Krispy Kreme Doughnuts (KKD) is an international company that was founded in the United States in the year of 1937 and became publicly traded in April 2003. KKD handles operations in forty different states in the USA, along with operations internationally in ten different countries including Australia, Canada, Hong Kong, Indonesia, Japan, Kuwait, Mexico, The Philippines, South Korea, and the United Kingdom. KKD owned a total of 395 stores of which 282 were franchised. Most of its revenue came from the production and sale of doughnuts.
From the 100% revenues, 30% of its revenue came from franchise fees and the supply chain. KKD started to face a major decline in revenue in the years 2006, 2007, and 2008. The problems and symptoms of such an event are many. In this case, we will start by analyzing each of the various components that contribute to the performance of the organization. This process can be done by conducting the Value Chain analysis Approach. To implement this strategy, it is important to consider that there are various primary and subsequent activities within the business that either add or take away customer value if not executed accordingly.
Studies show that some of the problems that KKD faced were compliance with the law, failing to sustain a comparative and absolute advantage in the market due to the incremental competition, and the financial crisis due to an increase in the food product price inflation.
One of the problems that led KKD to its decline in revenue was because the CEO Scott Livengood was involved in providing false financial information to outside users. The executive would also hide evidence of declining sales and profits, harming employees’ retirement accounts. As a result of these practices, the company became a target of a federal criminal inquiry by the New York Security and Exchange Commission (NYSEC). In addition, KKD faced several lawsuits causing a major hit on the company’s reputation. Due to these incidents, stock prices went down significantly because investors would not trust the company’s operations.
There was a time when Krispy Kreme Doughnuts were the only product option in the market. Because they were the only producers, they were enjoying the monopolistic economical stage of a product. Unfortunately, as we can see with every new product ever invented, there are always new companies stepping in to join the growing economy. The problem with KKD was that they failed to sustain a competitive advantage by failing to establish a product differentiation, when large competitors such as Dunking Doughnuts, Starbucks, and Burger King, started to gain sustainability. Customers would now visit these new establishments, taking them as substitute products. This threat caused KKD’s products to lose popularity in the market. Other competitors such as Starbucks, took the same approach as Krispy and Kreme, also looking to sell their products in retailers and more convenient establishments. When considering foreign markets, KKD faced the same issue. Consumers already had a concept and taste of local products, therefore, they were more loyal to local brands. KKD failed to establish good market research of local consumers and brands. They could have used the SWOT analysis of marketing, to analyze their strengths, weaknesses, opportunities, and threats. Followed by product innovation, geographics, and customer satisfaction. This would have helped them in expansion and the creation of new diversified products.
Additionally, another problem that Krispy Kreme encountered was the method in which they distributed and placed their products. As the market for fast-food restaurants was increasing, food product price inflation had also been increasing since 2004, so major companies started to lower the development cost of new restaurants and slowly overstored US fast food markets. This issue emphasizes a country’s currency’s financial risk. Consequently, reducing the cost of new units should enhance companies’ return on investments and improve entry into smaller markets. Some fast-food companies started looking to international expansion for growth, while others were investigating new ways to grow. Krispy Kreme must consider that American eating habits are different than other markets, so marketing and product variability are important.
All major European and American doughnut chains are rolling into international markets such as Asia, particularly in China, Taiwan, Japan, and South Korea pg #31).
However, the three most promising markets are in the UK, Germany, and Spain where donuts are offered in small bakery shops supermarkets, and department stores. As result, Krispy Kreme should focus on product distribution, in an attempt to gain a competitive advantage over similar companies, thereby controlling the market thus increasing profit that can be used to increase their franchise to ultimately gain positive stock share for its stakeholders.
During the past two decades, an ever-increasing percentage of U.S food dollars have gone to eating out. With a greater percentage of Americans working, there has been less time available for at-home food preparation. Krispy Kreme believes this trend along with growth in two-income households will increase snack food consumption and further growth in donut sales. The casual dining sector continues to gain share from fast-food chains, as an older, wealthier population favors dining in full-service restaurants. As new competitors join the market, it becomes more and more complex for firms to increase or sustain their profit margins. Perhaps in an attempt to prevent this, Krispy Kreme should consider country nationalization or internalization where they can build strong relationships with the already established domestic companies that are in those foreign markets. Through foreign direct investments, the firm establishes a physical presence abroad through the acquisition of pro-duction assets such as capital, technology, labor, land, plant, and equipment.
In the case of Krispy and Kreme, we have seen how poor management decision-making had led the company to potential problems, such as lawsuits, a bad reputation, and a decline in profits.
The first problem found was due to the poor leadership decisions made by CEO Scott Livengood. To solve this problem, KKD should start by working on its human resource development. We believe that major employees such as the CEO and top manager should be 100% aware of the different law codes conducts, to prevent the company from gross negligence.