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Summer
2010

STRATEGIC MANAGEMENT




[KRISPY KREME]
By CAROLINA VOLPATO, JENNIFER NSIAH AND STEPHEN
THANNICKAL
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
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
     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

 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
   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
  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
 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



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
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
    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
       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
    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




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




    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
   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
   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
       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
                 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
                                          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
     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
     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
    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
          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
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
    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
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
28
                                Positioning Relative to the Competitive Profile Matrix
CPM                                        DUNKIN                  STARBUCKS                EINSTEIN NOAH              KRESPY KREME

CRITICAL SUCCESS FACTORS         WEIGHT    Rating       WEIGHTED   Rating        WEIGHTED   Rating       WEIGHTED      Rating       WEIGHTED
                                                        SCORE                    SCORE                   SCORE                      SCORE

Product                           0.16
  Health-consciousness              0.04            3      0.12             4       0.16             4      0.20                1       0.04
 Product Mix                        0.05            3      0.15             3       0.15             4      0.20                1       0.05
 Quality                            0.03            4      0.12             4       0.12             4      0.24                2       0.06
Diversification                     0.04            4      0.16             3       0.12             3       0.1                1       0.04
Company Changing Aspects
(Tang.)                           0.16
 Franchising                        0.05            4       0.2             4        0.2             3      0.09           2.5        0.125
 Employees                          0.03            3      0.09             2       0.06             2       0.1             2         0.06
 Culture                            0.03            3      0.09             2       0.06             4        0.2            2         0.06
Locations                           0.05            2       0.1             4        0.2             3      0.09             1         0.05
Changing Aspects (Intang.)        0.14
 Brand Awareness/ Protection        0.05            4       0.2             4        0.2             3      0.12                2        0.1
 Alliances                          0.03            3      0.09             4       0.12             2      0.06                2       0.06
 Sponsorships                       0.02            2      0.04             3       0.06             2      0.06                3       0.06
Brand Loyalty                       0.04            2      0.08             3       0.12             4       0.2                2       0.08
Supply Chain Mgmt.                 0.1
 Delivery/Supply                   0.005            4      0.02             4       0.02             4           0.2            4       0.02
 Vertical Integration              0.005            4      0.02             4       0.02             4           0.2            4       0.02
Publicity/Advert.                 0.09
 Communication Channels             0.05            3      0.15             3       0.15             3      0.09                1       0.05
 Packaging                          0.04            4      0.16             3       0.12             3      0.09                2       0.08
R&D                               0.12
Catering to Taste Preferences       0.05            4       0.2             4        0.2             4       0.3                1       0.05
 Health/Nutrition                   0.03            3      0.09             3       0.09             3      0.08                1       0.03
 New products                       0.04            3      0.12             3       0.12             3      0.04                1       0.04
Expansion                         0.15
Catering to Local Tastes            0.05            4       0.2             4        0.2             4       0.2                1       0.05
 Locations                          0.03            4      0.12             4       0.12             4      0.12                1       0.03
 Emerging Markets                   0.03            4      0.12             3       0.09             2      0.06                4       0.12
 Selling Lower Prices               0.04            4      0.16             3       0.12             2      0.06                2       0.08
Regulations                       0.08
International Laws                 0.04             4      0.16             4       0.16             1      0.04                4      0.16
Domestic                           0.04             4      0.16             3       0.12             3      0.06                4      0.16
TOTAL                              1                       3.12                      3.1                    2.71                      1.675

          Competitive profile matrix (CPM) is an important strategic management instrument to relate the
          firm with the main players of the industry. It shows the clear picture to the firm about their
          strong and weak points relative to their competitors. The score is measured on basis of critical
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


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


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
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




                                           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
                                    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


                                                               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
                                                 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
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

                                       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

                                              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
                                   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
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


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


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       _              _
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Conclusao de Curso

  • 1. Summer 2010 STRATEGIC MANAGEMENT [KRISPY KREME] By CAROLINA VOLPATO, JENNIFER NSIAH AND STEPHEN THANNICKAL
  • 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
  • 28. 28 Positioning Relative to the Competitive Profile Matrix CPM DUNKIN STARBUCKS EINSTEIN NOAH KRESPY KREME CRITICAL SUCCESS FACTORS WEIGHT Rating WEIGHTED Rating WEIGHTED Rating WEIGHTED Rating WEIGHTED SCORE SCORE SCORE SCORE Product 0.16 Health-consciousness 0.04 3 0.12 4 0.16 4 0.20 1 0.04 Product Mix 0.05 3 0.15 3 0.15 4 0.20 1 0.05 Quality 0.03 4 0.12 4 0.12 4 0.24 2 0.06 Diversification 0.04 4 0.16 3 0.12 3 0.1 1 0.04 Company Changing Aspects (Tang.) 0.16 Franchising 0.05 4 0.2 4 0.2 3 0.09 2.5 0.125 Employees 0.03 3 0.09 2 0.06 2 0.1 2 0.06 Culture 0.03 3 0.09 2 0.06 4 0.2 2 0.06 Locations 0.05 2 0.1 4 0.2 3 0.09 1 0.05 Changing Aspects (Intang.) 0.14 Brand Awareness/ Protection 0.05 4 0.2 4 0.2 3 0.12 2 0.1 Alliances 0.03 3 0.09 4 0.12 2 0.06 2 0.06 Sponsorships 0.02 2 0.04 3 0.06 2 0.06 3 0.06 Brand Loyalty 0.04 2 0.08 3 0.12 4 0.2 2 0.08 Supply Chain Mgmt. 0.1 Delivery/Supply 0.005 4 0.02 4 0.02 4 0.2 4 0.02 Vertical Integration 0.005 4 0.02 4 0.02 4 0.2 4 0.02 Publicity/Advert. 0.09 Communication Channels 0.05 3 0.15 3 0.15 3 0.09 1 0.05 Packaging 0.04 4 0.16 3 0.12 3 0.09 2 0.08 R&D 0.12 Catering to Taste Preferences 0.05 4 0.2 4 0.2 4 0.3 1 0.05 Health/Nutrition 0.03 3 0.09 3 0.09 3 0.08 1 0.03 New products 0.04 3 0.12 3 0.12 3 0.04 1 0.04 Expansion 0.15 Catering to Local Tastes 0.05 4 0.2 4 0.2 4 0.2 1 0.05 Locations 0.03 4 0.12 4 0.12 4 0.12 1 0.03 Emerging Markets 0.03 4 0.12 3 0.09 2 0.06 4 0.12 Selling Lower Prices 0.04 4 0.16 3 0.12 2 0.06 2 0.08 Regulations 0.08 International Laws 0.04 4 0.16 4 0.16 1 0.04 4 0.16 Domestic 0.04 4 0.16 3 0.12 3 0.06 4 0.16 TOTAL 1 3.12 3.1 2.71 1.675 Competitive profile matrix (CPM) is an important strategic management instrument to relate the firm with the main players of the industry. It shows the clear picture to the firm about their strong and weak points relative to their competitors. The score is measured on basis of critical
  • 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 _ _