Krispy Kreme External Anaylsis

External Environment

Economic

The US economy is still recovering from a recession. Despite the poor economic conditions, Krispy Kreme managed to have a steady growth in revenues. Krispy Kreme however is in a low cost industry therefore the rise and fall in the market does not affect their revenues as significantly as higher priced luxury goods.

Sociocultural/Global

If and when Krispy Kreme decides to go global they will enter a whole new world of adaptation to different markets. They will no longer be able to offer their staple hot fresh plain glazed doughnuts and expect them to sell in every market. France for instance has built a world reputation on fresh baked goods; therefore their key branding technique would not be as effective in such a culture. However the hot fresh plain doughnuts strategy works very effectively across the United States with two exceptions. First is the growing number of obese Americans. With growing media attention turned towards sliming up American quick service restaurants, Krispy Kreme has come into the crosshairs of mainstream media. The other hindrance on Krispy Kreme's complete success is the all in one convenience attitude. Demonstrated by Wal-Marts success, giving

clients as much as possible with one stop is a sure draw for modern American consumers. Aside from breakfast there are not many who consider doughnuts as a full meal, it is generally considered a desert or at most a snack. Thus Krispy Kreme is faced with the problem of offering a greater variety of meals to suite lunch and dinner, or changing the way America perceives doughnuts to increase sales in existing markets.

Technological

Although doughnut-making technology has not progressed a great deal in the recent past, however how the mixes are prepared and ordered has progressed. Krispy Kreme has recently introduced “MyKrispyKreme.” This Internet based portal connects management franchisees and Krispy Kreme vendors to each other. Enabling everyone in the Krispy Kreme chain to monitor, forecast, and plans supply and cash flows through Krispy Kreme’s enterprise resource planning system. In addition to this Krispy Kreme has just completed a central manufacturing and distribution center for doughnut mixes to be shipped all across America. The new facility is located in Illinois and is distributed by railcars.

5 Forces of Competition

Bargaining Power of Suppliers

The ingredients in doughnuts are simple and plentiful. Anyone who wants to enter the doughnut industry can simply stop by a grocery store to purchase the necessary supplies. The amount of vendors in the supply side of this industry limits the power of suppliers greatly. In addition to this Krispy Kreme has centralized its dough production facility. This centralized mixing facility has added an extra advantage aside from quality assurances. The central mixing facility enables Krispy Kreme to purchase all of their supplies from closely maintained relationships keeping costs low the power on the side of Krispy Kreme.

Bargaining power of buyers

Krispy Kreme consumers have many options in Krispy Kreme’s direct doughnut competition but also with the plethora of quick service restaurants competing for consumer’s dollar. In order to counteract this Krispy Kreme has developed their extremely strong brand through the doughnut theatre. Offering fresh doughnuts that consumers view as they come off the line is something special that only occurs in Krispy Kreme’s doughnut theatre. In an industry where the power possessed by buyers is high, Krispy Kreme’s differentiation strategy has placed some of the power back in its hands.

Barriers to Entry

The doughnut industry has very few barriers for new entrants. The initial cost of a new retail facility, incurred by most new businesses, and a deep fryer is the bare minimum to begin a doughnut shop. The knowledge of the art of making doughnuts is disseminated throughout the world, and is a relatively simple craft. Mass production of doughnuts is slightly different. For this most would be doughnut vendors choose to purchase a franchise from an established company, which is also readily available. There are few barriers to entry into the doughnut market.

Interfirm Rivalry/Threat of new entrants

The interfirm rivalry is mixed in the case of Krispy Kreme. Barriers to entry into the doughnut market are fairly small, since doughnuts are simple to manufacture and the raw materials are plentiful and inexpensive. On the other hand mass production of doughnuts requires more capital than most businesses are willing to put up. This leaves Krispy Kreme to compete in an industry that has several large competitors, and many “Mom and Pop” restaurants. The large competitors are companies such as: Daylight Doughnuts, LaMars, Cinnabon,

Dunkin Doughnuts, and, in Canada, Tim Hortons. Interfirm rivalry in these companies is high because doughnuts, historically, have been a slow growth industry. This leaves the only room for growth in expansion opportunities either in geographic areas or in expanding product lines.

Threat of Substitute products

Competition for America’s fast food dollars is a constant war. Therefore it is no surprise that substitute products, in one form or another come out every day. In this industry companies are not only competing against other doughnut and pastry shops, but also against every other quick service restaurant in their

market. These companies are constantly attempting to siphon revenues away from other restaurants to sustain growth. Therefore companies in this industry must constantly be aware of substitute products from many different