2. 2
Critical Success Factors
R & D to adapt to consumer‟s changing preferences
o Development of new products
o Health- consciousness
Regulations
o International laws
o FDA authorization (U.S.)
Increasing growth rate of domestic Hispanic and Asian population
Mergers/Acquisitions
Accessibility/ Convenience
o Fast-Paced Lifestyle
Trademark/Brand Protection
Size of Market Share (domestic and global)
Brand loyalty and recognition
o Effective marketing
Technological advancements in production and packaging
Customer service
Product differentiation
Continuous growth
o Overseas expansion and franchising
o Increased Foreign competitiveness
Legal Compliance
Reducing operating costs
Company restructuring
o Financially
o Scaling back locations
Ability to franchise
Thorough distribution channels
o Strategic alliances
Problem Identification
After defining the critical success factors and evaluating Krispy Kreme, the following
problems were revealed:
Krispy Kreme Problem Identification Weight
Weak International Presence 0.17
Healthy/ Nutritious products - weak 0.33
Focused on too few products 0.30
Lower revenues 0.20
General Environment
3. 3
Political/Legal Environment
The Lanham Trademark Act of 1946
This law explains the rights of trademark owners, as well as the remedies that are
required when a trademark is infringed. The law provides protection against false reports
that are stated to damage a business or its reputation (U.S. Trademark Law 2009).
Franchise Regulations
The FTC‟s Trade Regulation Rule on Franchising (“FTC Rule”) and certain state and
foreign laws require that companies furnish potential franchisees with a franchise
disclosure document with information prescribed by the FTC Rule and applicable state
and foreign laws and regulations. Businesses also must fulfill with a numeral state and
foreign laws that legalize some aspects of the franchisor-franchisee relationship.
FDA & US Department of Agriculture Regulations
The FDA is charged with protecting public health by ensuring that foods are safe and
pure, cosmetics and other chemical substances harmless, and products safe, effective, and
honestly labeled (Krispy Kreme 10K, sec.gov).
Local Regulations
To be able to have new doughnut stores in specific areas, the company is subject to
obtain the required licenses and authorizations by local government figures with respect
for land use, environmental factors and zoning. Any franchisees are required to obey with
all appropriate federal, state and local laws and regulations. This also includes the ones in
the United States and in international markets, which include health, sanitation, safety,
fire, building and other agencies in the states or municipalities in which the stores are
located. (Krispy Kreme 10K, sec.gov).
Employment Regulations
Food product manufacturers are subject to state and federal labor laws that govern
relationships with employees, such as minimum wage requirements, overtime and
working conditions and citizenship requirements. Furthermore, the work conditions at
store facilities are regulated by the Occupational Safety and Health Administration and
are subject to periodic inspections by this agency.
Food, Drug & Cosmetic Act
The Food, Drug and Cosmetic Act is enforced through the FDA and sets forth
specific standards for food preparation, branding, packaging, transportation and other
necessities companies must keep an eye on in order to serve the general public in the food
industry.
The Bioterrorism Act
The Act contains a number of provisions designed to improve and track the food safety
efforts of the Food and Drug Administration (FDA) in cooperation with U.S. Customs
and Border Protection (CBP) (fda.gov).
Federal Trade Commission Act
Under the Federal Trade Commission Act (15 U.S.C. Act 41-58), the Commission is
empowered to (a) prevent unfair methods of competition, and unfair or deceptive acts or
practices in or affecting commerce; (b) seek monetary redress and other relief for conduct
injurious to consumers; (c) prescribe trade regulation rules defining with specificity acts
or practices that are unfair or deceptive, and establishing requirements designed to
prevent such acts or practices; (d) conduct investigations relating to the organization,
4. 4
business, practices, and management of entities engaged in commerce; and (e) make
reports and legislative recommendations to Congress. (ftv.gov)
U.S. Environmental Protection Agency
The U.S. Environmental Protection Agency (EPA) controls environmental regulations
influencing the construction requirements for warehouses and facilities. The EPA also
leads the nation in environmental research, with their goal in mind of protecting human
health and safety. The U.S. CWA was derived from the Federal Pollution Control Act of
1972, which regulates water pollution.
Political/Legal Environment Summary
The political/legal environment for the food industry is unfavorable due to the fact that it is
highly regulated by the Federal Drug Administration (FDA) and the US Department of
Agriculture. It must also meet strict requirements governed by the Federal Trade Commission
(FTC) which regulate the offer and sale of franchises.In addition, the EPA regulates several areas
that affect operations. International regulations also influence operations and expansion.
However, the political/legal environment also shows that increasing efforts are being made in
defense of innovative companies to deter trademark infringement.
Socio- Cultural
Perceived good food/ Quick Casual Restaurants
Currently in America, people‟s perception of good food is shifting from just good taste to proper
nutrition benefits the food tends to provide the body with. FDA has advertisement on children‟s
channels encouraging healthy eating lifestyles and even good choices when it comes to snacks.
This becomes a threat to KKD as well as others in the quick casual restaurant industry. The quick
casual restaurant is a $6 billion segment and also one of the fastest growing niches in the
restaurant industry. This significant growth is attributed to aging baby boomers who are willing
to pay a little more for quality food in a comfortable environment and a youth culture that needs
a place to, well, hangout (ENRG, 2010).
Socio- Cultural Summary
The Socio- cultural environment of KKD is favorable because Americans have a culture of
patronizing doughnuts or breakfast items such as KKD‟s. Although much fuzz is being made
about healthy eating which is a threat to the quick casual restaurants, with the following
generations after the boomers still longing for family times, and connecting, there is much hope
for this industry
Demographics
The U S population
According to the U S census bureau 2010 data, the United States ranks third in world
population with 310,232,863 people after China and India with 1,330,141,295 and
1,173,108,018 respectively. However for consistency in data, we shall use the 2008
population of 304,059,72 as of July 1.
5. 5
Gender distribution
ACS shows a 2006-2008 gender distribution of 49.3 and 50.7 for male and female
respectively (census bureau, 2008).
Gender Distribution of the
U. S.
female (50.7%)
male (49.3%)
Population by race
By race the white population is 74.3 % of the total, black or African American 12.3%,
Asian 4.4%, Native Hawaiian and other pacific islander 0.1% while Hispanic population
is 15.1% and some other race is 5.8% (fact finder, 2006- 2008).
Population by Race
White (74.3%)
Black/AA (12.3%)
Asian (4.4)
Native Hawaiian
(0.1)
Hispanics versus Non-Hispanics
In order to get a clearer picture of the Hispanic population in the United States, the
America Community Survey and Pew Hispanic Center (2008), divided the general
population into two segments: Hispanic or Latino and Not Hispanic or Latino. The
Hispanic and Latino race were over 15 percent (2008) of the total United States
population (Those of Hispanic or Latino origin can be of any race).
6. 6
Researchers predict that the Latino or Hispanic population is bound for rapid increase.
The following chart illustrates the percentage of those who are Hispanic compared to
those who are not in the United States and their projected growth rates.
(Source: pew research, 2008)
Age
Ages 5 years, 18 years and over and 65 years have percentages 6.9, 75.5 and 12.6
respectively of the entire population while the median age is estimated at 36.7 years for
2008 (fact finder, 2008).
Baby boomers/ Generations X & Y and Millennial
The baby boomers are the portion of the U.S. population born between 1946 and 1964
and represent (Pew 2010). This large number of people will be one of the large
contributors to the increase in the 65 and over category by year 2025.
For the Millennial, their values in life are not far from the things older generations value.
