In Compliance

With the Requirements in

Krispy Kreme Doughnuts

Submitted by:

Visperas Mylene S.

Emperador Maecca Joy P.

1|P a g e
TABLE OF CONTENTS

CHAPTER I.................................................................................................................................................................. 3
I.COMPANY BACKGROUND......................................................................................................................... 3
A Brief History of Facebook................................................................................................................................. 3
Privacy Issues............................................................................................................................................................ 5
Manipulation of Information.............................................................................................................................. 7
Facebook’s Revenue Platform.......................................................................................................................... 10
II.MISSION, VISION, OBJECTIVES, AND STRATEGIES....................................................................12
Corporate Mission and Vision Statement.................................................................................................... 12
Objectives................................................................................................................................................................. 13
Strategic Business Units..................................................................................................................................... 16
Competitive Advantage....................................................................................................................................... 21
Statement of the Problem.................................................................................................................................. 23
CHAPTER II............................................................................................................................................................. 25
CHAPTER III............................................................................................................................................................ 26
CHAPTER IV............................................................................................................................................................ 28
Mission and Vision Statement Analysis....................................................................................................... 32
INTERNAL AUDIT (PARTIAL SWOT ANALYSIS)........................................................................................36
Internal Factor Evaluation (IFE) Matrix....................................................................................................... 41
EXTERNAL AUDIT (PARTIAL SWOT ANALYSIS)....................................................................................... 42
External Factor Evaluation (EFE) Matrix.................................................................................................... 45
STRATEGIC ANALYSIS......................................................................................................................................... 46
Internal-External (IE) Matrix........................................................................................................................... 46
Competitive Profile Matrix................................................................................................................................ 47
PESTLE Analysis.................................................................................................................................................... 48
Porter’s Five Forces.............................................................................................................................................. 53
BCG MATRIX............................................................................................................................................................ 56
CHAPTER V.............................................................................................................................................................. 58
BIBLIOGRAPHY...................................................................................................................................................... 60

2|P a g e
 CHAPTER I

BACKGROUND OF THE STUDY AND STATEMENT OF THE PROBLEM

I. INTRODUCTION

Executive Summary

Krispy kreme doughnuts pr also known as Krispy kreme is a well-known

company for being a retailer of doughnuts. The company's business owns and

franchises krispy kreme doughnuts stores, where it makes and sells over 20

varieties of doughnuts including its famous Hot glazed doughnut. The company also

sells coffee, other beverages and bakery items. As of february 1, 2009, the end pf the

fiscal year, krispy kreme was operating 523 stores in the united states pf america,

Australia, Bahrain, Canada, Hong Kong, Indonesia, Japan, Kuwait, Lebanon, Mexico,

Philippines, Puerto Rico, Qatar, Saudi Arabia, South Korea, United arab pf emirates,

and the United Kingdom.

There are two types of Krispy Kreme stores. Again, as of february 1,2009,

there are 281 factory stores with 185 of these stores are located in the US. Factory

stores usually contain a foughnut-making production line in addition to a retail

establishment. They can produce from 4000 to 10000 dozen doughnuts daily.

Factory stores support other sales channel, including other stores, so as to better

penetrate the market. These other sales channel include sales to convenience stores,

grocery stores, mass merchants, and other food service and institutional accounts.

3|P a g e
Some factory stores are termed commissaries, which are mainly focused on serving

the other sales channels. To do so, tbey have higher production capacities. There

were 19 commissaries worldwide with six operated by krispy kreme as of February

1,2009.

The second type of KKD store is the satellite store, which sells doughnuts and

beverages. Some satellite stores contain what is termed a hot shop, tunnel oven

doughnut heating equipment, which allows the consumer to have a doughnut

experience. Even with a hot shop, satellite stores are much smaller than a factory

store. Another form of satellite store is the kiosk format.

