Krispy Kreme's External Analysis

Table of Contents

Introduction p.3

1. Company Overview p.3

2. Company's mission and vision p.5

3. External analysis p.6

3.1 The macroenvironment p.6

3.1.1 Demographic environment p.6

3.1.2 Economic environment p.7

3.1.3 Natural environment p.7

3.1.4 Technological environment p.8

3.1.5 Political environment p.8

3.1.6 Socio-cultural environment p.9

3.2 The industry p.9

3.2.1 Generic environment p.9

3.2.2 Industry attractiveness p.10

3.2.3 Industry structure p.11

3.2.4 Competitive environment p.13

3.2.4.1 Dunkin' Donuts p.13

3.2.4.2 Starbucks p.14

3.2.4.3 Grocery Stores p.15

3.2.4.4 Bakeries p.15

3.2.5 Rowe's Balance of power p.16

3.2.5.1 Bargaining power of suppliers p.16

3.2.5.2 Bargaining power of buyers p.16

3.2.5.3 Barriers to entry p.16

3.2.5.4 Threat of substitute products p.17

3.2.5.5 Industry competitors p.17

3.2.5.6 Innovation p.17

3.2.5.7 Growth p.17

3.2.5.8 Management p.18

3.2.6 Market assessment p.18

3.2.7 Opportunities and threats p.19

3.2.8 Scenario building p.19

3.2.9 External factor evaluation (EFE) matrix p.20

Introduction

This present paper will look into Krispy Kreme Doughnuts' external environment and the various factors affecting its business in its industry sector.

After a brief overview of the company and its situation, the industry and the market will be analyzed in details. Yet, it is important to note that Krispy Kreme has recently gone through various problems and that the change of its CEO might affect its overall business strategies. This present report has therefore been based mainly on information published before the change of CEO, yet has tried to incorporate possible new aspects.

1. Company overview

Krispy Kreme Doughnuts (KKD) is a restaurant services company that offers 25 types of doughnuts, a coffee line, espresso-based drinks, frozen beverages and milks. The company produces 7,5 millions doughnuts a day, 2,7 billions a year. In addition to 390 stores in 45 states, the company sells its doughnuts in supermarkets, convenience stores and other retail outlets throughout the United States. Since early 2005, the company expanded internationally with stores in Mexico, Canada, the United Kingdom, Australia, South Korea and Spain. Krispy Kreme employs now 3913 people and has its headquarters in Winston-Salem, North Carolina.

In 1933, Vernon Carver Rudolph bought a doughnut shop in Kentucky from a French chef, as well as the chef's secret doughnut recipe. Krispy Kreme was born. The company started selling doughnuts to local grocery stores, yet as people walked by Krispy Kreme's factory, they started asking to buy directly the hot doughnuts. Rudolph therefore cut a hole in his wall to accommodate his customers. Over the years, the doughnut-making process became automatic and outputs grew. In 1976, Beatrice Foods Company of Chicago acquired the company, which was bought back six years later by a group of franchisees led by Joseph

A. McAleer. A renewed focus on the doughnut experience became a priority to the company, with the introduction of "doughnut theaters," where consumers could watch the doughnuts being made and glazed.

In 2001, KKD acquired Digital Java Inc., a small coffee company that offered a wide array of hot and cold coffee-based and non-coffee-based beverages. This acquisition was mainly sought to provide a genuine coffee experience to the customers, but also to increase Krispy Kreme's vertical integration, allowing it to control the sourcing and quality of its coffee, while broadening its beverage offering. In April 2003, Krispy Kreme went on acquiring Montana Mills Bread Co., a bakery chain offering more than 80 types of bread, muffins, cookies, brownies and other treats, to complete its range of products and develop a bakery-cafй strategy.

The company also opened doughnut-making retail stores within Wal-Mart supercenters, where consumers can buy fresh products. Other stores have doughnuts delivered several times a day from the nearest factory store.

Krispy Kreme recently installed an Internet portal designed for employees' use. It provides employees with data and quick and secure delivery application. In 2003, KKD started using Network Appliance storage systems, in order to maximize storage resources and increase efficiency. It also allows KKD to reduce costs and increase productivity.

At the end of 2001, Krispy Kreme opened its first store outside the United States, in Canada where KremeKo, Inc. is the exclusive developer. Since then the company has expanded to other international locations.

Although the company had had constant growth over the past years and had expanded at a rapid pace, its profits have not met expectations in 2004 due to growing consumer tastes for low-carb food, according to the company. It is still showing important profits though. Figure 1 illustrate KKD's revenues, while figure 2 show KKD's net income from 2000 to 2004.

Figure 1: Krispy Kreme's revenues (2000-2004). Source: Krispy Kreme annual reports.

Figure