Family comes first, and fame and fortune are much less important. In a rating of how
important a series of life goals are to them personally, being a good parent ranked at the
top for all four generations. Overall, 50% of the public says this is one of the most
important things in their lives. About half (52%) of millinnials say being a good parent is
one of themost important things to them. This compares with 50% of those ages 30 and
older (Pew research, 2010).
Millennia‟s are significantly less likely to be working full time (41%) than Gen
Xers (65%) or Boomers (54%), reflecting in part the very different life circumstances of
millennial. At the same time, these youngest members of the labor force are about twice
as likely to work part time (24%) as are members of the Gen X (10%) or Baby
Boom (13%) generations. Also, according to Pew Research Center surveys, the older
generations have more spending power than the millennial though the latter have much
hope of higher buying power for the future.
7. 7
Income
The 2008 data of American Community Survey (U.S. Census Bureau) estimated
112,386,298 American households, 74,870,525 American families, and 37,515,773
American nonfamily households.
The average American household made $71,128 a year in income. The income bracket of
$50,000 - $74,999 a year accounted for 18.8 %, or 21,109,871 households, in 2008. This
isthe largest income bracket, followed by the income bracket of $35,000 - $49,999 a year
thataccounted for 14.2 % of households.
Also, on the average American families made $82,719 a year in income. The income
bracket of $50,000- $74,999 a year accounted for 20.2% or 15,159,442 families in 2008.
This is the largest income bracket, followed by the income bracket of $100,000 -
$149,999 a year that accounted for 15.3 percent of families. Also, the average American
nonfamily households made $45,160 a year in income
The median income for American families is $63,211 (U.S. Census Bureau, 2008).
There have been fluctuations in the median household income between 1967 and 2008,
but theincome level has not dropped below that of 1967. Real median household income
peaked in2000, but began decreasing in 2002 through 2004 until 2005 when there was a
slight increase inmedian income and even more, in 2008.
Household income brackets or ranges population percentage
Total number of Households 112,386,298 112,386,298
Less than $10,000 8,045,626 7.2%
$10,000 to $14,999 6,139,558 5.5%
$15,000 to $24,999 11,921,076 10.6%
$25,000 to $34,999 11,899,350 10.6%
$35,000 to $49,999 15,951,147 14.2%
$50,000 to $74,999 21,109,871 18.8%
$75,000 to $99,999 13,992,314 12.5%
$100,000 to $149,999 13,758,104 12.2%
$150,000 to $199,999 4,858,631 4.3%
$200,000 or more 4,710,621 4.2%
Median household income (dollars) 52,175 (X)
Mean household income (dollars) 71,128 (X)
Families 74,870,525 74,870,525
Less than $10,000 3,241,830 4.3%
$10,000 to $14,999 2,383,126 3.2%
$15,000 to $24,999 6,123,123 8.2%
$25,000 to $34,999 6,958,316 9.3%
$35,000 to $49,999 10,256,471 13.7%
$50,000 to $74,999 15,159,442 20.2%
$75,000 to $99,999 11,064,155 14.8%
$100,000 to $149,999 11,463,137 15.3%
$150,000 to $199,999 4,164,789 5.6%
$200,000 or more 4,056,136 5.4%
Median family income (dollars) 63,211 (X)
Mean family income (dollars) 82,719 (X)
Per capita income (dollars) 27,466 (X)
Nonfamily households 37,515,773 37,515,773
8. 8
Median nonfamily income (dollars) 31,547 (X)
Mean nonfamily income (dollars) 45,160 (X)
Median earnings for workers (dollars) 29,530 (X)
Median earnings for male full-time, year-round workers
45,425 (X)
(dollars)
Median earnings for female full-time, year-round
35,269 (X)
workers (dollars)
(Source: fact finder; U. S. Census Bureau
http://factfinder.census.gov/servlet/ADPTable?geo_id=01000US&ds_name=ACS_2008_3YR_G
00_&qr_name=ACS_2008_3YR_G00_DP3YR3&_lang=en&_sse=on Retrieved June, 2010)
Poverty
The United States Government uses money income and poverty thresholds to compute
andmeasure poverty status (U.S. Census Bureau, 2010). Those in poverty are usually
supported by800 hours of work per year, or 16 hours per week. Seventy-five percent of
children would come16 out of official poverty if at least one adult worked 40 hours per
week. In 2008, 13.2 percent of the population was in poverty. All families in poverty
were at 9.6%, female householders estimated 28.2%, while those with children under age
18 were at 36.5% and 44.5% for those with children under age five. In 2007 it was 13.3%
of the total population. All families were at 9.8% while families with female householder
and no husband present had estimated 28.6%. Moreover, female householders with
children under age 18 were at 36.9% while worst off; those with children under five years
were at 45.5%.
Education
For ages 25 and over there is a percentage of 84.5 with education high school or a higher
education while 27.4 have attained a bachelor‟s degree or higher. Education is usually
positively correlated with income and spending.
Spending Habits of Americans
The table below, extracted from the Bureau of Labor Statistics (BLS) shows the spending
attitudes of Americans from ages under 25 years to 75 years and older. On the average,
the total number of consumer units of 120,770 has a disposable income of $61,774 and
spends an average of $6,443 on food from their total annual expenditure of $50,486.
Also, on the average all consumer units spend $507 on cereal and bakery products and
also $337 on bakery products only. The consumer unit that spends so much on cereal and
bakery products or on bakery products alone is ages 35-44. They spend $620 and $407
which is above the average of all the consumer units on cereal and bakery product and
bakery products alone respectively. They are followed closely by ages 45-54 who also
spend $600 and $397 on the above mentioned foods. On the whole the under 25 spends
less which is $281 and $178.
9. 9
Table 47. Age of reference person: Shares of average annual expenditures and sources of
income, Consumer Expenditure Survey, 2008
All 65 75
Unde
consu 25-34 35-44 45-54 55-64 years 65-74 years
Item r 25
mer years years years years and years and
years
units older older
Number of consumer 120,77 20,20 22,83 25,61 19,82 24,06 12,58 11,48
units (in thousands) 0 8,227 8 4 4 6 2 0 1
Consumer unit
characteristics:
$63,56 $28,1 $59,8 $77,5 $81,8 $71,6 $39,3 $45,2 $32,8
Income before taxes 3 27 78 82 44 53 41 32 86
$61,77 $27,9 $58,8 $75,6 $78,5 $69,0 $38,8 $44,4 $32,7
Income after taxes 4 07 09 77 37 09 41 02 47
Age of reference
person 49.1 21.5 29.6 39.7 49.4 59.3 75.0 69.0 81.6
Average number in
consumer unit:
Persons 2.5 2.0 2.8 3.3 2.7 2.1 1.7 1.8 1.5
Children under
18 0.6 0.4 1.0 1.4 0.6 0.2 a/ 0.1 a/
Persons 65 and
over 0.3 a/ a/ a/ a/ 0.1 1.4 1.4 1.3
Earners 1.3 1.3 1.5 1.6 1.7 1.3 0.4 0.6 0.2
Vehicles 2.0 1.2 1.7 2.1 2.4 2.2 1.6 1.8 1.3
Percent distribution:
Sex of reference
person:
Male 47 47 50 46 47 49 43 46 40
Female 53 53 50 54 53 51 57 54 60
Average annual expenditures ($)… 50,486 29,325 48,159 58,808 61,179
54,783 36,844 41,433 31,692
Food............................................. 6,443 4,447 6,229 7,849 7,696
6,357 4,692 5,338 3,935
Food at home.................................... 3,744 2,330 3,393 4,509 4,452
3,710 3,075 3,421 2,667
10. 10
Cereals and bakery products............ 507 281 454 620 600 492
435 473 390
Cereals and cereal products...............170 103 169 213 203 152
131 142 118
Bakery products............................... 337 178 286 407 397 340
304 332 271
Meats, poultry, fish, and eggs............. 846 573 742 1,014 1,018
845 687 781 576
Gifts of goods and services................ 1,209 429 579 856 2,037
1,752 1,016 1,291 700
Food............................................ 97 37 51 73 155
155 72 90 51
Source: extracted from Bureau of Labor Statistics, 2010 (: Average annual expenditures and
characteristics, Consumer Expenditure Survey, 2008)
Summary
Technology
Internet Usage
The use of the Internet continues to rise according to usage statistics provided by
internetworldstats.com. In 2009, internet users represented 26.6% of the global
population compared to 5.93% in year 2000. In the US, internet usage is highest at 76%
population penetration with e-commerce sales reaching almost $142 billion in 2008.