Corporate History

Although krispy kreme (kkd) is perceived as a North Caroline institution, its

origins are in lousiana and kentucky. The founder pf krispy kreme, vernon randolph,

worked at his uncle's shop in Paducah, kentucky, when the uncle purchased a secret

recipe for making doughnuts from someone in Lake Charles, Lousiana. After working

for his uncle, vernon took the recipe to Nashville, Tennessee, to be part of a startup

operation. After a relatively short time, Vernon sold his interest in the Nashvilles

store and opened the first Krispy kreme operations in Winston-Salem, North

carolina, in 1937. Initially, the company sold its doughnuts to local grocery stores.

However, vernon quickly realized that a direct market existed and began selling his

hot glazed dougnuts to customers coming to the Winston-Salem location.

4|P a g e
 As a result of the initial success in North carolina, krispy kreme began

expanding tjrough-out the southeast. With the expansion in the 1950s, the process

pf making doughnuts was transformed to an entirely mechanized process with the

introduction of an automatic dough cutter. A further change was introduced in 1962

when an extrusion process replacing cutting.

In 1967, KKD became a wholly owned subsidiary of Beatrice foods. However,

in 1982, angroup of franchisees dissatisfied with Krispy kreme being part of a large

prganization purchased the business back from beatrice. Krispy kreme spent the

rest of the 1980s expanding and strengthening its position in the southeastern

United states.

As the stock market soared in the late 1990s, the idea of going public intrigued

the Krispy Kreme management. In 2000, Krispy Kreme was very successful in

raising significant capital with its initial public offering. At first, the shares of stock

were traded on the NASDAQ using the ticker symbol KREM. Since May 17, 2001,

Krispy Kreme has been listed on the New York Stock exchange under the current

symbol, KKD. After going public, Krispy Kreme went through a period of rapid

expansion both domestically and, to some degree, internationally. The hot sugar-

glazed Krispy Kreme doughnut had a mystique associated with it. Krispy Kreme

became a hot brand. Investors pursued exclusive franchising rights to open stores in

various parts of the country. A franchise producing high-quality southern-style

doughnuts freshly baked in an observable oven was a concept that generated great

5|P a g e
interest. Opportunities for this hot brand seemed endless. KKD opened its first store

in Canada in 2001. By 2004 Krispy Kreme was also operating stores in Australia and

South Korea.

General Corporate Timeline

II. MISSION AND VISION

Mission and Vision Statement

Mission and vision both relate to an organization’s purpose and are typically

communicated in some written form. Mission and vision are statements from the

organization that answer questions about who we are, what we value, and where

we’re going.

Several companies have elaborate mission and vision statements that detail

their strategy for the future as well as how they are achieving their goals and serving

the world. In case of several brands the mission and vision statements are separate

and in case of several they are unified.

When you visit Krispykreme.com about page, you will find its mission and

vision noted there. The statements are unified. Krispy Kreme states its mission and

6|P a g e
vision as: “Our mission is to touch and enhance lives through the joy that is Krispy

Kreme.” “Our vision is to be the worldwide leader in sharing delicious tastes and

creating joyful memories.”

III. ORGANIZATIONAL STRUCTURE

IV. OBJECTIVE OF THE PROBLEM

 To help us understand in depth about the Krispy Kreme Doughnuts,

Inc. Company’s fundamentals. A company’s fundamental are any

factors that could be considered important whereby fundamentals are

usually considered outside the content of the market as a whole, for

example the company’s growth, revenues, earnings, management and

capital structure.

 To understand how healthy is the company. Basically, a company’s

bottom line profit margin is the best indicator of its financial health

and long term viability. Four main areas of financial health that should

be examined are liquidity, solvency, profitability and operating

efficiency. Therefore we will elaborate more on the financial ratios and

the comparisons for Krispy Kreme Doughnuts.

7|P a g e
  To understand the reason why were so many investors fleeing the

popular doughnut maker.Besides financial health, we need to

understand that there are many other reasons which will attract the

investors to invest in any particular companies.

V. STATEMENT OF THE PROBLEM

A statement of the problem describes a problem or issue that needs to be

solved. It is a concise description of an issue to be addressed or a condition to be

improved upon. It identifies the gap between the current (problem) state and

desired (goal) state of a process or product.

