I.

(Time Context)

KRISPY KREME DOUGHNUT

Krispy Kreme is an international chain of doughnut stores that was founded by Vernon Rudolph
in 1937 in Winston-Salem. North Carolina, United Slates. The parent company is Krispy Kremc
Doughnuts. Inc. (NYSE: KKD). which is based in Winston-Salem. While selling assorted types
of doughnuts. Krispy Kreme's signature item is a glazed doughnut that is traditionally served
warm. Products are sold in Krispy Kreme stores, grocery stores, convenience stores, gas stations.
Wal-Man and Target stores in the United States. Internationally. Loblaws supermarkets and
Petro-Canada gas stations in Canada along with BP Service Stations and BP Travel Centres in
Australia carry Krispy Kreme. In the United Kingdom Tesco supermarkets. Tesco Extra and
most service stations carry Krispy Kreme products. The company's growth was steady prior to its
initial public offering but profits have decreased in recent quarters. However, new branches have
opened in downtown Philadelphia and other locations.

BUSINESS OPERATION

We generate revenues from three distinct sources: stores we operate. which we refer to as
Company Stores; development and franchise fees and royalties from our franchise stores. which
we refer to as Franchise: and a vertically integrated supply chain. which we refer to as KK
Supply Chain. Company Stores. Franchise and KK Supply Chain comprise our three reportable
segments under generally accepted accounting principles t"GAAP").

INTERNATIONAL OPERATIONS

The first Krispy 'Creme store to open outside North America was in Penrith. Australia. in
Sydney. At lint the operation was successful. opening 53 other stores around the country
However as of November 1,2010 the entire Australian division went into voluntary
administration. with media reports attributing this to poor sales.Thcy have since come out of
administration as of December 2010, and continued trading, with fewer stores. Besides the stores
that Krispy Krcmc operate in the United States and Canada, there are also locations in the United
Kingdom. Australia. Lebanon. Turkey. Dominican Republic. Kuwait. Mexico. Puerto Rico.
South Korea. Malaysia. Thailand, Indonesia, the Philippines, Japan, China, the United Arab
Emirates. Qatar. Saudi Arabia. Bahrainilong Kong (2006-20081. andEthiopia. In August 2011.
Krispy !Creme's Japan operation planned to increase the number of stores from 21 to 94. and its
Mexico operation announced the number of stores would increase from 58 to 128 in five years.
In the United Kingdom Krispy Kreme continues its expansion and has plans and funding in place
to open further stores in 2012.

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FRANCHISEE EXPANSION AND REDUCTION

New england
In 2002. Krispy Kreme opened its second store in New England in Newington. Connecticut.
What followed was a period of aggressive expansion throughout the region: this included a
Krispy Kreme at the Prudential Center in Boston. Massachusetts. which opened on April 15.
2004 and closed sixteen months later. Initially fueled by hype surrounding the opening of Krispy
Kreme in New England. this regional expansion was followed by the closing of all but one store.
at the Mohegan Sun casino in Uncasville. In January 2010 the Milford store, the first to open in
the region, closed after a long decline in patronage. Some say that Krispy Kreme's coffee "left
many locals unimpressed. a modal sin in the joe-loving . Krispy Kreme also opened one store in
Cranston. Rhode Lsland in May 2003. It is now closed after receiving initial fanfare. This may
be due to dominance of Dunkin' Donuts in the state
Arizona
Krispy Kreme reentered the Arizona market when a new franchise reopened its East Mesa.
Arizona. location on May 13. 2008. This location was purchased by Krispy Kreme after Rigel
closed it in 2006. The new franchise owner. Dan Minton. plans to eventually open four to five
factory stares in the Phoenix market. These stores arc planned to support 10 to IS smaller non-
factory stores that will only sell doughnuts and other products.
Texas
In 2002. Krispy Kreme opened a restaurant style store in the Amarillo area in Texas. Many
thought that the local doughnut store was the reason the national chain closed. but this was not
the case. The Amarillo Krispy Kreme closed on July 17. 2005. Another Krispy Kreme closed in
Round Rock in 2009. However shop 251 in Grapevine is still open. as well as two shops in El
Paso. Most recently Krispy Krone closed the Corpus Christi location.
California
In January 2006. Krispy Kreme terminated the donut license of Great Circle Family Foods LLC.
alleging non-payment of required fees. Al the time, they were one of the largest franchisees,
operating 28 stores in Southern California. Preceding this action was a financial dispute by Great
Circle. culminating in their September lawsuit filed against Krispy Kreme. The lawsuit was
settled in July 2006 and led to the reinstatement of Great Circle's license. On August 22. 2007.
Great Circle Family Foods and some of its wholly owned subsidiaries filed for Bankruptcy.
Great Circle enx..bsd from on July 6. 2009. and currently operates I I stores in Southern
California.
Nevada
After opening to great hype in 2000. the franchise in Reno closed suddenly on May 15. 2008.
Without warning, employees were greeted with a sign an the door that morning saying we
apologize for any inconvenience." Rising fuel costs were cited as the primary reason for the
closure.

