Analysis and Synthesis of Krispy Kreme Doughnuts

Background Info:

Krispy Kreme Doughnuts (KKD), is an American based fast-food chain who’s focuses are pastries and hot coffee. Founded by Vernon Randolph in 1937, KKD began as a small business which provided its signature handcrafted doughnuts prepackaged directly to local grocery stores. The smell of the treats being baked created a demand for hot doughnuts right out the fryer, subsequently giving birth to the Krispy Kreme Hot Glazed doughnut. By the 1950s certain technologies were now accessible to enhance manufacturing processes for the business.

With the introduction the automatic doughnut cutter and other patent doughnut making equipment, Krispy Kreme’s output process became totally machine operated. In April of 2000 Krispy Kreme announced its decision to launch as a publicly traded company. The first couple of years prior to going public things were looking well for KKD, as stock in the company went from a market value of $10 per share to reporting stock prices close to $50 range by 2003. In 2004 and 2005 Krispy Kreme hit record lows amidst major financial discrepancies and several lawsuits which were settled outside of court.

The following years the company squared away its accounting issues with the Securities Exchange Commissions, reduced its reported negative net income by more than half, and the company value and stock rebounded from a record lows under $4 per share, end of business year 2005 to closer to $8 per share the second quarter business year 2007.

Critical Issues:

We understand that competition is the key issue as to why KKD experienced a decline in growth. The overlying problem is that KKD attempted to enter a market where the major competitors have been in business and amassed significant brand recognition for many years.

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There are various symptoms that can be observed in the case of Krispy Kreme.

Problem:

Krispy Kreme competes in the quick-service restaurant industry where other industry giants engineered better products and accumulated greater market share percentages domestically globally respectively.

Symptoms:

Inferior goods/ services, decline in KKD doughnut sales/revenue, small percentage of QSR market share domestically/globally.

Competition Background:

Dunkin’ Donuts:

American based international company owned by Allied Domecq PLC. Upwards of 7,000 stores in 2007 (1,900 globally/ 5,300 domestically). Over 25 varieties of doughnuts, specialty beverages (hot and cold), signature breakfast sandwiches, bagels, muffins and seasonal items.

Tim Hortons:

Canadian based fast-food company. Offerings include doughnuts, coffee, assorted pastries, and lunch items (sub sandwiches and chili). Merged with Wendy’s to acquire in 1995 US presence. 3000 solely in North America (2,711 Canada/336 US)

Starbucks Corp.:

American based coffee chain. Popular for quality assortment of coffee beans and roasted beverage blends. Also sells signature pastries such as croissants, bagels, and variations of cake. 12,000 locations spread across every major continent.

Analysis and Synthesis: Ansoff’s Analysis:

Looking through the Ansoff Matrix perspective, it is clear that Krispy Kreme never established a strong enough market penetration like their competitors such as Dunkin’ Donuts or Starbucks. Krispy Kreme has almost always offered their existing products to their existing core market prior to going public. However, once Krispy Kreme launched publicly it desperately attempted to reach new markets domestically and internationally to soon. Attempting to sale an existing product in newer markets is a market development approach. Krispy Kreme essentially expanded geographically without ever establishing true foundations with their previously existing locations and customer base. There are a few ways KKD could have increased market penetration before expanding. A major way Krispy Kreme could have increased market penetration is by revamping marketing/promotions tactics and gain a better sense of their 5 P’s to strengthen them. Another way KKD could have ramped up market penetration could have been to merge with or acquired a competitor. These two instances alone instead of overexpansion could have been a better marketing strategy for Krispy Kreme Donuts. By choosing a more market development-oriented approach KKD to the inherent risk of expanding into new markets. Risks such as financial strain and management strain are associated with unsuccessful market development. Unfortunately for Krispy Kreme both possibilities fell upon the company. These could be easily be considered as critical factors in relation to the growth decline that Krispy Kreme experienced. If Krispy Kreme were to slow expansion and refocus on their actual products and POS experience this would increase market penetration. By shifting strategy and focus Krispy Kreme could possibly see an increase in sales, revenue, and greater market share presence.

SWOT Analysis: Strengths:

KKD has a brand appeal that reaches almost all major demographic groups (Age, gender, race, education levels, income level). Their main products of doughnuts and coffee are affordable for consumers. Krispy Kreme supply chain manufactures all equipment and ingredients related to doughnut making process for all retail stores. Hot doughnut sign and transparent windows for customers to see doughnut making process create impulse to purchase, which builds brand identity.

Weakness:

Krispy Kreme tried to rapidly expand across the North America initial public offering, which unfortunately resulted in losses. With the growth decline surrounding 2004 and 2005 many U.S. and Canadian locations were closed. Krispy Kreme was called out for several accounting irregularities. Several lawsuits were filed against KKD and discrepancies involving the Securities Exchange Commissions. Health concerns with products themselves and ingredients. Leading competitors offer substitutions and complements that contain less calories and fat contents.

Opportunities:

Entering new foreign markets such as certain countries in China could possibly be profitable if marketed right. Allocate resources used to distribute prepackaged doughnuts to retail channels such as grocery stores and other convenient stores back into preexisting Krispy Kreme stores for remodeling. Brand revitalization by means of putting aside capital for advertising campaigns. Social media integration to reach younger audiences. Inventing new patents for doughnut making process that monopolizes on equipment sales.

Threats:

Competitors such as Dunkin’ Donuts, Tim Hortons, and Starbucks continuing to expand. Competitors such as Starbuck or Dunkin’ Donuts continuing to place emphasis on its coffee beverages. More consumers having a health-conscious mindset toward food. International consumers without cars to access drive thru windows. States that are banning the uses of certain ingredients in fast food restaurants.

Recommendations:

By examining Krispy Kreme’s critical issues, we would like to recommend that the company begin to realign its current product names as well as it’s descriptions and packaging. As a result, this will attract new customers, increase items sold, appeal to international markets, and encourage existing customers to continue purchasing. Another recommendation for Krispy Kreme is to have theme doughnuts for special holidays, birthdays, or even weddings. When customers make a Krispy Kreme purchase the customer should be asked if they would like to sign up to be a KK rewards member. Which will allow them to collect points to go towards future purchases, birthday doughnuts, KK coupons, and any upcoming events. By adding this feature, it will draw in the young customers, grow all of the holiday sales, and increase customer loyalty. We also suggest that KKD partners with different schools nationwide to assist with school fundraising for different activities. Where a percentage of the proceeds will go to both the school and Krispy Kreme. By implementing this KKD is recognized as helping its community and a huge benefit for their company as well. Additionally, KKD should embark on creating social media, TV, and radio advertisements daily to attract customers. Primarily we would recommend social media as the number one advertising strategy. According to Statista.com, As of 2020 3.5 billion people around the world use smartphones (Number of smartphone users worldwide from 2016 to 2021, 2020). Through social media customers are able stay in tune with any Krispy Kreme updates. However, for the customers who are not on social networks, TV and radio advertisements would be best to capture the remaining customers who aren’t on social media.