent doughnuts. Krispy Kreme manufactures their own custom doughnut making equipment for all of their restaurants. Krispy Kreme chooses not to segment its market, believing that their breadth of appeal extends across all major demographic groups, including age and income. Concentrating on a large market seems to be the norm among competitors as well. Where they seem to fall behind the curve is in choosing an appropriate corporate, cooperative, or international strategy. Perhaps, Krispy Kreme’s most import asset is their brand name and taste. Their “Hot Doughnut’s Now” sign, serves as their biggest signal to the freshest doughnuts offered. Targeting consumer tastes is one area in which they succeed. They understand that consumers value freshness when it comes to doughnuts.

Their Doughnut Theatre Experience combined with clever marketing, creates a myth for consumers. Krispy Kreme executives understand that relying on word of mouth is more credible than paid advertising. Before Krispy Kreme enters a market they will flood that market with memorabilia including T-shirts and hats, forming an unpaid loyalty base. However, their strongest marketing focus is their charitable efforts through giveaways, and wholesale charges to charities. By using this particular approach they continue to emphasize their small town, southern hospitality, commitment to the community, and brand value. Through a related diversification strategy, Krispy Kreme should choose to offer a variety of other products that doughnut eaters tend to enjoy. They currently offer beverages and places to sit, but what they

may have slightly overlooked in the past is that frequenters of doughnut/coffee shops enjoy the atmosphere as much as the sweetness of doughnuts.

Perhaps one of their biggest attractions is the doughnutMaking theater, allowing customers to see the actual process of cooking and glazing the doughnuts. They have recently begun updating the look of their stores to capture the essence of their unique brand. In 2001, Krispy Kreme acquired Digital Java, Inc to broaden their beverage offering to customers. With this acquisition came the offering of different drip coffees, ranging from light and smooth to deeper, more intense blends. It also now offers espresso beverages, frozen coffee beverages, and other frozen beverages prepared with a variety of proprietary flavors5. In addition to doughnuts, they sell snack foods, real fruit pies, cinnamon buns, and mini-doughnuts3. Offering more morning sweets or health conscious breakfast items such as low fat bagels should be avenues they explore. Doughnuts are generally a morning consumption item, so means to attract more customers during the day or evening, other than freshness, sweetness,and the sign, should also be investigated. They could choose to diversify into fresh baked breads for the evenings, or deli type sandwiches throughout the day.

Another strategic decision of updating their extranet to a more standardized, browser-accessible interface has proven to be a competitive advantage for the company as well. The system let’s administrators assign only those resources users require for their framework, and protect important information from competitors. This is one of the problems of their former extranet. With the upgrade they can now quickly and securely deliver applications and data to employees anytime, anywhere4. This allows KrispyKreme to operate more efficiently and stay one step ahead of the competition. Even their cash register is an efficient low profile, space saving design, which integrates keyboard and operating screen into an intelligent compact terminal. By connecting reliable smart terminals to industry standard open system components, they can avoid many of the high hidden costs of technology ownership. Through their website, managers can log onto “MyKrispyKreme” to monitor inventory levels, and consumers and investors can log on to obtain information about the company, new and upcoming openings, newsletters, and purchase collectibles.

Their website also features a “Friends of Krispy Kreme club” where customers can sign up to be emailed regular newsletters about store openings and new flavors. This alone will remove the excessive costs of printing and distribution. Krispy Kreme has a thorough understanding of the actions and focus needed to maintain a competitive advantage as they are in their early stages of growth.

However as they continue to grow and enter new markets they may want to consider alternatives in altering or expanding upon their current strategy. A potential problem looming over Krispy Kreme executives is their low inventory turnover ratio. Krispy Kreme averages

approximately eighteen days, opposed to the industry average of nine days10. Management at Krispy Kreme hope this problem will be solved by their new internet site, if not this flaw in Krispy Kreme’s supply line will continue to cost the company money and reduce future profits.