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Puerto Rico
On May 6, 2008. the first store in Puerto Rico opened, followed by two additional locations in
2010 and one additional location in 2011.
Canada
The 18 stores which opened in Canada, out of 32 planned. have been reduced to four. Two of
thaw exist in Quebec lin Longucuil and Quebec City) while the other two stores are in
Mississauga. Ontario andDelta. British Columbia. A small seasonal store was recently opened in
Wasaga Beach. Ontario.The Wasaga Beach location receives its doughnuts from the Mississauga
store every morning. Another small store recently opened on November 3. 2010 in Toronto at
Bathurst and Harbonl Streets in the city's Harbonl Village neighbishuod. This store receives
shipments from the Mississauga store. Krispy Kreme's Canadian assets were put up for sale in
2005 seven weeks after the U.S.based doughnut company had the firm that owns and operates
stores in Canada placed under bankruptcy protection. The Canadian operations are managed
under the franchisee Krispy K Canada Company of Mississauga. Ontario.
Philippines
In November 2006, Krispy !Creme opened the flagship store in the Philippines. These stores are
franchise owned like many othen.The development deal for the franchise is awarded to the Real
American Donut Company. Inc.. a company owned and operated by the principals of Max's
Restaurant. The original franchise agreement is for 30 stores over the next five years.The
flagship store was officially opened on November 30. 2006. at the Bonifacio High Street in Fort
Bonifacio. Taguig City. The second store was opened on December 21. 2006 at SM Megamall in
Mandaluyong City. The third store was opened on June 28. 2007 at Greenhills Shopping Center
in San Juan City, it is the first Krispy Kreme drive-thin outlet in Asia and the first free-standing
store in the Philippines. Branches in SM Mall of Asia and Trinoma opened October 2007. Three
more branches opened in 2008 at Robinson Galleria in Quezon City. Another factory and drive-
thou store in SM Mall of Asia in Pasay City, the 9th store opened in Gateway Mall. Araneta
Center. and a 10th in Glorietta 4. Makati City. There are also four branches located in the
provinces with one branch at Marquee Mall in Angeles City, Pampanga. two branches at Ayala
Center Cebu and Asiatown IT Park in Cebu City, and one branch at SM City Davao. Davao City.
Japan
Krispy Krum Doughnuts Japan operates 27 shops throughout the country.