According to information from the US Census Bureau, e-commerce sales grew at an
annual average rate of 21% from 2002 to 2008 compared to total retail sales growth of
4%. (U.S. Census Bureau, 2008)
11. 11
The internet is playing an important part in consumer decision process with levels of trust increasing
in thecontent posted. In research conducted by Nielsen Wire, it found that 70% trusted consumer
opinions posted online, 70% trusted brand websites, 37% for online video ads and 33% for Online
banner ads. (Nielsen, 2009)
Communication Channels
In a survey conducted by Datatran Media in December 2009 from 5,000 Fortune 500 companies,
marketing executives felt that the use of technology in advertising performed better than other
channels. In that survey, advertising through email, search, social media and mobile accounted for
68.5% of the channels that rated asmore effective.
In their plans for use of digital marketing channels in 2010, the marketing executives indicated that
59.8% would use over half of their overall multi-channel advertising campaign versus print, radio,
television, outdoor, etc. (Datatran, 2010)
(Source: Datatran Media LLC, 4th annual marketing and media survey, 2010)
The use of smartphone technology in the US is on the rise accounting for 21% of overall
cell phone market in 2009, according information from Nielsen Wire. According their
projections, by 2011 smartphone users will account for 49% of the market versus 51% of
non-smartphone users. (Entner, 2010) In market research conducted in 2009 indicated
that 37% of smartphone users purchased products using the device, 41-43% used the
device to check prices at alternative locations, 31-39% checked customer reviews.
(Stambor, 2010)
Automation
In this current environment of increased competitiveness, companies are seeking new
ways to improve productivity and decrease operating cost. The use of technology such
as Radio Frequency Identification (RFID) has enabled companies to more efficiently
process, package and manufacture their products. In the food industry for example, this
is a key element in reducing waste and shortening lead times due to the time sensitivity
of the perishable nature of the products. Manufacturing concepts such as lean
principles, production systems and mass customization principles with the use of
greater automation are used in the food industry, similar to those used in the traditional
12. 12
manufacturing industry. With labor, health and safety costs rising, companies have been
turning to more automation to improve its efficiencies and remain competitive.
(Mahalik, 2010)
Technology Summary
The technology environment is favorable towards Krispy Kreme and the food service industry.
The increasing use of the internet has enabled companies to promote their products via
communication channels such as social networking sites, smart phones and companies own
websites. It has enabled companies to be greater aware of consumer tastes and trends.
Technological innovations in food processing, manufacturing and packaging have greater
efficiency in the industry.
Economic
Gross Domestic Product (GDP)
The US economy has continued to slow in the past few years, with the GDP in decline
from 2.1% in 2007, 0.4% in 2008 to -2.1 in 2009, compared to a 2.7% average over the
previous 7 years. (U.S. Department of Commerce, nd) Despite the declining numbers,
the CBO forecasts a growth of 2.0% in 2010 and 4.0% in 2011. (Congressional Budget
Office, nd)
Consumer Price Index (CPI-U)
The U.S. Bureau of Labor Statistics reported that the CPI-U increased to 2.7% in 2009
from a low of 0.1% in 2008. Forecasts by the CBO in January, 2010 are that the CPI-U
would be 1.6% in 2010 and drop slightly to 1.1% in 2011. (U.S. Department of Labor,
2010). The CPI for food away from home has gradually increased in the past few years as
indicated below, but has leveled off in 2008 and 2009.
Unemployment
The unemployment rate has continued to remain consistently over the 9% mark from
May 2009 to May 2010, which is a significant indicator on the shape of the US economy
13. 13
considering the fact that the unemployment rate was around 5.5% just 1 year prior in
May 2008. The CBO’s forecast for 2010 done in January, 2010 was that the
unemployment rate would rise even higher to 10.1% before lowering slightly in 2011 to
9.5%. Their longer term forecast for 2012 through 2014 is that average unemployment
rate will be 6.5%. (U.S. Department of Labor, 2010)
Source: U.S. Department of Labor, 2010 http://www.bls.gov/news.release/pdf/empsit.pdf
Disposable Income
An important indicator for businesses to focus on is consumer disposable income, which
was at its lowest level of increase in 2009 at a meager 1% compared to 3.9% increase in
2008. The contrast is even greater if we look at the average disposable income of 5.46%
from 2000-2007, according figures from the Bureau of Economic Analysis. The chart
below from the US Economic Research Service indicates despite the overall increase in
disposable income, spending on purchase meals & beverages as a percent of disposable
income has decreased.
14. 14
Economic Summary
The economic environment is favorable to unfavorable to operate in. High unemployment has
led to lower disposable income and coupled with increases in the Consumer Price Index, have
affected the food service industry. However, there are favorable signs in the quick service food
sector which has seen minimal increases despite the difficult economic situation.
Global Environment
Demographics
According to the U.S. Census Bureau's latest estimates, the global population now is
close to 6.8 billion.It‟s increasing at a rate of 143 people a minute, 8,607 people an hour,
nearly 206,550 a day and 75 million this year. The world population increased from 3
billion in 1959 to 6 billion by 1999, a doubling that occurred over 40 years. The Census
Bureau's latest projections imply that population growth will continue into the 21st
century, although more slowly. The world population is projected to grow from 6 billion
in 1999 to 9 billion by 2045, an increase of 50 percent that is expected to require 46
years. Although their underlying assumptions could change, Census Bureau
demographers see world population totaling roughly 9.0 billion by the middle of the next
century, given present trends (Census Bureau 2009). With the increasing number of the
world‟s population, firms are exposed to more consumers that are demanding exceptional
products and services. The elderly (age 60 or older) in Europe represented 21 percent of
the people in 2006, but will represent 34 percent in 2050. Other countries that are not as
advanced will also see a rise in the number of people age 60 and over; it is projected that
these countries will experience an increase from 8 percent (2006) to 20 percent (2050).
15. 15
Mergers/Acquisitions/Consolidations
Almost every day, there is news of some new billion-dollar combination: banking,
healthcare, and tobacco in just the past few days. Behind the new surge in acquisitions is
a much healthier stock market. Since the beginning of the year, stock prices are up
between 15 and 20%. This has given companies the means to snap up competitors, some
weakened by an economic downturn. In the current general environment, there are also
important global trends. Severallarge companies, instead of developing products
internally, have grown through acquisitions in serious segments in order to create a
presence overseas (Standard & Poor’s Industry Trends 2010). Companies will acquire
another company that already has a specific segment, providing a faster and cheaper way
to meet that consumer demand, other than developing products internally. (Standard &
Poor’s Industry Trends 2009).