Although Krispy Kreme has done a successful job in securing their position and maintaining a competitive strategy, it is critical that they continually take strategic actions to stay ahead of the competition. Already, other companies in the doughnut industry have begun to respond to some of the successful actions by Krispy Kreme. One company has even begun to compete head to head with what Krispy Kreme prides itself on most, taste and quality. LaMar’s Doughnuts, perhaps the biggest prospective threat to Krispy Kreme has held taste tests directly competing with a variety of Krispy Kreme’s products. In one such contest, held in Springfield, Missouri, “Police and sheriff department officers judged LaMar’s Doughnuts to be superior to Krispy Kreme’s products in four of five categories: original glazed, glazed sour cream, chocolate iced and Bavarian Crème filled, and cinnamon roll. The doughnuts were judged according to taste and appearance. LaMar’s strategy is to go to its customers by operating neighborhood, bistro-style doughnut stores with gourmet espresso bars in high traffic areas. Currently they operate 40 franchised and company owned gourmet doughnut stores in seven states, and the goal is to open 1200 stores nationwide by 2010.”

As critics of Krispy Kreme’s strategy have thought, their success is in large part due to the fact that they are the new kids on the block. They may want to slow their growth in location to maintain the authenticity and exclusiveness associated with high quality desired products of any kind, such as a diamonds from Tiffany’s or a doughnut from Krispy Kreme. Everyone in the bakery/sweets industry attempts to differentiate their product based on quality and taste. It is only those with an entrepreneurial mindset and vision who can provide an innovative, competitive advantage building idea or capability. Krispy Kreme has achieved this with their doughnut theatre by offering customers something they don’t see often, a first hand view of the frying and glazing process. Cinnabon has realized the advantage of this unique featured and copied the idea. They similarly represent themselves as a “modern version of the traditional neighborhood bakery where people are always welcome to stroll in, sample their unique product and delicious treats, and linger a while to enjoy the entertaining baking process and warm, friendly atmosphere.” Cinnabon offers an experience, much like the Krispy Kreme experience. Of particular importance to Cinnabon’s strategy is their Express Packs ™ they have designed packaging made to seal in the warmth and freshness of their products until you get them home and are ready to eat.

The Competitive Profile Matrix (CPM)

krispy kremestarbucks tim hortons

critical success factors weight rating score weight rating scoreWeight rating score

Employees 0.1 2 0.2 0.1 4 0.4 0.1 3 0.3Revenue 0.2 2 0.4 0.2 4 0.8 0.2 4 0.8net income 0.1 2 0.2 0.1 4 0.4 0.1 3 0.3product line 0.1 2 0.2 0.1 3 0.3 0.1 4 0.4consumer loyalty 0.05 2 0.1 0.05 3 0.15 0.05 3 0.15P/E ratio 0.05 1 0.05 0.05 3 0.15 0.05 2 0.1product quality 0.15 2 0.3 0.15 2 0.3 0.15 2 0.3market expansion 0.05 2 0.3 0.05 3 0.15 0.05 2 0.1customer service 0.05 1 0.05 0.05 2 0.1 0.05 3 0.15Advertising 0.15 2 0.3 0.15 2 0.3 0.15 2 0.3

Total 1 2.1 1 3.05 1 2.9

Note: the ratings values are as follows;

(1) = Major weakness(2) =Minor weakness(3) =Minor strength(4) =Major strength

We have classified for 4 class of rating which is major weakness, minor weakness, minor strength and major strength.From these three organization starbucks have conquer the higher rating in each critical success factors.it gets for 4 rate in employees, revenue and net income. The other critical success factors starbucks gets for 3 and 2 rating. It show starbucks has a good reputation. Besides that Tim Hortons has get best rating in revenue and product lines. Other than that it only gets for 2 and 3 rating. The minor weakness for Tim Hortons are advertising, market expansion, product qualityand P/E ratio. Krispy Kreme is the weakest among all three organization.it only get 2 for the best rating which is advertising,market expansion, net income, product quality, consumer loyalty, product line, revenue and employees. The total score for Krispy Kreme is 2.1. Starbuck get the highest score that is 3.05 and Tim Hortons gets 2.9.

