Krispy Kreme Doughnuts Inc Case Study
Krispy Kreme Doughnuts Inc Case Study
In this SWOT analysis, I will delve into the strengths, weaknesses, opportunities, and threats that affect the Krispy Kreme Doughnuts Inc. Krispy Kreme is a highly successful company, whose main product, not surprisingly, is doughnuts. The company went public in 2000, and saw a hugely successful increase in share price immediately after.
Vernon Rudolph founded the Krispy Kreme company in 1937 in Winston-Salem, NC. The company has since become a leading specialty retailer. They produce over 4 million doughnuts each day, with over 1.8 billion doughnuts produced each year.
Krispy Kreme has company-owned, as well as franchised stores. They sell doughnuts in retail stores, supermarkets, convenience stores and other retail outlets. Krispy Kreme's best-known product is the fresh, glazed, yeast doughnut, called the Hot Original Glazed. Krispy Kreme also produces over a dozen other varieties of yeast and cake doughnuts.
Krispy Kreme's biggest strength is in its product. It is best known for its best known for its fresh glazed, yeast-raised doughnuts, made from a secret recipe. The doughnuts are highly popular throughout North America, and have a mass appeal that is based largely on word of mouth and superior product.
Interestingly, Krispy Kreme's doughnuts are so popular that Krispy Kreme is able to generate a media frenzy without using major or national advertising. Certainly, this is a major advantage to the Krispy Kreme company, as it greatly reduces the cost of advertising to the company.
As a result, the company saves major dollars each year in advertising, leading to increased profit margins. Certainly, the company's superior product and strong brand identification both play a large role in their popularity, in addition to word of mouth advertising.
Krispy Kreme may be one of the few companies that is largely unaffected by both the events of September 11th, and the downturn in technology-based industries. Certainly, the appeal for inexpensive luxuries like doughnuts is known to continue even in times of economic downturns, therefore Krispy Kreme may be a strong bet for investors who are wary of technology-based stocks.
Although its word of mouth marketing strategy has been successful thus far, Krispy Kreme might run into problems as it looks to expand into foreign markets. As a result, the company may need to take a different marketing approach in foreign markets.
Obviously, in a foreign market that has not been exposed to the Krispy Kreme product, word of mouth will not play an initial, or important role in advertising. As a result, most analysts agree that the further that Krispy Kreme expands, the greater that their need for mass advertising will be.
Certainly, an increased advertising campaign aimed at foreign markets will cost Krispy Kreme a significant amount of money. The company has yet to develop a large-scale, marketing...
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Krispy Kreme Case Study
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Krispy Kreme Case Study
The chief element of Krispy Kreme's strategy is to deliver a better doughnut and to appeal to customers in new ways. They have taken great steps to insure customer satisfaction from the use of their proprietary flour recipe to their automated doughnut making machines. They have chosen to target mainly markets with 100,000 households. They also were exploring smaller-sized stores for secondary markets.
Krispy Kremes's strong brand name, highly differentiated products, high-volume production capability and multi-channel market penetration strategy has worked well. With each new store opening there are lines waiting at the door all night to experience the Krispy Kreme quality. In Denver, more than 3000 people stood in a line extending for more than three city blocks on opening day. They have production areas in full view and a neon light that lights up when "Hot Donuts" are actually coming off the line. Krispy Kreme makes customers feel good about indulging. Even Krispy Kreme's name brings a smile to people's faces.
I think Krispy Kreme's financial performance has been good. Since its initial public offering in April 2000 it has grown from 140 stores to one with 218 locations in 33 states and Canada. Preliminary results for fiscal year 2002 showed sales topping $621 million, up 39% from the previous year. Revenues climbed 30% to $392 million.
Krispy Kreme is a product company and the most profitable part of the business is doughnut sales due to the high volume of loyal customers.
Many Wall Street analysts considered Krispy Kreme to be overvalued. Analysts said in April 2000 the stock was destined for the $15 to $20 share range at best, which is where most known food related stocks are located. Instead it had been hovering at a value of $40 a share for most of the year. The stock rose to a high of $54 and many analysts doubted Krispy Kreme's strategy and potential growth merited a stock price nearly 70 times projected 2002 earnings per share. I agree with the statement "the numbers just don't work."
