Krispy Kreme Doughnuts, Inc.

Introduction

The research proposal begins with an overview of Krispy Kreme's functioning industries as well as current trends within them. The document progresses by describing the corporate structure of Krispy Kreme, specifically outlining company values and philosophies. To help develop the research, various store formats are discussed, followed by an in-depth analysis of Krispy Kreme's financial situation. The following pages also place Krispy Kreme in the context of today's market and illustrate the brand image and different products. The document attempts to combine research, analysis and recommendations to determine if a so called cold doughnut will allow Krispy Kreme to expand globally.

Industry Information

Krispy Creme Doughnuts, Inc. competes with several industries, to include:

Ш Baked Goods Industry

Ш Food Industry

Ш Restaurant (Eating Places) Industry

Ш Cakes and Pastries

According to the National Restaurant Association, Americans will spend about $354 billion at the nation's more than 815,000 eating and drinking establishments. "Statistics indicate that restaurants have become an increasingly important part of American lifestyle over the past few decades" (Bread, Cake, and Related Products, 2003, ¶4).

When evaluating the restaurant industry, fast-food type restaurants like Krispy Kreme have led way, and the growth of franchising since the 1970s has also propelled the growth (franchises have almost tripled their share of the market). However, starting in the late 1990s, competition decreased in mature markets because they were becoming saturated with fast-food restaurants. During this time, the restaurant industry began to see an influx of themed-eating places trying to redefine their images. For example, T.G.I. Friday's began mostly as a single's bar, but evolved to a family-oriented dining place.

Another trend in the restaurant industry started in the mid-1990s when restaurants and supermarkets began to prepare foods for carry-out (commonly referred to as "home meal replacements"). Today, restaurants report that over 50 percent of their revenues come from carryout sales (Restaurants, 2003).

Despite the economic downturn in 2001 due to September 11th, the restaurant industry recently began to pick up momentum. In Western Europe, the fast food part of the restaurant industry has seen growth as well (Restaurants, 2003).

One trend in the restaurant industry is the increased use of computer and telecommunications technology to provide greater convenience and speed. These technologies include vibrating paging systems, wearable computers, and alarms (Restaurants, 2003). The bread, cake, and related products industry also researched new technology to find new methods to extend shelf life and preserve product freshness (Bread, Cake, and Related Products, 2003).

Experts in the United States continue to predict that the demand for restaurants and prepared foods will continue to increase because more women are working and people, in general, are pressed for time and seek convenient and economical alternatives to home meal preparation. This trend carries across the borders of the European Union where Nation's Restaurant News reports that American fast foods are changing the way Europeans eat (Restaurants, 2003).

According to Market Share Reporter, 27 of the top 30 international restaurant chains are based in America. This is a clear sign that the American presence overseas is prominent and growing (Bread, Cake, and Related Products, 2003).

According to Ed Wood, a researcher of the history of bread making, 75 percent of the bread consumed in industrialized nations is produced by large commercial bakeries. It is natural that in the bread, cake, and related products industry, restaurants establish themselves close to population centers. Therefore, it is not surprising that a larger percentage of bread is consumed in large cities (Bread, Cake, and Related Products, 2003).

One specific change in consumer taste is the desire to eat healthier foods. "The bread and cake industry did face the challenge of producing products for a nation caught up in a conflict between health consciousness and a desire for taste gratification." So, the industry responded with fat-free and lower-fat products, and by 1992 this challenge had faded into a manageable problem.

It seems that healthy food is more expensive to buy and produce than unhealthy food. Across the industry, serving sizes have increased. According to the Agriculture Department, muffins that weighed an average of 1.5 ounces in 1957 now average one- half pound each (Raeburn, 2002).

What has risen is the obesity rate in America. According to the Centers for Disease Control, 61 percent of all U.S. adults are considered either overweight or obese; the rate for kids aged 6-19 is 15 percent (Wells, 2003, ¶5). The Surgeon General observed that about 300,000 deaths per year are now associated with obesity (Parloff, 2003, ¶8). Therefore, restaurants continue to face pressures from state legislatures and others to include nutritional information on their menus so that behavior might possibly change (Leung, 2003, ¶1-5).

The food industry spends about $4.5 billion annually on advertising. This is money spent to encourage people to eat more, and so is the $50 million spent lobbying in Washington, D.C., for the food industry to have their agenda pushed (Smith, 2003, ¶12).

However, America is not the only culprit contributing to the rise in obesity. "There is no country in the world where obesity is not increasing," says Stephan Rossner, an obesity expert at Huddinge University Hospital in Stockholm and president of the International Association for the Study of Obesity. "Even in developing countries we thought were immune, the epidemic is coming on very fast. The frightening thing is that so far nobody has succeeded to stop it," he said (Winslow & Landers, 2002, ¶1-3).

Indulgence and convenience seem to be the most significant market trends in the cakes and pastries market. In 1999, convenience was nearly as important to customers as value. And doughnuts are both convenient and indulging. Doughnuts are the largest sector of the US morning goods market, and the leading three distribution channels in the US morning goods market are supermarkets, bakeries, and convenience