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HISTORY

Although Krispy Kreme (KKD) is perceived as a North Carolina institution, its origins
are in Louisiana and Kentucky. The founder of Krispy Kreme, Vernon Randolph, worked at his
uncles shop in Paducah, Kentucky, when the uncle purchased a secret recipe for making
doughnuts from someone in Lake Charles, Louisiana. After working for his uncle, Vernon took
the recipe to Nashville, Tennessee, to be part of a startup operation. After a relatively short time,
Vernon sold his interest in the Nashville store and opened the first Krispy Kreme operation in
Winston-Salem, North Carolina, in 1937. Initially, the company sold its doughnuts to local
grocery stores. However, Vernon quickly realized that a direct market existed and began selling
his hot glazed doughnuts to customers coming to the Winston-Salem location. As a result of the
initial success in North Carolina, Krispy Kreme began expanding throughout the Southeast. With
expansion in the 1950s, the process of making doughnuts was transformed to an entirely
mechanized process with the introduction of an automatic dough cutter. A further change was
introduced in 1962 when an extrusion process replacing cutting.
In 1976, KKD became a wholly owned subsidiary of Beatrice Foods. However,
in 1982, a group of franchisees dissatisfied with Krispy Kreme being part of a large
organization purchased the business back from Beatrice. Krispy Kreme spent the
rest of the 1980s expanding and strengthening its position in the southeastern
United States. As the stock market soared in the late 1990s, the idea of going public intrigued the
Krispy Kreme management. In 2000, Krispy Kreme was very successful in raising significant
capital with its initial public offering. At first, the shares of stock were traded on the NASDAQ
using the ticker symbol KREM. Since May 17, 2001, Krispy Kreme has been
listed on the New York Stock exchange under the current symbol, KKD. After going public,
Krispy Kreme went through a period of rapid expansion both domestically and, to some degree,
internationally. The stock price quadrupled and opportunities appeared to prove endless. The hot
sugar-glazed Krispy Kreme doughnut had a mystique associated with it. Krispy Kreme became a
hot brand. Investors pursued exclusive franchising rights to open stores in various parts of the
country. A franchise producing high-quality southern-style doughnuts freshly baked in an
observable oven was a concept
that generated great interest. Opportunities for this hot brand seemed endless. KKD
opened its first store in Canada in 2001. By 2004 Krispy Kreme was also operating stores
in Australia and South Korea.
The year 2004 began a period of steep decline for Krispy Kreme. Early that year,
Krispy Kreme announced that it had missed its quarterly earnings forecast and posted
its first loss ever. The company blamed a diet-conscious public pursuing the lowcarbohydrate
Atkins diet for its problems. The stock price plunged from $40 per share
to under $10. Since 2005, Krispy Kreme has gone through a period of contraction. In Arizona
and New Mexico, the main franchisee filed for bankruptcy closing all the Krispy Kreme
stores. In 2008, another franchisee opened some stores in those states. In 2006, Krispy
Kreme terminated the franchise license of Great Circle Family Foods that operated 28

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stores in California. While the dispute was settled, Great Circle filed for Chapter 11 bankruptcy
in 2007. Sheetz, a large convenience store chain on the East Coast and one of
Krispy Kremes largest customers, quit buying doughnuts in 2008 because it decided to
open its own kitchen. Finally, international outlets shrunk with stores in Canada and Hong
Kong shut down. These trends have impacted the profitability of the company. For the last three
fiscal years, KKD has posted an operating loss. Quarterly earnings while mainly negative have
been quite erratic. The year 2008 has seen more bad news with all quarterly earnings negative.
Exhibits 1 and 2 show both the income statements and balance sheets for the past three fiscal
years. In 2006, turnaround artist Stephen Cooper left Krispy Kreme, and Darryl Brewster became
CEO. Brewster left the company in early 2008. The CEO position was filled by Jim Morgan,
who continues to serve as chairman today. Krispy Kreme, however, continues to experience
declining sales in the United States. A more health-conscious public has tended to shy away from
glazed doughnuts, which have the perception of too many calories and carbohydrates.
In early 2009, Yahoo Finance published a list of 15 firms that have a high probability of
going bankrupt during the year. Krispy Kreme was on the list. KKDs fiscal 2009 year
ended on February 1, 2009. On June 5, 2009, KKD reported a 53 percent drop in its firstquarter
2010 earnings to $1.9 million, down from $4 million the prior year. KKDs revenue decreased
9.9 percent to $93.4 million. KKDs sales for that first quarter, however, were up 2.1 percent at
KKD company-owned stores as opposed to franchised stores. Krispy Kreme needs a clear
strategic plan to survive through 2011 and beyond while competing against Dunkin Donuts,
Starbucks, and even McDonalds

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 II. (View Point)

POINT OF VIEW

Tony Thompson (C.O.O)

