krispy kreme ihu
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Strategy Plan
Strategy & Business PolicyAssignment
Zoi KarakostaKyriaki Zafeiriadou
Efstathios SimeonidisKostas Takolas
Executive Summary
Introduction of the industry and the company
Strategic Challenges and Environment Analysis
Analysis of the Competitive Environment
Assessment of the Strengths and
Strategy Formulation & Selection
Strategy Evaluation
Company Profile
is a leading branded retailer and wholesaler of high-quality doughnuts, complementary beverages and treats and packaged sweets.
The Company’s principal business, is owning and franchising Krispy Kreme stores, at which over 20 varieties of high-quality doughnuts, are sold and distributed together with complementary products, such as a broad array of coffees and other beverages.
(85)Company
Stores
(144)DomesticFranchise
Stores
(417)International
FranchiseStores
KKD Supply Chain
Product LineDoughnuts and Related Products
20 varieties of high-quality doughnuts, including the signature Original Glazed® doughnut.
88% of sales
Complementary products
Kool Kreme® and baked goods including sweet rolls, pecan rolls, muffins and bagels.
Beverages
Frozen drinks, juices, sodas, milks. New hot beverages - espresso, cappuccino and hot chocolate
11%
History1937: Vernon Carver Rudolph, the founder of Krispy Kreme
opens his own doughnut shop at Winston-Salem, North Carolina1939: Rudolph registered the trademark “Krispy Kreme” with the United States Patent and Trademark Office. The business grewrapidly and the number of shops also grew.
1950s – 1960s : doughnut process steps such as Proofing, cooking, glazing, screen loading, and cutting became entirely automatic.
1976: After Vernon Rudolph’s death, Krispy Kreme became a wholly-owned subsidiary of Beatrice Foods Company of Chicago, Illinois.
1982: a group of Krispy Kreme franchisees purchased Krispy Kreme back from Beatrice Foods.
1999, the Company opened its first store in California and began its national expansion
April 2000, Krispy Kreme held an initial public offering of common stock
December 2001, the Company opened its first internationalstore, in Canada, and began its international expansion.
The Company reacquires several franchise markets in the United States in 2003 and early 2004, often at substantial premiums Late 2003, average unit volumes began to fall leading to a period
of retrenchment characterized by over 240 domestic store closings from 2004 through 2009.
In fiscal 2011, growth returned to the domestic business first time since 2005.
Industry OverviewQSR - Quick Service Restaurants
+3%QSR Industry Grows 3% the last 10 years.
Recession Proof
Shift from TraditionalRestaurants
Low Consumer Confidence
High Competition
Less Disposable Income
Increasing Prices(Fuel, Commodities)
Strategic Challenges
Develop and Test Domestic Small Shop Formats
Enhance Focus on Shop Operations
Develop, Test and Deploy New Products
Improve Off-Premises Business
Build On International Success
Enhance Franchisee Support
Mission & Vision
To touch and enhance lives through the joy that is Krispy Kreme
To be the worldwide leader in sharing delicious tastes and creating joyful memoriesVi
sion
Mis
sion To share our superior classic taste and constantly enriching emotional
experiences.
Be the world’s delicacy company and satisfy doughnut lovers through our classic value bites.
Political Environment Analysis1 Environmental Regulation
Food Industry businesses need to be very careful in environmental issues such as waste management.
2 Certifications by Government AuthoritiesCertifications in terms of health, Safety and Sanitation issues are needed to operate in international level.
3 Food Industry – Related RegulationsNeed for consistent ingredients approved by FDA & International organizations. New ingredients could be banned so should be carefully developed & certified.
4 International Trade RegulationsGlobal Businesses face challenges such as the changing regulations in the countries they operate or want to enter (such as employment laws, healthcare laws, tax systems).
5 Franchising-Specific RegulationsLicensing and cooperation with franchisees is administered and regulated differently in countries around the world.
Economic Environment Analysis1 Consumer Confidence is in decline
The bleak economic outlook causes consumers to cut spending
2 High UnemploymentLeads to Smaller Disposable Income and less visits to QSRs
3 Changing Consumer TrendsWork and life habits, types of businesses, shift in wealth, changes the way and the patterns people consume food and related products
4 Currency Fluctuations and InflationRevenue generation from international business could be impacted
5 Record-Level high PricesIn commodities such as agricultural products (flour, sugar) and fuel
Social Environment Analysis1 Low-Calories Diet
Consumers are increasingly worried about the calories & nutritional value of their food.