In addition, there is a global trend toward consolidation in the retail channel, particularly
in Europe and the United States. There is still room for global expansion into emerging
markets, and larger companies already have the established distribution systems to easily
“launch new products that smaller niche competitors lack” (Standard & Poor’s Industry
Trends 2009 and Business Monitor Online 2009).
Forward and Backward Integration
Many companies have begun to take control of their customers in the distribution
process. This gives more control to the supplier. Having full control over operations will
strengthen your product‟s position to the market
Global Economy
Globalization could raise economic growth of developing regions substantially, leading
to a drastic shift of production activities to these countries. Moreover, increasing links
between regions could affect consumer preferences and the dissemination of new
technologies.The global economic downturn has had a significant impact on the retail
sector, although to a lesser extent on Modern Grocery Distribution (MGD), due to the
16. 16
fact that food remains a non-discretionary purchase. Grocery retailers have primarily
responded to the downturn in two ways. One is by promoting value through, for example,
the expansion of discount stores, economy ranges, price investments and increased
promotions. The other is by reducing costs and therefore preserving cash. This has come
in the form of slowed expansion plans and employee dismissals.
Over the next five years, the Top 30 are expected to grow sales through grocery
formats at a compounded annual growth rate (CAGR) of 5.2%, compared to the
10.8% recorded for the previous five years. Store numbers are expected to rise at aCAGR
of 3.5%, reflecting the fact that a slowdown in expansion will see retailers focusing on
their most profitable existing stores.
As capital expenses budgets get squeezed, resulting in a slowdown in almost every
grocery channel, it has turn out to be more significant constantly for retailers and
manufacturers to be sure they are investing in the winning formats and in the winning
regions.
Indian growth has been behind China‟s, even though both countries had per capita
incomes in 1980. Indian growth has enhanced and importantly it has become less
variable, in more recent years. Chinese growth forecastsrecommends that GDP growth
can be projected to average levels close to 9% in the period to 2015 providing a
constantfoundation for strong commodity demand growth. Afresh study by the
Development Research Centre under China‟s State Council decided that China‟s
industrialization period will last into the 2020‟s with possible GDP growth rate at 10%in
the period to 2015 and 8% from 2015 to 2020. China is also getting a „turning point‟ in
its growth generating potential for resource severe growth in excess of 10% over the next
two decades.
Foreign Exchange Rates/ Imports and Exports Trends
Because global real estate portfolios include assets influenced by different national
economies, with very different drivers, growth rates, and risk, the correlation of total
returns between assets in these markets can be very low. The movement of foreign
exchange rates must be considered, however, as unfavorable currency movements can
17. 17
severely hamper performance. Broadening our perspective to the entire private equity
universe, expectations for capital flows to international real estate are the same, as it
becomes more difficult to find attractive domestic investments in a period of
unprecedented pricing, record-low cap rates, and a slowing U.S. economy.(Journal of
Portfolio Management).
Operating in international markets involve exposure in currency exchange rates, which
affects inflation, the economic growth, interest rate, and other aspects. Once these
alterationstake place, they will cause food companies such as Krispy Kreme to regulate
itsoperating and financing strategies. Changes in currency exchange rates that would have
the biggest impact on decoding Pepsi‟s international operating profit include British
pound, Mexican peso, Brazilian real and Canadian dollar and. Through years, macro-
economic conditions in Brazil, Mexico, and Russia and across Asia Pacific have
impacted on Pepsi‟s operations.
The value of U.S. agricultural exports totaled $30.1 billion in the three months ended
March 2008, up 50% from the comparable year-earlier period; meanwhile, the value of
agricultural imports to the U.S. rose 12% to $20.2 billion, according to the USDA The
weak value of the dollar may be another contributing factor to the increase with overseas
buyers having more purchasing power.
Prospects for the agricultural sector in the near term reflect continuing U.S. and global
adjustments to the recession of 2008-09 and the subsequent economic recovery. A
resumption of steady global economic growth will support increases in consumption,
trade, and prices in the longer run. Additionally, long run developments for global
agriculture reflect continued demand for biofuels, particularly in the United States and
the European Union. The value of U.S. agricultural trade and cash receipts to farmers
grow through the projection period. Increases in production expenses offset some of the
gains in cash receipts, resulting in net farm income in the United States rising moderately
from 2011 to 2019. U.S. retail food prices increase more than general inflation through
2012, but then return to a longer term relationship of rising less than the general inflation
rate over the last half of the projection period.
International Regulations
It should be noted that the elimination of trade barriers increases the efficiency of the
world economic system by enabling countries to specialize in those sectors in which they
possess economic advantages, which includes those sectors in which they possess
favorable natural environmental conditions.The United States, as do many other
countries, controls the export of certain items. Export control may mean that a product,
service or technology cannot be exported to another country. The U.S. government, either
unilaterally or as a result of the actions of international organizations such as the United
Nations, prohibits trade with some countries or with certain individuals wherever located.
Some form of U.S. trade embargo, for example, exists for Cuba, Iran, North Korea,
Libya, the Sudan and Syria. These policy-based and policy-driven programs even affect
businesses that do not market to a particular country.
When conducting business internationally, companies must comply with the applicable
laws in those countries. Competition laws are especially critical to large companies and
their monopolizing power in certain jurisdictions around the world. China‟s Commerce
18. 18
Ministry enforces anti-monopoly laws that took place in August 2008 (Chinese Officials
2008). These laws protect China‟s famous domestic brands. The European Food Safety
Authority (EFSA), along with the UKFSA (United Kingdom Food Standards Agency),
conducts extensive studies and regulates ingredients and preservatives in foods and
drinks (Euro News 2007). Also, the EU Accession has tightened controls on labeling of
food and beverage products in the European Union.
Internationally, the production and distribution of products come under immense scrutiny
and must comply with statutes and regulations. International laws also include “Eco
taxes” or fees that must be paid by companies using certain packaging materials that are
potentially harmful to the environment.
Summary
The global environment is favorable to unfavorable. Many companies are merging and
acquiring other companies to expand product lines and increase market penetration. With that
being said, it increases foreign competition with inexpensive labor internationally. Additionally,
international regulation generates a major threat to expansion. The cost of energy and raw
materials generate an unfavorable environment, as these are necessary elements for
operations. Overall, private-label products are becoming more popular on a global scale, also
contributing to increased foreign competition.
General Environment Opportunities and Threats
Environment Opportunities Threats Climate Importance
Political/Legal 1 Lanham Trademark Act 1 FDA & USDA Regulations Unfavorable 1
2 Local Regulations
3 Franchise Regulations
4 Waste Management
5 Employment Regulations
6 Food, Drug Cosmetic Act
7 Bioterrorism Act
8 FTC Act
Demographic 1 Good number of boomers 1 Concern for healthy diet Favorable 1
2 Millinials: family time
Rise in median household
3 income
Socio/Cultural 1 Culture of eating out 1 Obesity concerns Favorable 2
Technological 1 Internet Usage 1 Favorable 3
2 Communication Channels
19. 19
3 Automation
Economic 1 CPI-U forecasted to fall 1 Unemployment at a high Favorable - 1
2 Disposable Income rising 2 Consumer Spending down Unfavorable
3 GDP in decline
International food Reg.