Annual objective (recommendation)

Become a global krispy kreme that can be enjoyed by everyone all over the world

Policies (recommendation)

Serving only a hot doughnuts for our customers Customers will be entertain as soon as they get into our restaurant Full, fair, accurate, timely, understandable disclosure Accountability.

CPM

Dunkin’ Donuts Starbucks Corporation Tim HortonsCritical Success WeightFactors

Rating Weighted Score

Rating Weighted Score

Rating Weighted Score

Market Share 0.2Price 0.1Financial Position 0.2Product Quality 0.1Product Lines 0.2Consumer Loyalty 0.1Employees 0.1

4 0.60 1 0.20 4 0.40 1 0.20 4 0.80 1 0.20 1 0.20

4 0.80 1 0.20 4 0.60 1 0.20 2 0.30 1 0.20 1 0.20

4 0.801 0.204 0.80 2 0.403 0.80

4 0.60 1 0.20

Total 1.0 2.60 2.50 3.80

EXTERNAL FACTOR EVALUATION (EFE) MATRIX

Opportunities Weight Rating Weighted Scores1.New stores open systemwide is 19 store 0.10 3 0.302.Down employees to 4,759 employees 0.15 4 0.603.Share increase 400 percentage in two years 0.15 4 0.804.Total revenue increase from 2007 to 2008 0.025 3 0.155. Average weekly sales increase per store is 11 percentage

0.10 4 0.20

6. 60 new international stores opened 0.25 4 0.507.Asia and Middle East offer favorable population

0.05 3 0.40

Threats1.Net decrease of 6 domestic stores 0.025 2 0.15

2.Franchisees closed 13 stores 0.05 2 0.203.Closing 71 domestic stores 0.10 4 0.30

Total 1.0 3.60

INTERNAL FACTOR EVALUATION (IFE) MATRIX

Strenghts Weight Rating Weighted Scores1.Franchise fees and royalties increase over 14 percent

0.05 3 0.15

2.The sales mixes and othr supplies increase 26 percent in equipment,furniture,fixtures,and similar items

0.05 3 0.20

3. Capacity can reduce from 4000 to 10,000 dozen doughnut daily

0.07 4 0.25

4. Compromised to four executive officers 0.02 3 0.105. Plans to convince the British to replace the biscuit menu to doughnut

0.15 4 0.30

6. Offer the tea drinking its own custom brews of coffee

0.15 4 0.30

7. Can develop new doughnut that can be “low calory” doughnut selection

0.20 4 0.45

8. Should continue to expand globally and domestic compare with competitor

0.05 3 0.15

Weaknesses1.Sales to franchise store decrease 10 percent 0.02 2 0.102. Ingredients and coffee in doughnut decrease 13 percent

0.04 2 0.15

3. Allow constumer to watch the actual doughnut making process

0.20 4 0.30

Total 1.0 2.45

SWOT Analysis Matrix:

Strengths (S) Weaknesses (W)