2 Health-Conscious and CSR-aware public Consumers are increasingly aware of the CSR notion and demand companies to give back to society.
3 Avoidance of unhealthy-perceived productsDoughnuts (like burgers) are included in food products considered unhealthy, causing obesity.
4 Focus is shifting towards freshly produced foodLike custom-made sandwiches from freshly delivered material.
5 Consumer is more demandingThere is a growing need to serve a broader spectrum of consumers by offering related products.
Technological Environment Analysis
1 Unique Equipment for Doughnut-Making ProcessWe manufacture the equipment for our doughnuts so any innovation will come from us.
2 Longer shelf life of products To facilitate this, we need to find modifications in the production process.
3 Social Media ExploitationEmbrace the new marketing trend with social media campaigns to increase consumer reach.
4 Knowledge Sharing with FranchiseesUse information & communication technology to enable remote collaboration.
5 Mobile Applications Growth More and more customers are using mobile smartphones to connect with their favorite brands.
LOW
- M
ED
LOW
HIG
HLO
W -
MED
HIG
H
Five Forces Model
Competitive Rivalry Intensity
Bargaining Power of Suppliers
Threat of new Entrants
Bargaining Power of Buyers
Substitute Products
Competitive Rivalry in the Industry
Market is highly fragmented both with major players and local stores
Local coffee shops start to offer treats like doughnuts
Major competitors have more financial resources and more differentiatedproduct line.
International competitors are established (Mr. Donut, Donut King, etc.)
HIG
H
Risk of Substitute Products
Main product (Doughnut) is easily substituted (biscuits, chocolates)
The sweets/treats category depend on an impulse buy
Convenience and location is key to a successful sale
Consumer easily can switch to another QSR sub-category (burgers, sandwiches or other locally preferred fast food)
HIG
H
Threat of new entrants
New store has low capital requirements
Key Store locations can be occupied by leaders
Leaders achieve economies of scale & have secret recipes and in their specialized equipment in their arsenal
New entrants must expect retaliation from key players due to the increased competitiveness of the industry (Starbucks case)
LOW
- M
ED
Bargaining Power of Suppliers
Suppliers of Agricultural products are plentiful
Fuel prices are regulated
We are the sole supplier of mix concentrate
We manufacture the machinery that are used in KKD stores
LOW
Bargaining Power of Buyers
Individual Consumers
Switching Costs are Low
The QSR industry generated many small purchases
Sales are mostly affected by trends & occurrence
MED
Competitive Profile MatrixCritical Success
FactorsWeight
Global Expansion 0,15 4 0,6 3 0,45 1 0,15
Customer Loyalty 0,1 4 0,4 3 0,3 3 0,3Location-Convenience 0,07 3 0,21 4 0,28 3 0,21
Advertising 0,05 3 0,15 4 0,2 2 0,1
Product Quality 0,1 4 0,4 3 0,3 3 0,3
Product Diversity 0,08 1 0,08 3 0,24 2 0,16
Customer Service 0,1 3 0,3 2 0,2 3 0,3
Financial Position 0,2 3 0,6 2 0,4 2 0,4
Market Share 0,08 4 0,32 3 0,24 1 0,08
Sales Distribution 0,07 3 0,21 2 0,14 2 0,14
Total 3,27 2,75 2,14
Internal Strengths & Weaknesses
Strengths W Score
1 Big Tradition & history 0,08 4 0,32
2 Centralized mix production and efficiency 0,05 3 0,15
3 High-off-premise availability 0,03 4 0,12
4 Efficiency in store operation 0,03 3 0,09
5 Hub-spoke model 0,02 3 0,06
6 Quality assurance (mystery shopper) 0,03 3 0,09
7 Strong community bonds 0,02 4 0,08
8 Doughnut Theater 0,07 4 0,28
9 Unique taste & recipe 0,09 4 0,36
10 Original Glazed sign 0,03 4 0,12
11 Sharing Culture of consumers 0,02 3 0,06
Weaknesses W Score
1 Over reliance on one product line 0,02 1 0,02
2 Limited financial Resources 0,09 1 0,09
3 Quality of franchises 0,07 2 0,14
4 Growth dependent on new store opening 0,05 1 0,05
5 Small Profit margin in off premises 0,04 2 0,08
6 High cost structure in off premises 0,06 2 0,12
7 Sole supplier of equipment & mix concentrate 0,07 1 0,07
8 Poor promotion & advertising campaigns 0,08 2 0,16
9 Not paying out dividends / Stock price is low 0,05 2 0,10
Total Score 2,56
Internal Factor Evaluation (IFE) Matrix
External Opportunities & Threats
Opportunities W Score
1 QSR sector sales up 3% over the past 10 yrs 0,10 3 0,30
2 Grocery stores doughnuts sales rise 1% 0,08 3 0,24
3 Grocery stores doughnuts sales rise 2% 0,09 4 0,36
4 New lines of supply of premium coffee varieties 0,05 2 0,10
5 New store opening to target global markets 0,07 1 0,07
6 Merge acquisition or co-branding with local stores 0,07 1 0,07
7 Utilize distribution network to penetrate more convenience stores
0,07 2 0,14