Global 1 Population Growth 1 Foreign Country Favorable 1
2 Acquisitions 2 Translations Unfavorable
3 Increase Exports/Imports 3 Inc.Foreign Competition
4 Increasing Costs(energy)
Critical Success Factors –General Environment
Regulations
o FDA (U.S.)
o International laws
Health-consciousness
Growth rate of domestic Hispanic and Asian population (increasing)
Size of Market Share (domestic and global)
Mergers/Acquisitions
Increased Foreign competition
Accessibility - Lifestyle (fast-paced)
Brand Protection
Porter’s Five Forces – Industry
Porter's Five Forces - Industry
Future Current Future
Current Domestic
Domestic Global Global
High Moderate High High
The large
Difficult for new This market Many markets are
Barriers:
entrants to enter is maturing markets in likely to
New
because this but generics this industry gain market
Entrants
“jammed”&industry. post high are still share in the
Threat from generics threats growing growing
environment
Very High Very High Very High Very High
Numerous Numerous Numerous
Numerous
substitutes substitutes substitutes
substitutes that bring
Substitutes that bring that bring that bring
different fulfillment
different different different
and reasons for
fulfillment fulfillment fulfillment
consumption
and reasons and reasons and reasons
20. 20
for for for
consumption consumption consumption
High Very High Very High Very High
Consumers‟
increasing Large
Many equally large
consciousness competitors
Rivalry competitors and Increase in
of healthy and high
rapid increase in generics
meals and generic
generic competition
increase in competition
generics
Low Low Low Low
Commodity Commodity Commodity
Commodity prices prices prices prices
Supplier
decreasing, many decreasing, decreasing, decreasing,
Power
suppliers in the many many many
industry suppliers in suppliers in suppliers in
the industry the industry the industry
Very High Very High Moderate High
Highly Potential
More
Buyer saturated, for greater
Highly saturated, choices
Power cost consumer
cost conscious, likely with
conscious, spending in
numerous substitutes increased
numerous growing
competition
substitutes economies
Barrier to New Entrants
It is difficult for new entrants to enter this industry in the current and future domestic as
well as global because this is an already mature industry. However, it is possible that the
larger markets would continue to gain market shares while the market progresses.
Though this is a differentiated market, the size or volume of the market plays an
important role because the margin of this industry is usually on the low side.
Substitutes
The threat of substitutes is very high in the current and future domestic and global
industries. The retail bakery industry is very mature with anextensivediversity of food
choices that can substitute a baked good with no changing costs. It is easy to find
substitutes for these food choices. Many substitutes exist for example, breakfast cereals,
rice and potatoes are all possiblesubstitutes and individuals can also make all of the baked
goods they want at home. Bakeries count on upon price and convenience to keep
individuals switching to a substitute or baking what they need at home.
Rivalry
21. 21
The threat of rivalry is very high in this industry because this is a price differentiated
market and so generics with cost advantages pose very high threats especially in these
two years of the recession. Also, others that seem to provide nutritional advantages pose
threats in an environment whose consumers are getting health-conscious.
Supplier Power
Suppliers do not have much negotiating power in the bakery business due to the well
developed markets for their products and the commoditized nature of what they are
selling. Bakeries can be affected by price swings of the raw inputs, but the changes are a
result of global supply and demand determinants rather than suppliers' negotiating power.
Buyer Power
The current environment in the domestic market is a reflection of the numerous choices
in the domestic market for the Quick Service segment that Krispy Kreme competes in.
Buyers are seeking value and healthier options. We see the buyer power continue to be
very high in the future. However, opportunities currently exist for expansion globally in
markets such as China, India and the middle-east (where KKD has some presence
already).
Industry Opportunities
Rearrangement or reorganization to reduce costs
Intensifying healthy products
Growth Strategies
o International development (China and India)
o Franchising
o Acquisitions
Developing a differentiated channel
o Superstores and small groceries store, vending machines, restaurants, convenience
stores, cafeterias, drugstores.
Fairly easy entry in the industry
Neutroceutical Advancements
Technological Improvements
o Packaging, manufacturing ,distribution
o Connecting self-checkouts
Industry Threats
Strong Competition – lower margins due to consumer price consciousness
Decline in consumer spending due to low consumer confidence
Access to capital for possible expansion
Health Concerns – more health conscious consumer
Increased regulation on labeling, safety
Higher Taxation
Higher Energy costs – Crude oil and Natural Gas
Critical Success Factors – Industry
22. 22
Brand loyalty and recognition
o Effective marketing
R & D to adapt to consumer‟s changing preferences
o Development of new products
o Health conscious consumers
Technological advancements in production and packaging
Customer service
Product differentiation
Continuous growth
o Overseas expansion and franchising
Legal Compliance
Reducing operating costs
Company restructuring
o Financially
o Scaling back locations
Ability to franchise
Thorough distribution channels
o Strategic alliances
COMPETITIVE ANALYSIS
Company Name 2010 Sales (Mil) 2010 Net Income (Mil) Number of Employees
Krispy Kreme $ 346.5 $ (.157) 2,460
Dunkin Donuts $ 6,900.0* N/A 1,126*
Einstein Noah $ 408.95 70.71 380
Starbuck’s $10,080.0 $ 760.30 142,000
Industry averages $ 559.64 N/A 5600
* as of 2008
Dunkin Donuts
Strengths
Strong Overall Brand Recognition
Focus on Coffee in the store and packaged in other stores
Diverse Products – Breakfast sandwiches/Ice Cream
Alliances with P&G coffee supplier and smaller retail outlets
Strong International Presence
23. 23
Customer Service Reputation
Weaknesses
Healthy product choices
Franchise bankruptcies
Lower demand for coffee
Low margins on products
Opportunities
Less expensive option than Starbucks (main competitor)
Increase international presence
Lower costs for commodities – wheat, corn, sugar
Repeat Customers - Loyalty and value focus reputation
Threats
Unhealthiness – obesity, heart disease
Highly competitive coffee segment
Product Substitution from competitors
Economic Concerns – high unemployment, cost sensitive
Starbucks SWOT Analysis
Strengths
Largest coffee corporation of the planet
o Relatively big international presence.
o Brand loyalty (most of Starbucks‟ consumers drink only Starbucks‟ coffee).
o Huge brand recognition.
o Present in all 50 states and 47 countries (Over 16,000 stores).
o Over 170 locations for distribution, storage, and headquarters.
Innovative product portfolio
o Continuing development into aliment industry.
Strong relationships with suppliers
o Fully controlled coffee bean supplier
Key alliances
o Hewlett Packard
o Pepsi
o Kraft Foods
o Sysco
o US Foodservice
Prime retail locations
R&D
o Changing taste preferences ($7.2 million)
Deeply cultured
o Strong mission and vision
o Global environmental concern
o Motivated employees
Company operated retail stores 84% of revenues
Financials
24. 24
o Strong Revenue Growth until 2008
o Stability
Weaknesses
Publicly held.
Geographic concentration in U.S. (it makes harder to achieve international success).
High concentration on one product (coffee).
Weak infrastructure.
Cross-functional management
Closed over 200 stores in 2008 (stores were not franchises)
Financially unstable since 2008
o Stock price dropped from $39.43 to $16.92
o 8% revenue drop in 2008
o Negative outlook for 2009
Opportunity
Entry into emerging Asian markets like India, Pakistan, Bangladesh and China.
Diversification of product line.
Market penetration in International countries other than Asia (Brazil).
Co-branding with other food manufactures.
Whole bean sales in supermarkets (Wal-Mart, Carrefour (Brazil)).
Expansion into retail operations.
Technological advances.
New distribution channels (delivery) as well as distribution agreements.
Brand extension.
Continued domestic expansion and domination of its segment.
Threats
Present recession may perhaps impact the sales.
Entry barrier in the global market.
Amount of competitors is greater than ever.
Disparity of coffee prices in emergent countries.
Company facing massive resistance in international countries over political and cultural
matters.
People started to become more health conscious leaning towards caffeine free products.
Competitors are imitating.
Labor Unions problems in America and international countries.