1. Brand Name, Trademark, & Goodwill.

1. Global Market Penetration.

2. Cost – Efficiency & Operations.

2. Menu Diversification.

3. New Product Development 3. Domestic Market Penetration

Opportunities (O) SO Strategies WO Strategies

1. Global Expansion. 1. S1-O1- Target Americans abroad (MKT DEV)

2. S2-O2- Build-a-Burger Aisle (PRD DEV)

3. S3-O3- “Café Wendy”- featuring upscale/varied fare (CONSEN DIV)

1. W1-01- Form partnership w/ local eateries/firms to establish brand (JOINT VEN/MKT DEV)

2. W2-O1- Offer local fare in international stores (PRO DEV)

3. W2-O3- “Café Wendy”- featuring upscale/varied fare (CONSEN DIV)

2. Mass Customization

3. Upscale boutique Stores

Threats (T) ST Strategies WT Strategies

1. Commoditization 1. S1-T1- Heavily market quality, seek premium (MKT PEN)

2. S2-T1- Build-a-Burger Aisle (PRO DEV)

3. S3-T2- Develop “Healthy Fare” menu (PRO DEV)

1. W1-T1- Position overseas stores to seek premium market (MKT PEN)

2. W2-T2- Develop “Healthy Fare” menu (PRO DEV)

3. W2-T2- Purchase competitor known for healthy menu (Quizno’s e.g.) (HOR INT)

2. Consumer concerns about nutritional content

3. Government Action

IFF Score

(2.70)

Strong

4.0 - 3.0

Average

3.0 - 2.0

Weak

2.0 - 1.0

4.0 3.0 2.0 1.0

CFF Score

(1.85)

Strong 4.0 - 3.0

4.0

3.0

2.0

1.0

Average 3.0 - 2.0

Weak 2.0 - 1.0

Diversification, retrenchment, divestment

The above framework is a reference to specific SWOT strategies that make prudent sense in our overall analysis. Specifically, concentric diversification is an appropriate strategy for Krispy’s .

SPACE Matrix Analysis

Internal Strategic Position External Strategic Position

Financial (FS)

+6 best, +1 worst

+_1_ Return on investment

+_1_ Leverage

+_3_ Liquidity

+__1 Working capital

+_1_ Cash flow

+_1_ Ease of exit from market

+__4 Risk level of business

+ __1.7_ average

Environmental (ES)

-1 best, -6 worst

-3_ Stage of technological life cycle

-3_ Rate of inflation

-2__ Demand variability

-2__ Price range of competing offerings

-1__ Barriers to entry into market

-4__ Competitive pressure

-3__ Price elasticity of demand

-2.57___ average

__-0.87__

y-coordinate

(FS + ES)

Competitive (CA)

-1 best, -6 worst

-3__ Market share

-2__ Price/quality ratio

-3__ Product life cycle

-2__ Customer loyalty

-2__ Competition's capacity utilization

-2__ Technological know-how

-3__ Bargaining power

-2.43____ average

Industry (IS)

+6 best, +1 worst

+3__ Stage of industry/alliance evolution

+3__ Growth potential

+4__ Profit potential

+4__ Financial stability

+4__ Technological know-how

+4__ Resource utilization

+3__ Capital intensity

+3.57___ average

__1.14__

x-coordinate

(CA + IS)

Vector magnitude: square root of (y2 + x2) = _1.44____ versus maximum 7.07 =

___weak______(strong, medium, weak)

SPACE Matrix Analysis

FS

IS Aggressive

Intensive Integration +6

Diversification +5

+4

+3

+2

+1

v = 1.44 0

Conservative

Intensive,

concentric

diversification

CA

+6 +5 +4 +3 +2 +1 0

-1

-2

-3

-4

-5

-6

Integration,

Intensive

Competitive

-1 --2 -3 -4 -5 -6

Retrenchment,

divestiture,

liquidation,

concentric

diversification

Defensive

ES

The above framework recommends that Krispy’s pursue an integration as well as an intensive strategy albeit we have more confidence in the intensive strategies. The strategy that seems to make the most sense is the product development as it will create the most economic value added, i.e. the build – a – burger aisle or a healthy fare menu.

Long terms objectives Krispy Kream Doughnuts

The Krispy Kream long-term objectives include 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. Doubles company revenues in two years through market development and market penetration. (Current revenues are $42,236,000). Based on the long term objective, Krispy Kream Doughnuts needs to increase divisional revenues by 40% this year and 40% next year.