They are widely used by businesses and organizations to execute process

improvement projects. A simple and well-defined problem statement will be used by

the project team to understand the problem and work toward developing a solution.

It will also provide management with specific insights into the problem so that they

can make appropriate project-approving decisions. As such, it is crucial for the

problem statement to be clear and unambiguous.

This study aims to analyze, identify, and evaluate various strategies and

tactics implemented by Krispy kreme. The results of this study may serve as a

reference for the improvement of the company.

8|P a g e
 Specifically, the study aims to answer the following questions:

VI. ALTERNATIVE COURSES OF ACTION

Alternative courses of action are the steps the company can take to solve its

problem or meet the challenge it faces. As part of this case study we have provided

possible alternative courses of action.

Krispy Kreme Doughnuts is one of the leading companies when it comes to

doughnuts and coffee. Other companies consider them as one of the big threats and

competition that’s why they must be very careful in every step they’ll do because

one small mistake can make the company down.

 Competition

- Krispy Kreme, as a brand, is so strong that could help them maintain

their position in the market.

 System Development

- They should develop their system in order to monitor what’s happening

inside the company.

 Sales Promotion

9|P a g e
 - In order to cover the loss, Krispy Kreme should make an extra effort in

selling their products.

The most immediate need is to conduct a corporate-wide financial and

operational audit of random stores, both company-owned and franchised to

determine causes of negative ratio of revenues to expenses. The Quarterly Operating

Performance (Peter and Donnelly, 2009) tables demonstrated that from Fiscal

Year 2004 to Fiscal Year 2005, performance declined in both venues. However, this

information does not detail either the reason for the decline, or why the report

indicated that the company-owned stores’ performance declined at faster rate than

did the other franchisee operations. The benefit(s) of conducting this audit would be

that it would assist management in identifying causes of increased operating

expenses incorporate stores vs. the franchise operations. Another benefit would be

in discovering the accounting errors in existing systems that resulted in reduction of

net income by from 2.7% - 8.6%. Management needs clear and accurate information

in order to make appropriate operating decisions for the company. By itself, the fact

that this reduction had to be stated by a percentage range, rather than specific

percentage, would indicate that accounting methods are not accurate enough

to provide this critical information. Finally, this independent audit may serve to

revitalize investor confidence in the company. Regardless of the struggles, if the

information put forth in the market is believed to be accurate, investors may be

more willing to take a chance in the company.

10|P a g e
 The cost(s) of the audit would be the financial investment of hiring, accountants

to audit the books, as well as operational efficiency experts to audit the systems for

operational issues. In the case of the operational efficiency experts, there may be an

additional cost (temporary) associated with down time of equipment for

examination, as well as the lost production time of personnel involved in the

process. There also is the potential cost of additional loss of investor confidence as

(if) results from these internal audits are made public. However, it is expected that

this last “cost” would be temporary and impact could be minimized by appropriate

management response regarding next steps.

VII. PORTER’S FIVE-FORCES MODEL

The External Environment

The general environment surrounding Krispy Kreme includes many varying

factors but the three main ones discussed are healthy eating habits, coffee prices,

and competitors. According to the case study presented in the textbook, healthy

habits are becoming more and more common. Fast-food chains are becoming more

conscience of what their customer base is looking for in their menus so they have

started adding healthier options to their menu as well as product labeling and

ingredients used. The problem with donut shops such as Krispy Kreme is that they

are known for their main product being donuts, which isn’t the first thing that comes

to a customer’s mind when they are trying to be healthy. Coffee is a product almost

everyone buys at the time of purchasing donuts because they just go hand in hand,

11|P a g e
but according to the textbook reading the price of coffee is subject to wild price

fluctuations. A lot of the coffee that’s imported into this country and many other

countries that have Krispy Kreme is from developing counties such as Brazil. The

problem with this is that a growing middle class in said developing countries has led

to upward pressure on coffee prices; this may not affect us in the short run but could

lead to higher prices in coffee in the near future. In regards to the competition

Krispy Kreme faces, they have many competitors such as Dunkin Donuts, Tim

Hortons, as well as Starbucks. Dunkin and Starbucks dominate the market with a

whopping 89% of total donut based shops. Krispy Kreme and Tim Hortons make up

only about 5% of the market. This shows that Krispy Kreme is doing a poor job of

trying to compete with the powerhouses, but this could be the fault of their old

fashioned ways of staying pat on that one product as opposed to expanding and

creating a more diverse menu for their customer base.