Competition (restaurants, street carts, supermarkets, other coffee shops, other caffeine
based products), mainly overseas.
North American market saturation.
Negative image from poorly treating farmers in supplying countries.
Einstein Noah SWOT Analysis
25. 25
Strengths
Leader of Quick Casual restaurant industry.
o Operatesprimarily under the Einstein Bros. and Noah's New York Bagels® brands
and primarily franchises locations under the
Manhattan Bagel® brand.
o Five distinct brands in four quick casual restaurants and one coffee chain;
(Einstein Bros. Bagels, Noah's New York Bagels, Manhattan Bagel chains,
Chesapeake Bagel Bakery and the New World Coffee).
o About 600 restaurants in 36 states and the District of Columbia. This makes it
strong competitively in terms of volume (overall about 690 company-owned and
franchised locations in more than 35 states)
o 300 Einstein Bros locations within 38 DMA markets in 27 states.
o Manhattan Bagel boasts of 23 fresh-baked bagel varieties and 15 different cream
cheese flavors available daily
o Over 100 Manhattan Bagel locations in the US.
o New World Coffee specializes in 30 varieties and blends of fresh roasted coffee
from around the world.
o Weak international presence.
o Brand loyalty
o Good brand recognition.
Innovative product portfolio
o The unique atmospherics of ENRG ties in well with their brand.
Strong relationships with suppliers
o Fully controlled coffee bean supplier
Key alliances
o Aramark
o Sodexho
o HMS Host
o AAFES
o Compass Group and
o Hyatt Hotels
Prime retail locations
R&D
o Changing taste preferencesand state-of-the-art test kitchen facility (Golden,
Colorado)
Deeply cultured
o Strong mission and vision
Financials
o Strong Revenue Growth until 2008
o Stability
Weaknesses
Publicly traded
o NASDAQ (GM): BAGL
Low earning per share
26. 26
Growing concerns of consumers for cutting spending on specialty eateries
So much competition in the quick casual restaurant industry
Opportunities
Less expensive option than Starbucks (main competitor)
Increase international presence
Lower costs for commodities – wheat, corn, sugar
Repeat Customers - Loyalty and value focus reputation
Threats
Unhealthiness – obesity, heart disease
Highly competitive coffee segment
High product substitution from competitors
Economic Concerns – impact of recession
o high unemployment
o cost sensitive
INTERNAL ANALYSIS
Krispy Kreme’s Strengths
Strong reputation in the industry for their differentiation/ market share and sales
capabilities
Large number of outlets and franchises
Large overall sales because of volume of outlets
1.1% rise in same-store sales in April 2010
There is a predicted rise in revenue in the low to mid single digits for the 2011 fiscal year
(S&P Analyst Research Notes)
Krispy Kreme’s Weaknesses
According to S&P Analyst Research Notes and other Company News
(April 16, 2010),KKD posts $0.01 Q4 EPS vs. $0.01 loss on 1.1% rise in same-store
sales.
Total revenue fell 5.6%. (not including the effects of refranchising company stores,
consolidated)
Equally large competitors increasing
Low earnings per share
Effects of the recession of these two years and its influence on consumers‟ spending on
special eateries.
Summary
KKD is well positioned in the Quick Casual Restaurants industry; however, because there are
quite a large number of competitors who are as huge (and still advancing), KKD is in a tough
position to sustain, except with especially good marketing abilities and advantages.
27. 27
Krispy Kreme’s Opportunities
Growth Strategies
o International growth (China and India)
o Acquired
o Franchising
Increasing healthy products
Smaller store operations
Utilizing in-store distinctiveness
Breakfast products
Krispy Kreme’s Threats
Highly competitive segment – numerous substitutes
Health Concerns – few healthy choice items
Menu Choices – product diversity
Increased regulation on labeling, safety
Higher Taxation
Higher Energy costs – Crude oil and Natural Gas
29. 29
success factors, each factor is measured in same scale mean the weight continuethe same for
every single firm only the rating varies. Ratings range from 1 to 4 with 1 representing a major
weakness, 2 representing a minor weakness, 3 representing a minor strength and 4 representing a
major strength.
By doing the CPM for this industry, all three companies are relatively close to the same
score;though Dunkin Donuts is first with a score of 3.12. This is mainly due to their large size
and competent operations. They show flexibility to the current economic times and ongoing
growth through overseas expansion. Following the ranking is Starbucks with a score of 3.10. A
big part of this score is due to their huge size and well-organized operations. They have a
massivequantity of stores and are continuing to grow in emerging markets overseas regardless of
the downturn in the economy. Right before KKD is Einstein Noah with a score of 2.71. On the
whole, Einstein Noah has a strong product mixwith good health consciousness because of its mix
of salads among others and a large number of locations but has weak international presence
relative to the competition.
Krispy Kreme ranks the lowest among all of its competitors on the Competitive Profile Matrix,
with a score of 1.675. The company‟s focal problem is the misalignment of its corporate owned
stores and its incapability to change or give a special attention to the current health trends of
today. They would need precise R & D to forecast this problem. By doing the research,it was
not found that Krispy Kreme had a research and development program internally at this time, nor
does it outsource one. Many of the other factors that received low scores in this matrix are bi-
products of the above-mentioned issues.
30. 30
KRISPY KREME EFE MATRIX
Critical Success Factors Weight Rating Weighted
Score
Opportunities
Uniqueness 0.14 4 0.56
Expansion(Asia/India) 0.12 3 0.36
Alliances 0.08 2 0.16
Health Consciousness 0.14 1 0.14
Store Operation – small 0.1 1 0.01
Threats
Product diversity 0.09 2 0.18
Health Concerns 0.07 1 0.07
Market Saturation 0.07 1 0.07
Higher Taxation 0.06 1 0.06
Increased Regulation 0.07 1 0.07
Higher Energy costs 0.06 1 0.06
TOTAL 1 1.74
EFE SUMMARY
EFE matrix can be defined as the strategic tool to evaluate external environment or macro
environment of the firm include economic, social, technological, government, political, legal and
competitive information.The EFE matrix is similar to IFE matrix the only difference is that IFE
matrix evaluate the internal factors of the company and EFE matrix evaluate the external factors.
There are significant amount of threats for firms in this industry in the Domestic market and in
looking closer at Krispy Kreme, it shows that work needs to be done in reducing their impact and
even shifting some of the threats to opportunities. More importantly threats that Krispy Kreme
needs to focus on diversifying its product line and offering more healthy options in the highly
competitive Quick Service segment. Krispy Kreme has a low score of 1.74, which reveals that
significant work needs to be done to take advantage of the opportunities in focusing on its
uniqueness and exploring global markets for future expansion.
31. 31
KRISPY KREME IFE MATRIX
Critical Success Factors Weight Rating Weighted
Strengths Score
0.16 4 0.64
Market share (global &domestic)
0.13 4 0.52
Strong reputation
Large number of outlets and franchises 0.14 4 0.56
Brand Recognition (Hot Now) 0.08 3 0.24
1.1% rise in same-store sales in April 2010 0.1 3 0.30
Predicted rise in revenue (l-m single digits 2011FY) 0.1 3 0.30
Weaknesses
Total revenue fell 5.6% 0.07 1 0.07
Low earnings per share ($0.01 Q4) 0.05 2 0.10
Weak health conscious meals 0.11 1 0.11
Few product lines 0.06 2 0.12
TOTAL 1.0 3.04
IFE Summary
IFE (Internal factor evaluation) matrix is one of the best strategic tools for internal audit of the
company. IFE is use for internal audit of functional area of business such as finance, marketing,
IT, operations, accounts and others depend upon the nature of business and its size. Internal
factors are removed after deep internal analysis of the company. Obviously every company has
some weak point and strong point that is the reason why internal factors are divided into two
categories, specifically; strengths and weakness.
