Krispy Kreme

To: Stephan Cooper, CEO of Krispy Kreme Doughnuts

From: Naylon Consulting Inc.

Date: April 8, 2008

Overview

Naylon Consulting Inc. has been hired by Mr. Stephan Cooper to conduct an extensive overview of the company an assist in probing the business model and strategy of Krispy Kreme Doughnuts. In this assessment, we have conducted a SWOT analysis, views pros and cons of the current strategic plan, conducted a brief overview of the financial reports, and identified some issues that could led to the possible turnaround of Krispy Kreme Doughnuts.

Strategic Overview

The strategic plan of Krispy Kreme Doughnuts is to produce hot, fresh doughnuts that a customer can receive right off of the assembly line. They create business through sales at company-owned stores, royalties from franchised stores along with franchise fees, and selling franchised stores pre-made doughnut mixes and doughnut making equipment. They created sales volume from both on-premise sales at Krispy Kreme stores and off-premise sales at supermarkets and convenience stores. Krispy Kreme attempts to win their market share through superior doughnut quality and vertically integrating back into their company to generate sales in coffee and other beverages.

Pros to Strategic Plan

The first major advantage of Krispy Kreme’s strategic plan is that they changed store operations to showcase their superior product and allow flexibility of new store sizes. Every Krispy Kreme store is designed as a “doughnut theater” which allowed customers to see the entire doughnut process take place. After doughnuts were produced, stores turned on neon signs saying “HOT DOUGHNUTS NOW.” The major strength of Krispy Kreme is their product, and people come here because this is the only place that you can receive a fresh hot doughnut. Krispy Kreme has also started to alter store sizes because some markets do not require the standard 7,000 square-foot store.

Another major advantage to Krispy Kreme’s strategic plan is the vertical integration that took place with Digital Java Inc. Now Krispy Kreme can control the sourcing and roasting of their own coffee which ensures that the company has strict quality standards and consistency. They have also created Krispy Kreme Manufacturing and Distribution that has produced sales to their franchisees by providing equipment to their stores.

To: Stephan Cooper, CEO of Krispy Kreme Doughnuts

From: Naylon Consulting Inc.

Date: April 8, 2008

Cons to Strategic Plan

One of the problems with Krispy Kreme’s strategic plan is that the U.S. is becoming more health conscious. Although they have provided low-calorie alternatives, people eat doughnuts for the taste, especially Krispy Kreme doughnuts. When former owners Beatrice Foods bought Krispy Kreme in 1976 and changed the recipe, there was a public outcry and sales declined. The consulting team at Naylon Consulting Inc. believes that the low-calorie market will not be lucrative for Krispy Kreme because people associate us with a certain taste of a hot, fresh doughnut.

The team at Naylon Consulting Inc. also believes that supermarket sales may also affect brand image. Although 50% of company revenue is due to supermarket and convenience store sales, these stores do not create the same taste that is associated with Krispy Kreme. Doughnuts will have sat out all day and dried up creating a different taste from what Krispy Kreme is about. This could create negative customer opinion about the product and led to lost customers.

SWOT Analysis

The group at Naylon Consulting Inc. has produced an in-depth SWOT analysis that can further investigate the pros and cons of Krispy Kreme Doughnuts. The first strength of Krispy Kreme is how many different ways they have created income. Krispy Kreme creates 66% of their 665,592,000 annual income from company store operations, 4% from franchising operations, and 30% from KK manufacturing and distribution in 2004. Strength of Krispy Kreme is store operations. Since customers’ come to Krispy Kreme for the warm doughnuts, they have created a 40-foot glass window that allows customers to view the entire doughnut making process. Krispy Kreme uses their strategic plan of superior, hot, fresh doughnuts to their advantage by allowing all customers to view the creation process.

A weakness of Krispy Kreme that Naylon Consulting Inc. has discovered is that Krispy Kreme continues to try and grow when all financial data indicates that franchisees are competing with each other rather than rivals. When stores are located near each other, they affect the sales volume of the other store. When the first Krispy Kreme is put up in a new market, obsessed consumers camp outside for days to be the first to have a fresh doughnut. As more and more stores are introduced into an area, this frenzy fades and the craze dies out.

To: Stephan Cooper, CEO of Krispy Kreme Doughnuts

From: Naylon Consulting Inc.

Date: April 8, 2008

A recommendation for opportunities that Krispy Kreme could explore is further expansion into the global market. The majority of Krispy Kreme’s sales come from cult-like followers that will do anything for a Krispy Kreme doughnut. I believe that this following could be extended into other foreign markets besides Canada and England. Naylon Consulting Inc. also believes that there are opportunities to expand their coffee company, Digital Java Inc., and create new ways to provide fresh doughnuts to the public.

Threats that Krispy Kreme faces are competitive pressure from Dunkin’ Donuts and increase interest in low-calorie and low-carbohydrate diets. America’s recent health interest has had a major impact on companies such as Krispy Kreme. Naylon Consulting Inc. analysis of Krispy Kreme shows that although there is a strong loyalty towards