Krispy Kreme Doughnuts

KRISPY KREME DOUGHNUTS

Krispy Kreme Doughnuts, Inc. is a specialty retailer of doughnuts. The company's business owns and franchises Krispy Kreme doughnut stores, where it makes and sells over 20 varieties of doughnuts, including its signature Hot Original Glazed and nine other varieties. Each of its stores is a doughnut factory with the capacity to produce from 4,000 dozen to over 10,000 dozen doughnuts daily. The Company also sells in its stores drip coffee, other beverages, other bakery items and collectible memorabilia such as tee shirts, sweatshirts and hats. As of February 2, 2003, there were 276 Krispy Kreme stores, of which 270 were located in 37 states in the continental U.S., five were located in eastern Canada and one was located in Australia. The Company also accomplishes off-premises sales through its direct store delivery system.

Krispy Kreme's success has left many in awe. This case will talk about how Krispy Kreme has been so successful using internal and external analyses and will also take a look at its competitors. Financial reports will be used as a benchmark to measure success.

The analysis will focus on product diversification as a measure of securing market position and sustaining a competitive advantage.

Strengths:

1. Nationally known celebrity brand of doughnuts

2. Honest and old-fashioned company, using original recipe and 50ÐŽ¦s restaurant interior design

3. Doughnuts made fresh everyday and served hot

4. Company values held the same as when founded in 1937

5. Doughnut-making theatres, customer can see how the doughnuts being made.

6. One-of-a-kind taste

7. Affordable

8. Community relationships and loyal customer base

9. Accessible drive-thru

10. multi channel market penetration

11. conduct training for the human resources to standardized employees skill

12. vertically integrated supply chain

Weaknesses:

1. Krispy Kreme lacks a lunch or dinner meal substitute (low variety of product diversification)

2. markets are learning towards healthier food products (the calorie content of the doughnut is high)

3. Long lines at opening and weekend mornings.

4. lack of advertising

5. no experience in foreign market

Opportunity:

1. Expansion into a more global marketplace

2. Add more stores in current target markets (100.000 + households)

3. The product excitement being created by KK may well help grow the market for doughnuts and thus help overcome the relatively flat demand for doughnuts that has prevailed in recent years.

4. Expansion into premium coffee lines

5. Co-Branding opportunities

Threats:

1. Getting doughnuts in new customersÐŽ¦ hands

2. Krispy Kreme needs to be more aware of competition

3. Healthier products alternatives available. Increasing health conscientious „Ñ- research confirming that doughnuts contain large amount of sugar and are high in calories grabs the headlines.

4. A proliferation of bakery departments in supermarkets had squeezed out many locally owned doughnuts shops.

PorterÐŽ¦s 5 Forces

Supplier Power- SupplierÐŽ¦s power is very limited in this industry due to the sheer number of possible suppliers of ingredients that are easily obtained. Supplier power is also limited by the fact that Krispy KremeÐŽ¦s mixing facilities have been centralized.

Buyer Power- BuyerÐŽ¦s have abundant power in the donut industry. There are many options available to the buyer. They can make their own donuts or pick and choose from a wide range of donut stores. In order to draw customers away from the other options Krispy Kreme must use methods such as the donut theatre to lure these buyers.

Barriers to Entry- There appear to be very few barriers to entry into the donut industry. When you are specializing in one simple product such as a donut, equipment is minimal and knowledge to produce donuts is easily gained. Anyone who has cooked at home can quickly learn to cook donuts.

Threat of Substitutes- There will always be substitutes for donuts and the lean towards healthier living creates a vast range of substitutes. An example would be bagel or muffin chains offering a healthier alternative to donuts. Krispy Kreme must be aware of these alternatives and be prepared to adjust their product line to accommodate or lure potential customers.

Rivalry- There has been and may always be a large amount of rivalry between competing donut producers. The range of producers is vast, from small private bakeries to larger chains such as DunkinÐŽ¦ Donuts. Donuts are easily produced from relatively inexpensive ingredients. This creates competition and rivalry and Krispy Kreme should be look at expanding its product lines into new markets.

Core Competencies

Krispy Kreme has an excellent Marketing Department. They have kept a good reputation and established good rapport in the domestic market. Having excellent and swift customer service is a good business strategy that led to the development of their doughnut-making machine. The original glazed is the doughnut that most people are familiar with and is the