Specific strategies Krispy Kream Doughnuts

1) Develop new product this year that are successfully marketed

Struggling Krispy Kreme plans unit growth, new menu items. Sales of donuts started to increase as consumers turn to comfort food. Some of the reasons consumers are seeking their comfort in doughnuts is new products have been developed without Trans fats, in smaller portion sizes and new flavors. No Sugar-Coating the Situation, Impulsive, Ingenious, Enticing. The unparalleled appeal of sweet goods, donuts in particular, seems to be able to keep them in consumer’s hands no matter what diet they are working on in their heads. Even with this long-standing affair between consumers and sweet goods, producers still need to continually find new ways to promote their products and offer new options to keep consumers interested. Krispy Kreme's promotion with the Kansas City Royals is offered as a successful example. Tradition and comfort play well for donuts despite consumer tendency to not view sweet goods in this way. Expanding donuts and sweet goods into ethnic flavors is what Flower Foods and Awrey Bakeries believe could be a winning startegy.

2) The operations are carried out through three segments The operations are carried out through three segments, company stores operations, franchise operations and Krispy Kreme Manufacturing and Distribution. The stores are both retail outlets and highly automated producers of over twenty varieties of doughnuts. The company is a branded specialty retailer, and produces more than three million doughnuts a day. In addition to its Krispy Kreme stores, the company sells its doughnuts in supermarkets, convenience stores and other retail outlets throughout the country. The Krispy Kreme Manufacturing and Distribution segment sells doughnut-making equipment, mix, other ingredients and supplies and also operates three distribution centers.

3) Competitive advantageKrispy Kreme has a competitive advantage over other bakeries because the self-rising yeast doughnut has an excellent reputation representing freshness at its finest and because of the innovative doughnut making process. This process appeals to its customers through anticipation and the sensory response. The first indication is the large red "hot Krispy Kreme now" neon sign that's displayed while the doughnuts are being made. When the customer enters the Krispy Kreme doughnut shop, the aroma of the fresh doughnut hits their nose, and the anticipation from watching the fresh doughnuts roll off the line four feet away overtakes them. When the customer gets to the cashier, their mouth is watering and they always order too many. This highly refined presentation through the senses has made Krispy Kreme a cult favorite.

4) Krispy Kreme introduces healthy donut

This is a whole wheat donut with a sweet caramel flavoring covered in the original Krispy Kreme glaze. This donut is hitting headlines because it is only 180 calories -- a great reduction from the company's "original recipe" donuts. This product could potentially begin bringing back consumers the company has lost during the original health and low-carb scares and accelerate the company's coffee and drink businesses.

5) KKD’s strategy provides the company three sources of revenue

Sales at company owned stores, royalties from franchised stores and franchise fees from new stores; and sales of doughnut mixes, customized doughnut-making equipment, and coffees to franchised stores. KKD shifted in focus from a wholesale bakery to a specialty retail bakery to promote and increase sales at the company’s own retail outlets. The company emphasized the “HOT DOUGHNUTS NOW” feature as a response to customer feedback as well as a form of local advertising. The company was able to boost its store sales-volume by combining on-premise sales at its stores to capture customer base and then to secure off-premise sales at supermarket and convenience stores for packaged sales.

6) KKD gave reliance on franchising “associate” stores and opened a few new company-owned stores as a means of expanding nationally and internationally. However, franchise licenses were granted only to candidates who have experience in multi-unit food establishments and who possess adequate capital to finance the opening of new stores in their assigned territory. It is remarkable how the company built a vertically-integrated value chain that supplies both company-owned and franchised stores proprietary doughnut making equipment as well as doughnut mixes.