8 Penetrate local traditional food markets 0,03 2 0,06
9 Collaborate with NGOs for promoting CSR 0,01 2 0,02
10 Modernize store facilities and equipment 0,03 1 0,03
Threats W Score
1 Disputes with franchisees possible 0,10 3 0,30
2 Profitability sensitive to changes in sales volumes of stores 0,04 1 0,04
3 Sales volume sensitive to seasonality and weather conditions
0,03 2 0,06
4 Domestic small store operating model not yet proven 0,08 2 0,16
5 Potential infringement of trademarks in other countries 0,01 4 0,04
6 Main competitors significantly bigger both domestically and internationally
0,10 2 0,20
7 International consumers prefer mostly local pastry shops 0,04 2 0,08
Total Score 2,27
External Factor Evaluation (EFE) Matrix
SWOT MatrixStrengths Weaknesses
Opportunities
[S3,O2,O3]: Develop off-premise business to penetrate more groceries & supermarket by taking advantage of our distribution network.[S7,O9]: Promote value of social responsibility awareness through existing bonds with communities.[S2,O10]: Adopt modern equipment by using cost savings from our centralized production system.[S2,O4]: launch new premium coffee lines to address new consumer trends.
[O6,W1]: Combine co-branding opportunities with new product testing to reach a broader spectrum of consumers and differentiate our product lines.
[O10,W3]: Improve off-premise profit margin focusing on enhanced packaging graphics, longer shelf life and rationalized delivery routes.
[O5,O6,W3,W1]: Empower co-operation with franchisees by increasing support, training, providing them with operational tools and giving them initiatives to achieve guaranteed and consistent quality.
Threat
s
[S4,T2,T3]: Enhance shop operations (service quality, hospitality, waste management, labor force) to stabilize demand and reduce vulnerability to fluctuations in sales[S1,S5,T6]: Use the unaided brand awareness and the economies of scale achieved with the hub-and-spoke model in order to compete with larger and better-financed competitors globally.
[W8,T2]: Plan Cross-Market product awareness through special event programs, recruiting local expertise with proven experience in the field.
[T7,W7]: In markets with highly skewed preference towards local pastry stores, we can penetrate by exploiting our capability to provide them with specialized equipment and mix concentrates creating a potential of forward integration with some of them.
Quantitative Strategic Planning MatrixKey Factors Weight Alternative 1 Alternative 2
Opportunities
1 QSR sector sales up 3% over the past 10 yrs 0,10 2 0,2 4 0,45 New store opening to target global markets 0,07 1 0,07 3 0,216 Merge acquisition or co-branding with local stores 0,07 3 0,21 1 0,078 Penetrate local traditional food markets 0,03 1 0,03 3 0,09
Threats
1 Disputes with franchisees possible 0,1 1 0,1 4 0,42 Profitability sensitive to changes in sales volumes of stores 0,04 3 0,12 2 0,08
4 Domestic small store operating model not yet proven 0,08 4 0,32 2 0,16
6Main competitors significantly bigger both domestically and internationally 0,10 4 0,4 2 0,2
7 Intern. consumers prefer mostly local pastry shops 0,04 1 0,04 4 0,16
Strengths
1 Big Tradition & history 0,08 4 0,32 2 0,16
2 Centralized mix prod. and distribution efficiency 0,05 4 0,2 1 0,05
4 Efficiencies in store operations possible 0,03 4 0,12 3 0,09
5 Hub-spoke model operations 0,02 4 0,08 2 0,04
Weaknesses
1 Over reliance on one product line 0,02 2 0,04 3 0,06
2 Limited financial Resources 0,09 3 0,27 4 0,36
3 Quality of franchisees 0,07 2 0,14 4 0,28
4 Growth dependent on new store opening 0,05 2 0,1 4 0,2
7 Sole supplier of equipment & mix concentrate 0,07 4 0,28 3 0,21
Total Score 1,00 3,04 3,22
Advantages / Disadvantages1: Focus on Domestic Expansion 2: Focus on International Expansion
Advantages
1. Centralized structure
2. Quality is in our control
3. Community Relationship are well-established
4. Hub-Spoke Model very popular
1. New markets unexplored (China, Russia, Brazil, India]
2. Prospective economic growth of new markets
3. Follow popular trend of food industry for globalization and internationalization
4. Global spread keeps shareholders more satisfied and increases share prices
5. Tim Horton's not yet expanding internationallyStarbucks image has withered and is considered expensive
Disadvantages
1. Small store model not yet proven
2. Competition more intense
3. Competitors very well financed compared to KKD
4. Local expansion has already failed once
1. Global economic slowdown
2. Service Quality Difficult to Monitor
3. Limited Financial Resources
Competitive Strategy
Offer a differentiated product line of complementary tastes and beverages along with the flagship doughnut products.
