I. INTRODUCTION Krispy Kreme Doughnuts, Inc. (KKD) is an international retailer of high-quality sweet treats, including its signature hot Original Glazed® doughnut. It began as a small bakery in Winston Salem, NC on July 13, 1937. Since then, the company has built a global reputation for serving the highest-quality doughnuts and great tasting coffee. Krispy Kreme Doughnuts is part of the Quick Service Restaurant (QSR) Industry, which includes almost all companies in the “fast food” industry. Our goal in this report is to use various tools to analyze KKD and recommend strategies for them to gain more competitive advantage in the market.
First, we will observe the operational characteristics of KKD. These factors will show positive indications of growth in Krispy Kreme. We will look at how many stores they have currently, how many they are planning to add (in the U. S and internationally), and the training and technology that differentiates them from others in the QSR industry. We then will evaluate the performance metrics, such as inventory turnover and days of inventory ratios, to compare how KKD compares to their competition. In order to find out how efficient Krispy Kreme is operating, our group intends to dentify where the QSR is positioned according to the industry life cycle. We will observe the SWOT analysis, then we will analyze their competitors to see where KKD stands in relation. This will give us the basis to develop recommendations about their current strategies. We begin the “SWOT” analysis by assessing KKD’s strengths, weaknesses, opportunities, and threats. II. SWOT ANALYSIS The following SWOT analysis is intended to examine KKD’s internal strengths and weaknesses so we can link them to external opportunities and threats with the aim of developing a strategy they should pursue. STRENGTHS
Strengths are characteristics of the business or project that give it an advantage over other competitors. As a global organization, KKD has become a household name as they’ve branched into grocery and convenience stores and made doughnuts readily accessible. KKD offers a product that cannot be matched by any competitors when referring to taste, freshness, and the finest ingredients. Their affordable, high-quality doughnuts create a strong visual appeal and “one-of-a-kind” taste. Some of the key strengths offered by KKD are: * You are able to get a fresh out of the oven doughnut in the store.
Consumers are allowed to watch the process of the doughnuts being made and can buy doughnuts immediately after they are made so they are as hot and fresh as possible. * KKD is a vertically integrated company. They use specialized doughnut making equipment and specific doughnut mixes in each store. Vertical integration ensures a very high-quality product. * Market research shows appeal extends to all major demographic groups including age and income. * Consistent expansion: Krispy Kreme is now in 21 countries. * Product sold at thousands of supermarkets, convenience stores, and retail outlets through U.
S. This raises product awareness to the maximum number of target consumers. * Fundraising: Organizations are able to use Krispy Kreme for fundraising. They allow consumers to use their donuts to help raise money for different philanthropies. (Ex: Krispy Kreme run) * Offers free doughnut day once a year to increase sales. This day allows people who have been reluctant to spend money on the donuts to get a free taste and therefore increases their amount of consumers. WEAKNESSES Weaknesses are characteristics that place the firm at a disadvantage relative to others.
Some apparent weaknesses Krispy Kreme might have are: * Limited amount of “healthy” selections. * Limited menu: Lack Breakfast items. * Limited amount of non-snack food items. * Not innovative. * No major advertising: 100% reliance on reputation. * Opening additional locations but no focus on increasing current store performance. * International differences/preferences. * Lack of knowledge of what the customer wants (demographics, psychographics, behavioral segmentation). OPPORTUNITIES Opportunities are elements that the company can exploit to its advantage.
Most internationally located stores purchase their ingredients from local merchants rather than the Krispy Kreme Supply Chain. If KKD can find a cost effective way to provide these ingredients, they can capitalize on supply chain efficiencies to make a profit. Some opportunities for Krispy Kreme to leverage for growth would include: * Emerging markets and expansion abroad: International expansion has proven to bring better returns than expanding domestically. Asia and the Middle East both offer KKD a good market because of high levels of consumer sweet goods consumption and the popularity of Western brands in these International markets. Partnerships with sports teams and convenience stores. * Development of new menu items. * Add breakfast/healthier options to compete more directly with Dunkin Doughnuts, etc. * Innovation. * Product and services expansion. * Local open kiosks and in-store locations in airports, bookstores, and other retail outlets. * Product Diversification. New Markets. * Significant co-branding opportunities with local sports teams and movie theaters. * Increased snack consumption: During the past 20 years, more Americans are going out to eat. In today’s busy world, there is less time to prepare meals anymore.
KKD believes there’s an opportunity in this trend that will increase the growth of doughnut sales. THREATS Threats to an organization are described as elements in the environment that could cause trouble for the business or project. Some threats facing Krispy Kreme are: * Competition: Only 694 KKD stores compared to 10,000 Dunkin’ Donuts and 20,000 Starbucks Increasing competition from large and small doughnut chains, Krispy Kreme market share erodes slightly in highly competitive markets. * Price Wars: In the doughnut and pastry shop ndustry, price wars are generated in attempts to take away revenue from other restaurants and sustain growth. * Economic slowdown: External changes (government, politics, taxes, etc. ) * Ordering through the Internet: More and customers are ordering online, but Krispy Kreme does not offer online ordering of their donuts. They offer accessories online, such as coffee mugs and t-shirts. Dunkin Donuts offers more accessories including coffee, but no donuts. * Healthy food trends: Krispy Kreme must constantly be aware of substitute products from many different areas of the market place.