Krispy Kreme is on the border of a strong internal position, as indicated by the weighted score of
3.04. This means that it is maximizing its strengths and minimizing its weaknesses to a degree
but there would have to be an improvement to take them above this score and where they slack
there is a possibility for them to drop closer to the average which is between 2.0 and 2.99.
32. 32
Summary of Sustainability
Sustainable competitive advantage is the focal point of a corporate strategy. It allows the
preservation and development of the company‟s enterprises competitive position in the market.
It is a benefit that enables business to last against its competition over a long period of time.
Sustainable competitive advantage have four criteria that each one of the competitors can use to
evaluate their capabilities and resources to specify if they have the possibility of being core
competencies, or if they already are core competencies. If resources andcapabilities meet the
criteria of: rare, valuable, costly to imitate, and non-substitutable, then they are considered to be
core competencies. A sustainable competitive advantage is accomplished when competitors
have not been able to replicate the benefits of a firm‟s strategy.
Valuabl Rar Costly to Nonsubstitutabl Competitive
e e Immt. e Consequence Performance Implication
Dunkin Yes Yes Yes No Temporary Competitive Advantage. Avg/Above Avg Returns
Einstein Yes Yes Yes No Temporary Competitive Advantage. Avg/Above Avg Returns
Starbucks Yes Yes Yes No Temporary Competitive Advantage. Avg/Above Avg Returns
Clearly, Dunkin, Einstein and Starbucks brand have successfullyrushed their resources and
capabilities to form core Competencies that distinguish them from competitors, on the other
hand, the strategies used by its competitors are exchangeable and for that reason it only gives
them a temporary competitive advantage. The competitors core competencies of the include
characteristics such as strategic alliances,the ability to change to taste preferences, quality of
products and company size and ability.
Summary
Dunkin, Einstein and Starbucks are clearly unique, and operate in a highly competitive
environment. The companies‟ have core competencies and abilities that have given them a
provisional competitiveadvantage with average/above average returns. It is crucial that every
single company continue to produce and reinforce their organizations, and readjust if necessary,
for example Starbucks, to keep up as industry leaders.
33. 33
IE MATRIX
SUMMARY
The IE matrix employs two key dimensions which is the IFE total weighted score on the X-axis
and the EFE total weighted score on the Y-axis. On the X-axis, a total weighted score of 1.0 to
1.99 is considered weak, 2.0 to 2.99 is average while 3.0 to 4.0 is strong. Also, on the Y-axis and
EFE, a total weighted score of 1-0 to 1.99 is low, 2.0 to 2.99 is medium while 3.0 to 4.0 is high.
Moreover, the matrix is divided into three main regions; cells I, II and IV are classified as growth
and build, cells III, V, and VII are hold and maintain while cells VI, VII and IX are classified as
harvest or divest. For Krispy Kreme, the combined score of IFE and EFE puts it in cell VIII
which is a harvest or divest. This translates that the business strategies to be employed by KKD
should be defensive, appropriate sub-strategies include concentric diversification and divestiture.
34. 34
IE Matrix - Geographic
Region Sales (In Thousands) % of sales
US (1) 314,528.00 91.68%
Asia/Pacific (2) 15,469.00 4.51%
Middle East (3) 8,852.00 2.58%
Other N America (4) 4,231.00 1.23%
Europe (5) 3,440.00 1.00%
Total 343,080.00 100.00%
IE Geographic Summary:
The IE Geographic matrix indicates sales by region, with the Krispy Kreme‟s largest share of
sales being in the US, followed by the Asia Pacific, Middle East, Other North American
countries and lastly Europe. The US quick service industry as whole is highly competitive and
price/value sensitive. Krispy Kreme‟s presence internationally is currently week and greater
focus needs to be placed on increasing its market share in the growing Asia Pacific regions.
35. 35
IE Matrix – Sales
IFE Total Weighted Score
Strong Average Weak
3.0 to 4.0 2.0 to 2.99 1.0 to 1.99
EFE Total Weighted Score
High
I II II
3.0 to 4.0 1
Medium
2
2.0 to 3 IV V VI
4
2.99
Low
5
1.0 to VII VIII IX
1.99
% of
Sales Type 2010 sale
Retail Sales (1) 103,856.00 42.20%
Fundraising (2) 13,481.00 5.48%
Grocers/Mass Merchants (3) 70,952.00 28.83%
Convenience (4) 55,451.00 22.53%
Other Off-premises (5) 2,371.00 0.96%
Total 246,111.00 100.00%
Summary
The IE Sales Matrix indicates Krispy Kreme‟s strength in its core retail sales channel, located in
the Grow and Build quadrant I area. The fundraising channel has proved to be fairly effective
accounting for 5.48% of overall sales. The Grocers/Mass Merchants (28.83%) and Convenience
Store (22.53%) channels have contributed effectively to sales for Krispy Kreme resulting in its
position in quadrant IV(Grow and Build) on the matrix. Based on these numbers, we can safely
recommend that Krispy Kreme strengthen its efforts in Retail, Grocers/Mass Merchants and
Convenience store sales channels.
36. 36
SPACE MATRIX
Space Matix Scoring
Internal Factors External Factors
Competitve Advantage (CA) Rating Industry Strengths (IS) Rating
Market Share -6 Growth Potential 4
Product Quality -3 Profit Potential 2
X Axis
Product Life Cycle -4 Financial Stability 2
Customer Loyalty -1 Resource Utilization 3
Technology Know-how -2 Productivity 3
Average -3.20 Average 2.80
Total X axis score: -0.40
Financial Strength (FS) Rating Environmental Stability (ES) Rating
Gross Profit Margin 1 Technological Changes -1
Return on Invested Capital 1 Rate of Inflation -2
Price/Cash Flow Ratio 5 Demand Variability -3
Y Axis
Inventory Turnover 5 Barriers to Entry -2
Total Debt/Equity 3 Competitive Pressure -5
Revenue Per Share 1 Price Elasticity -2
Average 2.67 Average -2.50
Total Y axis score: 0.17
Space Summary:
The Space Matrix is an evaluation tool in the strategic decision process that dettermines the
current position of where a company stands the four cells, which are Aggressive, Competative,
Conservative or Defensive. The four factors that postion a company in the appropriate cell are
37. 37
Internal, External, Financial and Enviromental. Based on our evaluation of these factors, we feel
that Krispy Kreme is in the Competitive section of the matrix. We feel that Krispy Kreme can
strengthen its position in taking advantage of the external factors by increasing its presense
internationally. It can also work on improving its internal factors, by developing newer products
that are health conscious and improving choice which will envariablly result in increased sales.
Grand Strategy
SUMMARY
Krispy Kreme is located in Quadrant II of the Grand Strategy Matrix which indicates a better
position than might have been a few years ago. This position on the matrix general recommends
that companies focus on Market Development, Market Penetration, Product Development,
Horizontal Integration, etc. Krispy Kreme should focus on improving its position internationally
and improving its product line. Being in the highly competitive quick service sector, Krispy
Kreme needs to be focused on price sensitivity and therefore deliver its products in an efficient
and cost effective manner.
38. 38
BCG MATRIX
SUMMARY…
Krispy Kreme is located in the Question Marks position on the BCG Matrix. It has a low
Relative Market Share Position but a high industry Growth Rate. Companies in this section of
the BCG, need to focus on market penetration, market development and product development.