Krispy Kream DougnutsComparism Income Statement

For January 2005 until January 2009

  2009 2008 2007 2006 2005

           

Revenue 383.98 429.32 461.2 543.36 707.77Total Revenue 383.98 429.32 461.2 543.36 707.77           Cost of Revenue, Total 345.01 380.01 389.38 474.59 598.28Gross Profit 38.98 49.31 71.82 68.77 109.49           Selling/General/Administrative Expenses, Total

23.46 26.3 48.86 67.73 55.3

Research & Development 0.0 0.0 0.0 0.0 0.0Depreciation/Amortization 8.71 18.43 21.05 28.92 31.93Interest Expense (Income), Net Operating

0.0 0.0 0.0 0.0 0.0

Unusual Expense (Income) 0.55 57.34 28.49 90.9 163.39Other Operating Expenses, Total

1.5 0.01 1.92 -1.74 0.0

Operating Income 4.76 -52.78 -28.5 -117.03 -141.14           Interest Income (Expense), Net Non-Operating

0.0 0.0 0.0 0.0 0.0

Gain (Loss) on Sale of Assets 0.0 0.0 0.0 0.0 0.0Other, Net 2.82 -2.97 -0.45 0.0 -0.4Income Before Tax -3.56 -64.73 -41.03 -136.54 -147.38           Income Tax - Total 0.5 2.32 1.21 -0.78 9.67Income After Tax -4.06 -67.05 -42.24 -135.76 -157.05           Minority Interest 0.0 0.0 0.0 0.0 0.0Equity In Affiliates 0.0 0.0 0.0 0.0 0.0U.S. GAAP Adjustment 0.0 0.0 0.0 0.0 0.0Net Income Before Extra. Items

-4.06 -67.05 -42.24 -135.76 -157.05

           Total Extraordinary Items 0.0 0.0 0.0 0.0 -41.29

Accounting ChangeDiscontinued OperationsNet Income -4.06 -67.05 -42.24 -135.76 -198.34                      

Total Adjustments to Net Income

0.0 0.0 0.0 0.0 0.0

Preferred DividendsGeneral Partners' Distributions           Basic Weighted Average Shares

65.94 63.81 61.87 61.81 61.63

Basic EPS Excluding Extraordinary Items

-0.06 -1.05 -0.68 -2.2 -2.55

Basic EPS Including Extraordinary Items

-0.06 -1.05 -0.68 -2.2 -3.22

           Diluted Weighted Average Shares

65.94 63.81 61.87 61.81 61.63

Diluted EPS Excluding Extrordinary Items

-0.06 -1.05 -0.68 -2.2 -2.55

Diluted EPS Including Extraordinary Items

-0.06 -1.05 -0.68 -2.2 -3.22

           Dividends per Share - 0.0 0.0 0.0 0.0 0.0

Common Stock Primary IssueGross Dividends - Common Stock

0.0 0.0 0.0 0.0 0.0

Interest Expense, Supplemental

10.68 9.8 20.33 20.21 6.88

Depreciation, Supplemental 8.1 17.8 20.3 27.9 30.91           Normalized EBITDA 14.02 22.99 21.04 2.78 54.18Normalized EBIT 5.31 4.56 -0.01 -26.14 22.25Normalized Income Before Tax

-3.01 -7.39 -12.53 -45.64 16.01

Normalized Income After Taxes

-3.7 -29.78 -23.72 -76.68 -50.85

Normalized Income Available to Common

-3.7 -29.78 -23.72 -76.68 -50.85

           Basic Normalized EPS -0.06 -0.47 -0.38 -1.24 -0.83Diluted Normalized EPS -0.06 -0.47 -0.38 -1.24 -0.83Amortization of Intangibles 0.61 0.63 0.75 1.02 1.03

Procedure for strategies review and evaluation

1) Company strategyAcquire a chain of retail stores to meet KDD sales growth and profitability objective.

2) Supporting policies All stores will open from 10.00 A.M to 10.00 P.M. Monday trough Saturday. This policy

could increase retails sales if stores currently open only 40 hours a week. All stores must submit a Monthly Control Data Report. This policy could reduce expense-

to-sales ratios. All stores must support company advertising by contributing five percent of their total

monthly revenues for this purpose. This policy could allow the company to establish a national reputation.