Expand cautiously in the US by using an efficient and cost-effective model for both on-premise and off-premise operations
Expand internationally by more than doubling the number of our international shops over the next five years
Strategy EvaluationRummelt’s Criteria
Consistency:International expansion has started in 2001 and is our stable source of economic growth.
Feasibility:An effective and proven growth model that is followed by the top corporations in the industry.
InternalFactors Consonance:
The failure of the domestic franchising model points toward strategic repositioning.
Advantage:The unique taste and distinctive features combined with our increased focus on franchise operations will make us the most attractive choice
ExternalFactors
Strategy Evaluation
S
T
A
I
R
Sustainable: We will strengthen our relationship with our long-term partners, the franchisees
Timing: The best time for expansion, as we experienced growth in the number of stores for the first time since 2005
Advantage: Our unique taste, secret recipe and franchising experience a guide for sure-footed success
Implementation: We cannot repeat mistakes of the past - use proven techniques and tools
Resources: Hire experienced managers and empower the department devoted to franchising
Strategy Evaluation
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
8393
207144 165
334
229 258
68
298
417
811
Domestic Company Domestic Franchise
Domestic (Total) International
Evolution of Number of StoresInternational Stores
Domestic Stores
Strategy Evaluation
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
238.9
330
483.2
650
274.6
325.2
510
Domestic Company
Domestic Franchise
Domestic (Total)
International
Evolution of Sales ($m) International Stores
Domestic Stores
Key Implementation Aspects
Human Resources
Finance & Accounting
Research & Development
Franchisees may not endorse the company cultureWorldwide expansion is a labor- and cost-intensive processPossible need for transformation to penetrate diverse countries/markets.
New Training methodsNew Franchisee Approval ProcedureIncrease Resources devoted the franchise operationsHire New Executives From the Market [new experience]Franchisee FeedbackIncrease Employee Participation
Worldwide expansion could hurt initial financial figuresRecent examples point the need to minimize/transfer risk to franchiseesThere is a shortage of credit all over the globe
Commission-based franchisee financing scheme
Bonus Incentive payout
Throttle cost savings from domestic company stores consolidation to international expansion
We need to develop new products that are brand-relevant.We need to follow the trend for healthy productsDifferent markets might have different packaging needsWe need to extend the shelf-life
Conduct employee and consumer testing programsResearch low-fat alternatives to our productsLocalize packaging and seasonal products (Christmas, Valentine’s day, etc.)Experiment with the shelf-life of our off-premise produce.
Key Implementation Aspects
Marketing Operations Information Systems Management
Increase customer appealIncrease brand equity and awarenessEnsure store appearance perfection
Improve Packaging GraphicsAggressive AdvertisingNew store design guides to franchiseesCross-market product development
Efficiency must be at maximum levels while ensuring top-notch qualityFranchisees need help on maximizing sales, profits and brand equity
Modernize store equipment and facilitiesProvide new operational toolsProvide know-how on improving shop economicsIntroduce strict QA methods
A global organization is more open to security threats.Technology exploitation is a key strategic success element
Implement Security-enhanced Extranets with the FranchiseesImplement Daily/Weekly sales report from storesTop-notch POSUse ERP for SCM and demand management
Franchisees need help from our expertise in store selection & starting upWe need to be actively involved, not “distant”
Increase developer associates devoted to franchiseesDispatch company managers to help with store openings & deploymentImplement regular Skype meetings & conferences
Conclusion
Thank You!!!Strategy & Business PolicyAssignment
Zoi KarakostaKyriaki Zafeiriadou
Efstathios SimeonidisKostas Takolas