Such substitutes demanded today include healthier menu items include zero trans fats in all products. Going organic or using 100% natural ingredient items. III. INDUSTRY ANALYSIS Operational Characteristics Today, Krispy Kreme and its one-of-a-kind “Hot Light” which is a light that hangs inside the store window for people to know when the doughnuts have just come out of the oven. This “Hot Light” can be found in approximately 694 locations around the world and is in 234 locations in the United States.
In 2002, KKD shipped their first international load of doughnut mix to Australia, and since then have added locations in over 20 countries. All KKD ingredients and store supplies are shipped from the company’s distribution warehouses in NC, IL, and CA. The KKD distribution center supplies all of the products needed to operate retail stores, from doughnut ingredients (mix, filling, glaze, sprinkles, etc. ) to cleaning supplies and uniforms. Production is done in the factory stores and completely automated, which cuts overhead costs and provides consistency in the products.
KKD shops generally operate seven days a week, excluding some major holidays. Traditionally, domestic sales have been slower during the winter holiday season and the summer months. KKD opened five new company operated small retail shops in fiscal 2012 and three new company-operated shops in fiscal 2011, all of which were hot shops. They plan to open five to ten small retail shops in fiscal 2013, consisting mainly of small factory stores, all in the Southeastern United States. In the past three years, they have opened 92 stores (See Figure II).
The ability to accommodate a drive-thru window is an important characteristic in most new shop locations, including both factory stores and satellite shops. Of the 85 shops, which serve on-premises customers, 79 have a drive-thru. Traditional factory stores generally are located in freestanding suburban locations generally ranging in size from approximately 2,400 to 8,000 square feet. The average size is 3,000 square feet. The stores typically have the capacity to produce between 2,800 and 16,000 dozen doughnuts daily. KKD is also investing in more technology to support the business.
In 2012, KKD purchased new point-of-sale hardware for all of the company stores and implemented a new computer hardware system for all company and franchisee locations. KKD encourages team members to be courteous, helpful, knowledgeable and attentive, focusing intently on employee training. High levels of customer service and the maintenance of quality standards are enforced by frequently monitoring stores through a variety of methods, including random quality audits, known as “mystery shoppers” and a toll-free consumer telephone number.
KKD offers a comprehensive manager training program for every position in the store, covering the critical skills required to operate a Krispy Kreme store and a training program. The manager-training program includes classroom instruction, computer-based training modules and in-shop training. The main competitors for Krispy Kreme are other quick service restaurants, such as Dunkin Donuts, Starbucks, Panera Bread, and Einstein Noah Bagels. Performance Metrics A company can measure its minimum inventory investment by its inventory turnover.
This is the level of customer demand satisfied by the supply on hand. The inventory turnover tells an organization how many times they sell through the entire inventory in one year. The average day’s supply of inventory that is on hand tells you how many days your current inventory will last based on your sales levels. If a company is short on inventory, the warehousing costs will be lower, but there’s a risk of running out. In order to figure these values you need to figure your average inventory and know your costs of goods sold for the year.
For the past three years (since 2010) Krispy Kreme has an inventory turnover ratio of 21. 26. They have average days where inventory is 16. 89 (see figures III and IV). Industry Life Cycle Most businesses evolve from the introduction stage, to the growth stage, maturity, and decline. It is important to understand the evolution of the Quick Service Restaurant (QSR) Industry that KKD competes in to accurately assess the strengths, weaknesses, opportunities, and threats speeding or slowing the firm’s growth. The introduction stage is dominated by the marketing of an innovation for the first time.
Competition is minimal and returns are negative, as most companies must catch up on their investments in R;D, marketing, and manufacturing. The growth stage is characterized by high profits and competition. During this stage organizations begin to differentiate their products based on value and quality. The maturity stage shows high sales accompanied by very strong price pressures. Profit margins often shrink as the customers begin to see the product as homogenous (always the same). The decline stage is shown by reduced profits and many companies have to decide whether to stay in the industry or cut their losses.
Based on these key factors, we believe the QSR industry is in the maturity stage of the industry life cycle. This is due to a low level of innovation, fluctuating profit margins, and global expansion. IV. RECOMMENDED STRATEGY Krispy Kreme must remain competitive in the Quick Service Restaurant (QSR) Industry. To be effective at this we believe the first thing they should focus on cost leadership. Cost leadership is based on high volume sales of low margin products/services (i. e. Wal-Mart). To achieve this, KKD must focus on increasing their sales.
This can be done by analyzing their target market’s key buying habits at the lowest cost to Krispy Kreme. Next, KKD should decrease their prices and adjust R;D, marketing and manufacturing to create a cost gap so they can save some money. KKD can leverage their economies of scale (complete automation of the doughnut making process, added capacity, and TQM) to create a long-term sustainable cost gap. We believe if KKD executives focus on cost leadership in the QSR industry, the company will benefit from increased revenues, retail operations, and increased interest in the brand name of Krispy Kreme.
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