Porter’s Five Forces Model of Industry Competition includes highs and lows.

According to Investopedia, these forces “identify and analyze five competitive forces

that shape every industry and helps determine an industry’s weaknesses and

strengths; the forces are: competition in the industry, potential new entrants into the

industry, power of suppliers, power of customers and threat of substitute products

[ CITATION Por \l 1033 ]”. According to Digital CIO:

 Rivalry among existing competitors (High +++)

12|P a g e
 1. High concentration of rivals e.g. Starbucks and local chains

2. Static market growth

3. High fixed costs

4. Perishable products (food and drink)

“A large number of competitors in the industry are all competing for the

same customers. Coffee chains (e.g. Costa, Starbucks) are all competing to be

number one in the market and have similar corporate goals. While product

differentiation i3s limited, there is fierce differentiation by product range, brand and

store ambience (e.g. seating). There are zero switching costs for customers, which

promotes price wars. Market growth is static, which promotes fierce fighting for

market share, and there is saturation of competition due to the limited number of

prime locations available for outlets. Smaller chains have to pay a premium for

prime sites or settle for less desirable locations” (http://www.harbott.com).

 Threat of new entrants (Medium +)

1. Large capital requirements required to build chain of stores

2. Favorable locations are already occupied

3. Economies of scale in distribution and raw ingredients (lower per unit

costs due to the experience curve)

13|P a g e
 4. Product and brand differentiation

The threat of new entrants is present mainly because their capital

requirements to enter the market are much lower than any of the brand name

stores. The reason these new entrants are barely a threat is because the costs

required in distribution channels; brand equity development and advertising create

a much larger capital requirement to gain any market share/notability.

 Threat of substitutes (Medium +)

1. Large choice of alternatives with similar products e.g. energy drinks,

cakes, biscuits, ice-cream, chocolate

2. No switching costs

Krispy Kreme is a great fast food chain but in today’s day and age there is far more

competition they must go up against on a daily basis. Usually customers buy their

coffee from shops such as Starbucks or Dunkin Donuts so they end up buying their

donuts at the same location. Another substitute in today’s market is fast food chains

that offer a larger variety in regards to their menus.

 Bargaining power of suppliers (Low)

1. Vertically integrated businesses with only commoditized raw

ingredients

14|P a g e
 2. Large number of suppliers1 to choose from and low switching costs

 Bargaining power of buyers (Low)

1. Buyers are fragmented and numerous

2. Although there are no switching costs for the buyer the food and drink

market is part of the fabric of society

The Internal Environment:

The main focus of their values and vision statement are the consumers and

providing them with the best & highest quality food. The primary part of Krispy

Kreme’s value chain analysis is the distribution process. During their distribution

process they focus distributing their products to wherever their Krispy Kreme donut

products are distributed whether it is at KKD stores, gas stations, Walmart, Target,

grocery stores, and convenience stores. Below is the list of the organizational

structure of KKD:

1. James Morgan – Chairman

2. Tony Thompson – President & CEO

 Prince Cooper Exec VP, CFO, Treasurer

 Cathleen Alfred Senior VP of HR

15|P a g e
  Cynthia Bay Senior VP of US Franchises

 Daniel Beem Senior VP

 Dwayne Chambers Chief Marketing Officer

 Darryl Marsch General Counsel Senior VP

SWOT:

Strengths:

 Provides best quality of doughnuts to customers .

 Loyal customers.

 Hot Donuts Now is a Huge Competitive Advantage.

 Lightest and Freshest Donuts Around.

 Strong Brand Name.

Weaknesses:

 They don’t spend too much on advertising, as opposed to their

competitors who spend a whole lot.

16|P a g e
  Not enough locations.

 Too sweet.