Id like to spend a few minutes discussing our fourth quarter and fiscal 2016 highlights,
after which Price will walk you through the financial results in greater detail as well as our
financial outlook for fiscal 2017. Then we will wrap up our remarks with a discussion of our
plans for fiscal 2017 and beyond. Total revenue increased 4% for the quarter and nearly 6% for
the year. Companys same-store sales increased slightly for the quarter and rose 2.4% for fiscal
2016 marking our seventh consecutive year of same-store sales growth. Domestic franchise
comps outpaced company shops increasing 2.5% and 4.8% for the quarter and year respectively.
International franchise comps were negative as anticipated given the growth strategy in those
markets. We added a net 134 shops during the fiscal year, representing 14% systemwide growth.
Our international business led the way with very solid double-digit unit growth and included new
country openings in South Africa and Germany. We also signed development agreements for
seven new countries including Bangladesh, Cambodia, Guatemala, Panama, Peru, Bolivia and
Myanmar. Domestically, were growing units at a prudent mid to high single-digit rate as we
continue refining and optimizing our domestic operating model. For the year, adjusted earnings
per share increased a solid 14%. During fiscal 2016, we made substantial progress in
transitioning our discounting program from a heavy reliance on everyday discounts to special
events days. In addition, we relied less on three offers to drive traffic. While the overall level of
discounting was still higher than we would have preferred and impacted our company store
margins. We were able to achieve our goal of having a lower overall percentage of discount
transactions. Some of the special events, we focused on during the year were Valentines Day,
Hero Day, our Birthday, Talk Like A Pirate Day and Day of the Dozens. Also we took advantage
of the success of our Carolina Panthers partnership and leveraged that with our Panthers Win
Days. In addition to focusing more on special event days, we introduced tiered pricing for our
limited time offers.

Our Point of View

From year 2004 Krispy kreme company already faced a declining stage in their company Krispy
Kreme announced that it had missed its quarterly earnings forecast and posted its first loss ever.
The company blamed a diet-conscious public pursuing the low carbohydrate Atkins diet for its
problems. And in early 2009, Yahoo Finance published a list of 15 firms that have a high
probability of going bankrupt during the year. Krispy Kreme was on the list. In the said years,
Krispy kreme struggled in finding ways on how they are going to solve these issues, but
throughout the years, they have proven that this is just a challenge that they can surpass.

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 II. (Statement of the Problem)

PROBLEM

The primary. and most critical. problem area is the lack of a cohesive marketing structure
within or a strategic marketing plan for the organization. Flawed or absent marketing research
has resulted in store closings and or expansions that were not backed up by market data or
evidence that this investment would be feasible.

The company spent very little on advertising. depending largely on word of mouth, and
local publicity. Store openings were popular events in the communities. so often newspapers and
other media provided free publicity for the events. This strategy seems to still work well for new
store openings. but would not be sufficient to generate continuing business. As a result. Krispy
Kreme acquired a company in 2007 that by the end of fiscal year 2008. had lost 525 million
dollars. The second problem is using a vertically integrated supply chain whereby it
manufactured the mixes and the proprietary doughnut-making equipment, as well supplying the
coffee for use in their stores. While this KK Manufacturing and Distribution division of Krispy
Kreme generally provided substantial revenues and earnings to the business, this too, began to
slip along with other revenues. and also contributed to Krispy Kreme's lack of current market
data. Analysis of revenues for fiscal year ending February I. 2007, showed KK Manufacturing
and Distribution revenues at 5461195. Revenues by feb,3.2008 had dropped to 5429319 Another.
perhaps incidental side-effect of this dependence on internal supply chain could be that the
"isolation" from outside suppliers prevented an additional source of market information.

CONCLUSION

The food industry has been affected by a recent trend toward healthier eating habits.
Krispy Kreme has capitalized on this trend by positioning doughnuts as a popular. on-the-go
food. Krispy Kreme's success has hinged on consistency throughout its locations and by
delivering a high quality product. Future growth opportunities include expanding franchises as
wall as penetrating alternate distribution channels. As Krispy Kreme analyzes potential growth
opportunities within alternate distribution channels such as convenience stores and grocery
chains. it must determine whether doing so will sacrifice brand equity and product quality.
Expanding beyond its own stores will require the marketing of the doughnut in a cold format. As
analysis has shown, Krispy Kreme's success has come from factors other than the saving
temperature of its products. I believe that Krispy Krone can be successful in launching its
product in new markets without establishing physical locations. Alternative channel distribution
will help bring the Krispy Kreme product to millions of potential customers who have yet to
experience the taste of America's best doughnut.

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 IV.( Statement of Objectives)

The current company philosophy is geared to continuing making the Krispy Kreme
doughnut the centerpiece of the business and to grow that business internationally. It is strongly
believed that Krispy Kreme has a unique product, a heated fresh doughnut with a distinctive
taste. The mission and values statements are as follows:

MISSION : Our mission is to touch and enhance lives through the joy that is Krispy Kreme.

VISION : Our vision is to be the worldwide leader in sharing delicious tastes and creating
joyful memories.

WE BELIEVE...

