Krispy Kreme Doughnuts in 2005

Case:

Krispy Kreme Doughnuts in 2005

Prepared for:

Dr. Marjorie Icenogle

Department of Management

Mitchell College of Business

University of South Alabama

Prepared by:

David Mayer

Mgt 485

26 March 2006

The U.S. doughnut industry has been an ever growing industry, reaching upwards of $6 billion in sales in 2004. Americans on average consumes over 10 billion doughnuts annually and about 3 dozen per capita. Since 1936, Krispy Kreme has been an industry leader in the growth of the doughnut industry. Through cutting edge innovation, impressive marketing strategies and its ever so secret recipe, Krispy Kreme has been able to maintain a large portion of the American doughnut market share up until now. In this analysis, we will look in to some reasons why Krispy Kreme has lost some of its market share over the last couple of years and offer several solutions that could quite possibly get them back on track.(Attachment I,II)

Recently in America, there has been a growing trend and movement towards healthier lifestyles and eating habits. Americans are been told that low-carb. diets are necessary in order combat a supposedly growing epidemic of obesity. With the onset of this trend, Krispy Kreme's sales and its overall demand has suffered, especially in its off-premise sales. One way that Krispy Kreme has responded to the low-carb craze is by offering sugar-free, fat-free and lower-fat products, they have also started offer smaller versions of their doughnut line. By these changes, Krispy Kreme feels that Americans will continue to eat doughnuts and feel less guilty about their eating habits. Krispy Kreme also has another positive thing working for them and that is pleasure and convenience. A recent survey found that convenience was nearly as important as value, and doughnuts are both convenient and indulging. Currently, doughnuts are the most consumed item in U.S. when it comes to breakfast. I believe by altering its strategy and product offerings Krispy Kreme will be able to once again capture the lost market share. In order to accomplish this, Krispy Kreme must emphasizes the healthier doughnut alternatives and explain to the public why its product can fit well into a low-carb diet. (Attachment I-III)

Since December 2000, Krispy Kreme has been very serious about setting themselves up for global expansion. Krispy Kreme hired Donald Henshall as the new president of international development. His job was to modify the current global strategy and look for new ways to expand into certain markets such as Australia, Mexico, Canada, Great Britain and Ireland. I believe Krispy Kreme has the right idea about seeking out new markets, but I feel that if not careful they could make a huge mistake that would be hard to recover from. (Attachment I) Krispy Kreme really needs to look at what strategy path its going to take. Will it chose a global approach, and make every doughnut the same not matter what country it is operating in, or will it choose a multi- national approach and tailor each operation to the local taste and demand? I believe that they should move towards an multi-national approach, depending on what country you live in, plays a big part on your taste. Here in America we love to indulge ourselves with sweet confections and cakes. In other countries such as Great Britain they too love cakes and confections but their cakes are not as sweet as ours. Furthermore, in Great Britain people tend to enjoy more savory foods for breakfast such as kipper and smoked herring, unlike Americans who enjoy sweet things for breakfast. Krispy Kreme needs to understand that it can not go throughout the world, selling its doughnuts using the same recipe as used in the United States. With proper research and test markets, I believe that Krispy Kreme's global expansion strategy can be very successful. (Attachment I, II)

Krispy Kreme currently tries to open many of its stores through franchising. Prior to 1997 many of the new stores that were opened were primarily for off-site wholesaling operations. With this strategy, Krispy Kreme realized that it was missing a large portion of the "quick breakfast" crowd. Since then Krispy Kreme has moved to a more dine-in environment. Each store is designed to be a "doughnut theater" giving customers the opportunity to see how the product is being made. The design of each store pretty much remains the same across the U.S., its stores all feature the "Hot Doughnut Now" neon signs, accompanied by a vintage 1950's style décor. Furthermore,