 High fat content of donuts made.

 Tarnished reputation due to account fraud.

Opportunities:

 Marketing through the media.

 Menu expansion.

 Social media advertisement such as Facebook.

 International Expansion Can Help Krispy Kreme.

Threats:

 Diet conscious consumers.

 Starbucks& Dunkin Donuts.

 Krispy Kreme doughnuts are not consumed on a regular basis.

 Local competition.

17|P a g e
Strategy:

The main thing that sets Krispy Kreme apart is the way they prepare their donuts

with their signature glaze. They give their customers the incentive of coming in

when the donuts fresh out of being cooked so customers feel as though they are

getting their hands on the freshest batch in town. Krispy Kreme also relies on getting

50% of all revenues from their wholesale outlets, so they are continuously working

on providing the highest quality products by investing more and more money into

finding the best way to preserve their products.

18|P a g e
 VIII. FINDING ANALYSIS

Krispy Kreme Doughnuts, Inc. was founded in 1937 and is headquartered in

Winston-Salem, North Carolina. Krispy Kreme is a major competitor in the

restaurant industry, known primarily for its donuts. Near the end of 2004 and the

beginning of 2005, the economy began to slow. Other business in competition with

Krispy Kreme began to crowd into its market and expansion plans that Krispy

Kreme had projected had to be scaled back due to falling sales. Consumer interest in

reduced carbohydrate consumption, including ,but not limited to, the interest in and

popularity of low carbohydrate diets, such as the “Atkins” and “South Beach”

diet plans have been blamed for declining sales in pre-packaged (grocery store)

donuts.

Their leading competitors are “Dunkin Donuts”, with worldwide sales of $2.7

billion (2002) 5200 outlets worldwide and a 45% market share based on dollar

sales volume, and “Tim Hortons”, a Canadian-based company, which has expanded in

the U.S. Markets. “Tim Hortons” sales in 2002 in theU.S. (160 outlets) and Canada

(2300 outlets) were a combined $651 million. A major strategy that “Dunkin

Donuts” has used successfully is to emphasize its coffee sales more than its donut

sales. Their drive-thruservice makes it convenient for patrons to pick up a cup of

coffee on the go, and maybe while they’re there, pick up a donut, too! They also have

donutswith “better” nutritional value, i.e., are lower in calories, fat and sugar. One of

their major strengths as a competitor is its name recognition and market saturation.

19|P a g e
Its ad campaign slogan of “Time to make the donuts!” was very popular and made

for memorable ads. “Dunkin Donuts” is viewed by many patrons as more modern

and more convenient because of their drive through windows. “Tom Horton”, on the

other hand, while well-known in Canada is not as recognizable in the United States

as “Dunkin Donuts”, although it does seem to have gained a foot-hold in states along

the border, such as Maine, New York, Ohio, etc., and other select locations in the

eastern U.S. There are constant threats of new competitors in this industry. In

addition to coffee retailers and cafes, such as “Starbucks”, “Seattle’s Best” and

other distributors, competition from other bakery retailers, such as

“Winchell’sDonut House” and “LaMar’s Donuts” appear to be the chief new threats.

However, current expansion plans for those firms appear to have fallen short of

projections, perhaps due to over-saturation of the markets and the slowing

economy. Competitors are always coming up with substitute products to attract

customers. Specialty items, such as bagels, muffins, breakfast sandwiches and other

items that may not be as sweet as donuts are popular and/or are easier to eat on the

go. Specialty drinks, both hot and cold, particularly high-end coffees are always

popular with customers and a threat to Krispy Kreme’s coffee, which has received

mixed reviews from patrons. Outside suppliers have relatively little impact on the

firm’s business as Krispy Kreme manufactures the mixes for the donuts, and the

donut-making equipment, and is the coffee supplier for use in the company-owned

and franchised stores. However, the “KK Manufacturing and Distribution “segment of

20|P a g e
the company, as it’s known, generates a substantial portion of the company’s

earnings.