Consumers are our lifeblood, the center of the doughnut

There is no substitute for quality in our service to consumers
Impeccable presentation is critical wherever Krispy Kreme is sold
We must produce a collaborative team effort that is unexcelled
We must cast the best possible image in all that we do
We must never settle for "second best;" we deliver on our commitments
We must coach our team to ever-better results

OBJECTIVES

To have a better marketing strategy to advertise more the product.

To make new research and development for the improvement of doughnuts.
To develop new kind of doughnut that is nutritious which is made from vegetables.
To earn higher percentage of sales by meeting the demands of the customers.
To be able to suggest possible ways on how Krispy Kreme will be able to make their
branches adhere with their philosophy as a whole company.
To enhance the good management set forth by the founder of the company.
To be able to propose new attainable and realistic standards for future franchisers.

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KRISPY KREMES MARKETING

Marketing

Krispy Kreme's approach to marketing is a natural extension of our brand equity, brand
attributes. relationship with our customers and our values. To build our brand and drive
our sales in a manner aligned with our brand values. we have focused our marketing actin
ides in the following areas:

Store Experience

Our factory stores and hot shops are where most customers first experience a hot Original
Glazed doughnut. Customers know that when our Hot Krispy Kreme Original Glazed
Now sign in the store window is illuminated, they can see our doughnuts being made and
enjoy a hot Original Glazed doughnut within seconds after it is made. We believe this
begins our relationship with our customers and forms the foundation of the Krispy Kreme
experience.

Relationship Marketing

Many of our brand-building activities are grassroots-based and focused on building

customer and community relevancy by developing relationships with our constituents
consumers, local non-profit organizations and businesses.

Specific initiatives include:

Good neighbor product deliveries to create trial uses;

Sponsorship of local events and nonprofit organizations:

Friends of Krispy Kreme eNewsletters sent to customers registered to receive monthly

updates about new products, promotions and store openings;

Fundraising programs designed to assist local charitable organizations to raise money

for their non-profit causes: and

Digital marketing efforts including use of social media sites such as Facebook and
Twitter to communicate product and promotional activity, new store openings and local
store marketing programs.

Public Relations.

We utilize media relations. product placement and event marketing as vehicles to

generate brand awareness and trial usagefor our products. Our public relations activity
creates opportunities for media and consumers to interact with the Krispy Kreme brand.
Our key messages are as follows:

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 Krispy Kreme is the preferred doughnut of choice for people nationwide;

Krispy Kreme is a trusted food retailer with a long history of providing superior.
innovative products and delivering quality customer service: and

Krispy Kreme encourages its customers to stay engaged with the Company and its
promotions through its Friends of Krispy Kreme program.

Advertising and Sales Promotions.

Grass roots marketing has been central to building our brand awareness. Although our
marketing strategy has not historically employed traditional advertising, we occasionally
utilize free-standing newspaper inserts. direct mail. radio. television and/or sales
promotions to generate awareness and usage of our products. Advertising and sales
promotion activity center around our heritage events and shaped doughnut varieties, such
as Valentine's Day Hearts. Fall Footballs, Halloween Pumpkins and Holiday Snowmen.

Brand Fund.

We administer a public relations and advertising fund, which we refer to as the Brand
Fund. Franchise agreements with domestic area developers and international area
developers require these franchisees to contribute I .04:i and 0.25% of their sales.
respectively. to the Brand Fund. Company stores contribute to the Brand Fund on the
same basis as domestic area developers, as do some associate franchiseesin fiscal 2009.
the Company reduced the contribution from its a.synriate and domestic area developer
franchisees to 0.75%. Proceeds from the Brand Fund are utilized to develop programs to
increase sales and brand awareness and build brand affinity. Brand Fund proceeds arc
also utilized to measure consumer feedback and the performance of our products and
stores. In fiscal 2009, we and our franchisees contributed approximately 52.6 million to
the Brand Fund.

