The Strategies Pursued by Krispy Kreme Doughnuts - Case Study Example

?Situational Analysis Krispy Kreme Doughnuts, Inc was officially incorporated in the year 1937 and headquartered in Winston Salem in North Carolina. Krispy Kreme is one of the leaders in producing fresh and delicious donuts. Krispy Kreme has always performed outstandingly in the industry until the dark years of 2004 and 2005, when the company began to slow down financially. The decline in sales, brand image and customer loyalty can be doubtlessly blamed to the introduction of low carbohydrate buzz including Atkins, fad diets and South Beach dieting plans. Industry Analysis A thorough look at the industry will highlight the two major competitors of Krispy Kreme which are Dunkin Donuts and Tim Hortons. Dunkin Dollars is one of the strongest donut chains worldwide enjoying the sales of forty fiver percent from the market. Tim Hortons is a Canada based company which has international operations in many countries. What Dunkin Donuts did to boost up its sales and earn customer loyalty was to focus more on selling coffee and other beverages instead of donuts. Dunkin Donuts became a strong brand in the market in less time than expected. Credit for this probably goes to their strong advertisement campaigns, attractive slogans and drive thru service. Tim Hortons, although not as popular as Dunkin Donuts and Krispy Kreme, is a top brand for donuts in Canada and New York. Apart from the direct competitors, indirect competitors such as bakeries, cafes and retailers play a vital role in challenging the profits of Krispy Kreme Doughnuts. Although the competition in the industry is growing but Krispy Kreme is fairly satisfied with the revenue it generates from its franchises by selling donut mixes, donut making equipments and royalty. The Organization Krispy Kreme owns a simple organizational structure. It relies heavily on the revenues it earns from its franchising strategy. With this strategy, the company is in a way a little relaxed because major responsibility falls on the shoulders of Krispy Kreme’s franchise owners. Moreover, the franchising option comes with a little risk and more revenue generating methods such as selling authentic donut mixes, donut manufacturing equipments, franchising fees and royalties. Brand image of Krispy Kreme was outstanding so it was never difficult to attract franchisers from various locations. The overall strategies pursued by Krispy Kreme were not really suitable in the competitive environment. This is because they focused only on the sales of donuts-a confectionary item which is sold by a number of bakeries and cafes. So the product was easy to imitate. Whenever Krispy Kreme opened up its franchise in any new area, it brought benefits to the competitors. Donuts, being an average confectionary item have never gained so much attention among the public. With the opening of Krispy Kreme, people gained awareness on how good and light can little donuts make them feel. So indirectly, the sales of competitors rose up. In the mid of year 2004, it was announced by Krispy Kreme that they are launching an inquiry into the accounting system and later in the same year they reported some accounting errors that were expected to cause a drop the annual sales and net income from an estimated 2.7 percent to 8.6 percent.. The same year, the share price of Krispy Kreme dropped from forty dollars to the range of 10 to 13 dollars per share. This was a huge setback for Krispy Kreme. Time had come when the company’s top heads seriously need to think of ways to save the company from drowning. Marketing Strategy It must be admitted that Krispy Kreme does not have a well developed marketing department so their marketing efforts are limited. The company only relies on its advertisement campaigns, most of which are associated with the opening of new stores. They also earn revenue from local publicity, newspapers and majorly from word of mouth. When new outlets of Krispy Kreme are opened, media does free publicity and communities associated also become a part of this event. Although Krispy Kreme was opening up new stores in new areas but older stores were unable to generate required sales and forced to close. The strength of the company in terms of its franchise management and operational techniques were declining. Addition of coffee to the menu was a good move but this was again part of vertical integration in the supply chain to manage costs. The next apparent logical step was the purchase of Montana Mills which turned out to be a failure due to lack of marketing research before taking this move. Later, Krispy Kreme made another purchase which caused the company to lose two million dollars. The growing concern of public for low fat food is the major reason that caused loss to Krispy Kreme. Problems Identified a) Lack of marketing research and understanding of growing market trends lead the company to close its old stores. b) Krispy Kreme was relying heavily on vertical integration although it was manufacturing and distributing donut mixes and equipments to its stores. c) Because Krispy Kreme had inadequate financial information so stakeholders lost their interest in investing in the company. Suggested Course of Action a) There is an intense need to develop the marketing department of the company so that it formulates such strategies which are in coherence with the company’s objectives and ensure long term growth. b) It is really important to carry out random audits in all stores whether they are company operated or franchises so that the management has adequate information and they can work out on why they are producing negative ratios of expenses and revenues. c) The company should explore other ways of improving its supply chain like buying flour and coffee beans from retailers that offer volume discounts. This step is essential because Krispy Kreme needs to bring its operational costs to minimal. Alternative Chosen Of the three alternatives discussed above, the foremost is to rectify the errors in financial statements. Once a detailed audit has been conducted, its results will help the board of directors and senior management decide the future direction for the company. Since the auditing team has been unable to conduct the audit, the company should hire an external team. The team must sit down with the management and conduct a detailed review on the information available, identify the missing contents and think on ways to amend the errors. The amended financial data would be different from the one already present with the stakeholders. The new financial statements will give a clear picture to the investors as well as the management so that they can improve the operation performance of the company while maintaining the cost structure. The effectiveness of this alternative depends on how precisely the data has been collected, audited and presented to the concerned authorities for taking necessary action. References: Peter, J., Donnelly, J., (2009). Marketing Management: knowledge and skills, 9th ed. New York: McGraw-Hill/Irwin. Gareth R.Jones (2007). Introduction To Business: How Companies Create Value for People. New Delhi: Mc-Graw Hill Companies. Read More