Krispy Kreme’s vision statement, as shown on their website, is “To be the

global leader in doughnuts and complementary products, while creating magic

moments worldwide.” Krispy Kreme’s business strategy is focused on revenue from

their company-owned stores, royalties and franchises fees, and sales of the mixes,

specialty coffees and donut making equipment. Their organizational structure was

simple. They felt strongly that the franchising was the best way to go, as it involved

little risk for them, provided income, and at the same time, put more of the

responsibility on the franchise holders. In 2001, cash flow return on equity

investment for franchises was at 91%, so attracting franchises was not a problem. In

2003, the company’s business strategy was to add enough new stores and increase

sales enough to achieve20% annual revenue growth and 25% annual growth in

earnings per share. However, they failed to invest in product development beyond

the “let’s try that” stage. By all appearances, strategies do not appear to be

capable of maintaining a competitive advantage for very long, as their products were

easy to replicate sufficiently for most customers. As a matter of fact, many of their

competitors considered it an advantage when Krispy Kreme came to town, as it

brought attention to donuts, which resulted in increasing their own sales! In July of

2004, the company announced that the SEC was “launching an inquiry into the

company’s accounting practices. Later that year, in December of 2004, they

21|P a g e
announced still more “accounting errors “that could reduce the net income for FY

2004 anywhere from 2.7% to 8.6%.By then, their stock had fallen from $40 a share

in March of 2004 down to$10-13 in December.

It is difficult to determine where the marketing department resides within

the organization, as very little evidence of market research exists. Krispy Kreme’s

marketing plan seems simple on the surface; they don’t appear to have put much

effort into marketing their product. The company spent very little on advertising,

depending largely on word of mouth, and local publicity. Store openings were

popular events in the communities, so often newspapers and other media provided

free publicity for the events. This strategy seems to still work well for new store

openings, but would not be sufficient to generate continuing business. This is

evidenced by the fact that even while new stores are opening, older stores within the

same market are having to close. In short, the company’s marketing strategy

appeared to consist merely of allowing its product to sell itself. The product’s

superior reputation, the firm’s operational techniques, i.e., their training, facilities

management and franchise management, appears to be appear to be the Krispy

Kreme’s major strengths. When adding the coffee product to the organization, they

also included it within the “vertical integration supply chain to control costs. They

felt that this would ensure quality and consistency in the product. When

Krispy Kreme purchased the MontanaMills Bread Company, there seemed to be a

sense that this was just a logical next step. In fact, the CEO considered this

22|P a g e
acquisition as the “natural outgrowth” in the continuing process of vertically

integrating an entire range of products and services for “flour-based”, short-shelf life

products. Again, failure to do appropriate and effective market research, Krispy

Kreme missed the identifying the new trends toward reduced carbohydrate

consumption patterns in the general public. As a result, Krispy Kreme acquired a

company in 2003 that by the end of fiscal year 2004, had lost $2million dollars.

IX. FINDING ANALYSIS

Issues with their financial management systems which have resulted in unclear and

unauditable financial reports, have dealt a major blow to investor confidence, which

only compounds the financial problems with which the company is dealing. Lack of

investment in and innovative approaches to their marketing strategies have left the

company without good, solid marketing plans for their recovery and future

development. Assumptions have continued to be made about customer desires,

without appropriate data to back up those assumptions. Assumptions also continue

to be made about supply chain and other company operating methods.

Of all the action plans suggested, I mostly recommend to conduct a

corporate-wide financial and operational audit, including but not limited to,

company-owned and franchised stores to determine causes of the negative ratio of

revenues to expenses. It is this analyst’s opinion that ample data exists to,

simultaneously and as part of this audit, conduct a cost-effectiveness analysis of the

company’s supply chain, i.e., their use of a vertically integrated supply chain, to

23|P a g e
determine if this method is, and will continue to be, the most efficient method over

time. While enhancements to the marketing department and subsequent

development of a marketing plan are indeed critical elements in the company’s

recovery and future development, without a clear picture of the company’s financial

status and an analysis of operating processes and capabilities, any marketing

strategies would for all practical purposes, amount to a “shot in the dark”, and would

not result in the best use of company assets.

24|P a g e