All stores must adhere to the uniform pricing guidelines set forth in the Company Krispy Kream Doughnuts. This policy could help assure customers that the company offers a consistent product in terms of price and quality in all its stores.

3) Division Objective

Increase the division’s revenues from $40 million to $50 million in 2008 and increase the division’s revenues from $50 million to $60 million in 2009.

4) Production Department ObjectiveIncrease production 40% 2008 and 40% 2009.

5) Supporting policies Beginning January 2008, employee will have the option of working up to 20 hours of

overtime per week. This policy could minimize the need to hired additional employees. Beginning January 2008, perfect attendance awards in the amount of $100 will be given

to all employees who do not miss a work day in a given year. This policy could decrease absenteeism and increase productivity.

Beginning January 2008, new equipment must be leased rather than purchased. This policy could reduce tax liabilities and thus allow more funds to be invested in the modernizing production processes.

Krispy Kreme’s Financial Ratio Analysis (February 2009)

Key Ratios

Growth Rate % Krispy Kreme Industry

Sales (qtr vs year ago qtr) -11.40 5.00

Net Income (YTD vs YTD) NA 34.70

Net Income (qtr vs year ago qtr) 59.40 30.20

Sales (5 years annual average) -9.97 6.20

Net Income (5 years annual average) NA 14.37

Dividens (5 years annual average) NA 24.05

Price ratio

Current P/E Ratio NA 17.3

P/E Ratio 5 Years High NA 6.7

P/E Ratio 5 years Low NA 3.8

Price/Sales Ratio 0.74 2.35

Price/ Book Value 4.26 6.29

Price/Cash Flow Ratio 35.60 11.60

Profit Margin %

Gross Margin 13.9 35.3

Pre-tax Margin 0.3 5.1

Net Profit Margin -0.3 13.6

5 Years Gross Margin (Average) 13.4 36.3

5 Years Pre-Tax Margin (Average) -15.6 15.1

5 Years Net Profit Margin (Average) -16.1 10.6

Financial Condition

Debt/Equity Ratio 0.81 2.16

Current Ratio 1.5 1.0

Quick Ratio 1.2 1.0

Interest Coverage 0.9 25.6

Leverage Ratio 2.8 4.2

Book Value/Share 0.90 11.94

Investment Return %

Return on Equity -1.6 54.2

Return on Assets -0.5 12.5

Return on Capital -0.7 14.9

Return on Equity (5 Years Average) -55.5 27.8

Return on Assets (5 Years Average) -21.7 9.8

Return on Capital (5 Years Average) -29.7 12.2

Management Efficiency

Income/Employee -254 10,444

Revenue /Employee 91,067 98,255

Receivable Turnover 17.1 49.5

Inventory Turnover 18.7 97.5

Assets Turnover 1.9 1.1

5 Years Summary

Date Average P/E Price/Sales Price/Book Net Profit Margin (%)

02/09 -51.30 0.24 1.62 -1.1

02/08 -6.20 0.43 3.34 -15.6

01/07 -13.10 1.73 10.22 -9.2

01/06 -3.00 0.61 3.03 -25.0

01/05 -7.60 0.75 2.22 -22.2

Date Book Value/Share Debt/Equity ROE (%) ROA (%) Interest Coverage

02/09 $0.86 1.30 -7.0 -2.1 0.4

02/08 $0.87 1.35 -118.5 -33.1 -5.4

01/07 $1.26 1.36 -53.5 -12.1 -1.4

01/06 $1.76 1.13 -124.9 -33.0 -5.8

01/05 $3.90 0.61 -65.2 -32.7 -20.5

Net Worth Analysis (February 2009 in millions)

1. Stockholder’s Equity + Goodwill 81.62

2. Net Income -4.06

3. Share Price = EPS x Net Income 0.24

4. Number of Shares Outstanding x Share Price 16.20

Method Average 94