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|Essay on Krispy Kreme - Focus of the Proposal Krispy Kreme, a leading, well-established brand of high quality doughnuts, is still in a stage of astonishing growth potential. According to Dain Rauscher Wessels equity analyst David Geraty, “Krispy Kreme has established itself as the quality leader in the doughnut industry and is positioned to become the dominant industry player, with 145 retail locations in 27 states, Krispy Kreme is expected to capitalize on the brand conscious consumer’s demand for a consistent, high quality specialty food product” (Minneapolis 2000).... [tags: essays research papers]||1620 words|
|Essay on Krispy Kreme - Written Assignment Krispy Kreme Doughnuts, Inc I. Brief History Vernon Rudolph is the brains behind the Krispy Kreme name. He bought a doughnut shop in 1933 and all the assets came along with the purchase, including a secret recipe and name, Krispy Kreme. Rudolph moved to Winston-Salem, North Carolina, where he opened his first Krispy Kreme shop. The business prospered and in the 1950¡¦s over ten other locations were opened. The business was able to produce 500 dozen doughnuts an hour.... [tags: essays research papers]||1985 words|
Krispy Kreme Case Study New Ways Customer Satisfaction Financial Performance Neon Capability Wall Street
Affordability of products Limited menu items
Well-established and long running company Markets are leaning toward
Long-term company values healthier foods
Loyal and strong customer base Heavy competition
Nationally known brand of donuts
Doughnut making theaters
Strong community relationships
Expansion into premium coffee lines Stiff competition from
several similar companies
Diversification of product offerings Healthier product
Expansion into a more global marketplace alternatives available
Co-branding opportunities I believe the healthier product alternative has hurt Krispy Kreme in some parts of the country. My wife and I lived in Oregon for several years and this type of product did not appeal to the people in Oregon They seem to live a healthier life style than mid-westerners. For example we never saw gravy in a restaurant until we returned to the Midwest
Based on the SWOT analysis I think Krispy Kreme's overall situation is good. I think they are in a position to continue successfully. It has a few threats and weaknesses and careful planning will minimize the potential problems in that area. They have several strengths and opportunities to work towards.
I think Krispy Kreme has good growth prospects. They rank high in competitive strengths. An extremely important advantage Krispy Kreme has is their brand name. I agree! This provides a huge source of competitive advantage over their competitors. Although Krispy Kreme has done a successful job in securing their position and maintaining a competitive strategy, they continually have to take strategic actions to stay ahead of their competitors. If Krispy Kreme is to realize its target of 25% growth in earnings, there will have to be an increase in demand for product.
System wide sales for Krispy Kreme between 1998 and 2002 increased on average 23.5%. Company revenues for that time period increased an average of 20%. The net income increased an average of 42%. I think this can be repeated in the next five years if Krispy Kreme's strategy and demand for products continue.
I think Krispy Kreme's management needs to address the issue of advertising. They have depended on word of mouth, new store openings and strong community relationships for too long. With all the different doughnut shops around they need to advertise what a great place they have. They should advertise that you can actually see the doughnuts being made in the doughnut making theater and that when the neon light says "Hot Donuts" they are hot off the press. In today's competitive market you have to have your face or gimmick everywhere to get people to remember you. I love Krispy Kreme doughnuts but I never knew any of this until reading this article.
I would recommend diversification to Krispy Kreme's management to sustain the company's growth and profitability. They should look into other avenues to generate revenues throughout the day because doughnuts are more of a morning item. Great Point! If they would start including sandwiches or bagels like Tim Horton's, they would attract a wider customer base. I believe Tim Horton's restaurants have a great future for exactly the reason you stated, a wider customer base. If a person goes in at lunch to grab a quick sandwich, I'm sure a doughnut or two would be in the bag. I know their goal is to make the best doughnut, but in today's health conscious society, you have to have products that suit the needs of a variety of people.
I would buy this company's stock because they still have excellent potential for growth. Krispy Kreme's growth rate has not been as predicted and one rule of thumb is that the P/E ratio of a company is roughly equivalent to its growth rate. A P/E between 15-20 a share makes sense for this type of stock. On March 16, 2006 Krispy Kreme's P/E ratio was 16 compared to the industry average of 28.