39. 39
TOWS
Strengths Weakness
1 Strong Reputation 1 Fall in Total Revenue 5.6%
2 Big Market Share 2 Low Earnings Per Share
Krispy Kreme 3 Rise in Sales 3 Few Products
Large number of Weak Health-Conscious
4
Locations/Outlets 4 Meals
Opportunities S-O Strategies W-O Strategies
1 Uniqueness Expand in the US with hub Improve Alliances with
1 1
2 Expansion (Asia/India) and spoke (S1, O1, O5) retailers/buyers (W1, W2,
3 Alliances Expand Internationally in Restructure Distribution and
2 2
4 Health Conscioueness Emerging Markets (S1, O2) production Channels (O5,
5 Store Operations- Small Improve brand awareness by Improve product line with
3 3
advertising (S1, O5) focus on Health (O4, W4)
Threats S-T Strategies W-T Strategies
1 Product Diversity Acquire Ice Cream/Smoothie Close non performing larger
1 1
2 Health Concerns retailer (T1, S2, S3) retail stores (T3, W1)
3 Market Saturation (Domestic) Improve Beverage Product Improve food safety training
2 2
4 Higher Taxation line (S4, T1) and handling (T2, T5)
5 Increased Regulation Decentralize Donut Mix Increase international
3 3
6 Higher Energy Costs distribution (S4, T6) Presence (T4, T3, W1, W2)
SUMMARY:
The TOWS matrix is a evaluation tool in the strategic decision process that attempts to merge the
Strengths and Weakness with the Opportunities and Threats into formulating effective strategies
that will enable a company to succeed. In summarizing Krispy Kreme‟s Tow strategies,
improving its position in the US market by implementing a hub and spoke system for delivery
and sales will enable it to not only develop its market share, but also reduce the need for larger
retail locations. Improving its product line, by offering a greater variety of products and also
addressing the health conscious consumer are important strategies suggested. Another key
strategy that is discussed is the need to expand internationally in growing economies with large
populations such as China and India. Finally, another key strategy that Krispy Kreme needs to
implement is seeking new ways to increase brand awareness, by advertising in local media
sources and using technology such as social media and smartphone technology.
40. 40
Summary Table
Strategies IE BCG Space Grand Count
Market Penetration x x x x 4
Product Development x x x x 4
Market Development x x x x 4
Backward x 1
Forward x 1
Horizontal x x 2
Divestiture x x 2
Liquidation x 1
Summary
The summary table brings together the three main strategies from the IE, Space and
Grand Business strategies to bring consensus on which strategies that a company
needs to follow. In looking at summary table, Krispy Kreme’s three ideal strategies that
are recommended are Market Penetration, Product Development and Market
Development.
Strategy Selection
Market Penetration
Increasing number of retail outlet with Hub and Spoke system
Implement an advertising campaign to create brand awareness
Product Development
Improve product line, greater food and beverage choices
Offer alternative healthier products
Market Development
Expand internationally in the growing Asia Pacific region.
41. 41
QSPM Matrix
This matrix shows the strategies that stand out to be the best from the inputs of the EFE matrix,
IFE matrix, and CPM matrix at the first stage of strategy formulation while the TOWS, SPACE,
BCG, IE, and the grand strategy matrixes, all at the second stage of the strategy formulation
provide the necessary information for the setting up of the QSPM.
Strategy Selection
Options for Strategy Selection
The two overarching strategies analyzed for Krispy Kreme were concentric diversification and
divestiture. The sub strategies are listed below:
Concentric Diversification
Utilizing a merger or acquisition to introduce breakfast products
Utilizing a merger or acquisition to introduce healthy products
Divestiture
Utilizing a strategic alliance to franchise more small operating store locations
internationally (Asia/India)
Quantitative Strategic Planning Matrix for Krispy Kreme
Strategic Alternatives
Strategic
Strategic PR Advertising
to Increase to Increase
MS (US & MS (US &
Market Penetration International) International
Key Factors Weight AS TAS AS TAS
Opportunities
Uniqueness 0.14 3 0.42 2 0.28
Expansion(Asia/India) 0.12 3 0.36 2 0.24
Alliances 0.08 2 0.16 3 0.24
Health Consciousness 0.14 4 0.56 3 0.42
Store Operation – small 0.1 2 0.2 1 0.1
Threats
Product diversity 0.09 _ _
Health Concerns 0.07 2 0.14 1 0.07
Lower Margins 0.07 _ _
Higher Taxation 0.06 _ _
Increased Regulation 0.07 _ _
Higher Energy costs 0.06 _ _
1
42. 42
Strengths
Market share (global &domestic) 0.16 4 0.64 3 0.48
Strong reputation 0.13 _ _
Large number of outlets and franchises 0.14 3 0.42 2 0.28
Brand Recognition (Hot Now) 0.08 4 0.32 2 0.16
1.1% rise in same-store sales in April 2010 0.1 _ _
Predicted rise in revenue (l-m single digits '11FY) 0.1 2 0.2 1 0.1
Weaknesses
Total revenue fell 5.6% 0.07
_ _
Low earnings per share ($0.01 Q4) 0.05
_ _
Weak health conscious meals 0.11
2 0.22 1 0.11
Few product lines 0.06
_ _
1
Sum Total Attractiveness Score 3.64 2.64
Quantitative Strategic Planning Matrix for Krispy Kreme
Strategic Alternatives
Strategic
Alliance to Open small
franchise operating
small stores
operating through
stores Acquisition
(China& (China&
Market Development India) India)
Key Factors Weight AS TAS AS TAS
Opportunities
Uniqueness 0.14 2 0.28 1 0.14
Expansion(Asia/India) 0.12 4 0.48 3 0.36
Alliances 0.08 3 0.24 4 0.32
Health Consciousness 0.14 _ _
Store Operation – small 0.1 3 0.3 2 0.2
Threats
Product diversity 0.09 1 0.09 2 0.18
Health Concerns 0.07 _ _
Lower Margins 0.07 4 0.28 3 0.21
Higher Taxation 0.06 _ _
Increased Regulation 0.07 _ _
Higher Energy costs 0.06 _ _
1
43. 43
Strengths
Market share (global &domestic) 0.16 4 0.64 3 0.48
Strong reputation 0.13 _ _
Large number of outlets and franchises 0.14 4 0.56 3 0.42
Brand Recognition (Hot Now) 0.08 4 0.32 3 0.24
1.1% rise in same-store sales in April 2010 0.1 _ _
Predicted rise in revenue (l-m single digits 2011FY) 0.1 2 0.2 1 0.1
Weaknesses
Total revenue fell 5.6% 0.07
_ _
Low earnings per share ($0.01 Q4) 0.05
_ _
Weak health conscious meals 0.11
_ _
Few product lines 0.06
1 0.06 2 0.12
1
Sum Total Attractiveness Score 3.45 2.77
Quantitative Strategic Planning Matrix for Krispy Kreme
Strategic Alternatives
Introduce
New
Introducing Breakfast
Healthy Products
Products in (US &
Product Development (US &Intl.) Intl.)
Key Factors Weight AS TAS AS TAS
Opportunities
Uniqueness 0.14 4 0.56 3 0.42
Expansion(Asia/India) 0.12 2 0.28 1 0.12
Alliances 0.08 2 0.16 1 0.08
Health Consciousness 0.14 4 0.56 3 0.42
Store Operation – small 0.1 _ _
Threats
Product diversity 0.09 4 0.36 3 0.27
Health Concerns 0.07 4 0.28 3 0.21
Lower Margins 0.07 3 0.21 2 0.14
Higher Taxation 0.06 _ _
Increased Regulation 0.07 _ _