Krispy Kreme Business Case Study

by: Nihat Canak

Index of contents

1 Krispy Kreme’s Strategy  3

2 Krispy Kreme’s Financial Performance 5

3 The Incident of 2004 7

4 Accounting Tactics  8

5 SWOT Analysis Conclusion 9

6 Krispy Kreme’s Competitive Strengths and Weaknesses 10

7 Recommendations for Krispy Kreme’s Comeback 12

Bibliography 13

1 Krispy Kreme’s Strategy

Krispy Kreme Doughnuts (KKD) projects an image as “the Stradivarius of doughnuts,” creating a unique enriching experience that increasingly gains customer enthusiasm and loyalty. Krispy Kreme’s melt-in-your-mouth, hot, sugar-glazed doughnuts, the “doughnut theater,” and the “HOT DOUGHNUTS NOW” feature are clearly a few of the differentiating factors it attempts to make itself identified with. Fortunately, this appeals to a broad base of buyers; demographically, buyers come from all walks of life: all genders and ages, from skilled to blue-collar, high-income to low-income workers.

KKD’s strategy provides the company three sources of revenue: (1) Sales at companyowned stores; (2) Royalties from franchised stores and franchise fees from new stores; and (3) 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.

Futhermore, 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 doughnutmaking equipment as well as doughnut mixes.

Additionally, another important strategic step was the acquisition of Digital Coffee as another vertical integration step that not only provides additional source of revenue, but also improves the caliber and appeal of the company’s onpremise coffee and beverage product¹.

2 Krispy Kreme’s Financial Performance

Figure 1: Comparison and Development [figure only in downloadfile]

KKD’s strategies have successfully exploited its business model’s revenue sources. As a measure of its success, KKD’s total revenues from fiscal year 1997 – 2003 shows a compound average growth rate (CAGR) of 24.4%, which is above average when compared to industry standards. The net income growth rate of 54.86% is exceptionally attractive and clearly shows the profitability of the strategies. The increase in the number of stores is quite lagging and this is an indication of KKD’s expansion potential.

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1 Kaufmann, Patrick: Krispy Kreme Doughnuts, Inc., An Analysis, 2004 Boston