Marketing Strategy

It is difficult to determine where the marketing department resides within the

organization, as very little evidence of market research exists. Krispy Kreme's marketing
plan seems simple on the surface: they don't appear to have put much effort into
marketing their product. The company spent very little on advertising. depending largely
on word of mouth, and local publicity. Store openings were popular events in the
communities. so often newspapers and other media provided free publicity for the events.
This strategy seems to still work well for new store openings, but would not be sufficient
to generate continuing business. This is evidenced by the fact that even while new stores
are opening. older stores within the same market are having to close. In short, the
company's marketing strategy appeared to consist merely of allowing its product to sell

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 itself. The product's superior reputation, the firm's operational techniques. i.e.. their
training, facilities management and franchise management. appears to be appear to be the
Krispy Kreme's major strengths. When adding the coffee product to the organization,
they also included it within the "vertical integration supply chain to control costs. They
felt that this would ensure quality and consistency in the product. When Krispy Kreme
purchased the Montana Mills Bread Company, there seemed to be a sense that this was
just a logical next step. In fact, the CEO considered this acquisition as the "natural
outgrowth" in the continuing process of vertically integrating an entire range of products
and services for "flour-based", short-shelf life products. Again. failure to do appropriate
and effective market research. Krispy Kreme missed the identifying the new trends
toward reduced carbohydrate consumption

KRISPY KREMES COMPETITORS

Dunkin Donuts
The most formidable KKD competitor is Dunkin Donuts. Another doughnut competitor is
Tim Hortons, a Canadian firm that has over 3,400 stores mainly in Canada but more than
500 stores in the United States. Dunkin Donuts, which is part of Dunkin Brands and is
privately owned, has the largest number of stores in the retail doughnut industry. As of
2008, Dunkin Donuts has a total of 6,395 domestic franchisees and 2,440 international
locations in 31 countries. Dunkin Donuts is a baked goods coffee shop using the original
coffee blend created by its founder. Sales can be classified in two categories: beverages or
coffee make up 60 percent of sales and baked goods or doughnuts, muffins, and bagels
make up the remaining 40 percent of sales.
Dunkin continue to grow sales by expanding their baked goods menu offerings
and through other retail channels for their coffee outside their franchises. Their customer
base is fiercely loyal to the Dunkin Donuts brand. They are working people who just
want a cup of coffee and quick bite to eat so they can move on to their work day. Dunkin
Donuts originated in Massachusetts and seeks to grow in the southern and western states
of the United States and expand into China. In addition to Dunkin Donuts and Tim
Hortons as competitors, there are many regional and locally owned doughnut shops and
distributors.

Starbucks
Recently, there has been a growth in coffeehouses such as Starbucks, Caribou Coffee, and
Java City and ice cream shops that all sell doughnuts and other baked items. The most
formidable of these is Starbucks. This specialty coffee retailer has over 176,000 employees in
9,217 company-operated stores and 7,463 licensed retails stores worldwide. The company
is not only known for its coffee but also branded products sold through multiple retail
channels worldwide. Some of these products include ice cream, coffee liqueur, teas, and
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instant coffee. Like Dunkin Donuts, Starbucks has strong brand loyalty toward its quality
products. Starbucks, which has less food offerings than Dunkin Donuts, looks to capitalize
on creating a Starbucks Experience, which not only provides a comfortable atmosphere
to enjoy a cup of coffee but also rewards customers for their loyalty through their
Starbucks Rewards program. Krispy Kreme also sells its doughnuts in major retail outlets.
Therefore, it is also competing with any company selling baked goods in supermarkets,
convenience stores, mass merchants, and other retail establishments. Dolly Madison,
Entenmanns, Hostess, and regional brands are competitors of Krispy Kreme in this
marketingchannel.
Although Krispy Kreme has 20 different doughnut products, the signature offering is
the hot glazed doughnut. From its origins, Krispy Kreme has marketed not only the doughnut
but that eating such a doughnut is a unique experience. Krispy Kreme also enhanced
the experience by providing its customers with the ability of seeing the doughnuts
produced in many stores.

Exhibit 5 shows doughnut sales for calendar year 2007 for Krispy Kreme and
competitors.

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KRISPY KREMES PRODUCTS

Doughnuts and related products

We currently make and sell over 20 varieties of high-quality doughnuts.
including our hot Original Glazed doughnut. Generally a product is first tested in
our Company stores and then rolled out to our franchise stores. We have
introduced doughnuts in non-traditional shapes and package doughnut snacks, as
well as non-traditional packaging offering for distribution through convenience
stores.

Complementary products
In fiscal 2009. we began testing of a new soft serve menu of traditional
cones. shakes and sundaes paired with a variety of toppings. In fiscal 2010, we
will be expanding our testing of the concept. which we call Kool Kreme. into
additional Company stows. Our Company store tests. combined with testing by
two of our franchisees, will give us additional assessments of consumer
acceptance on which to base a rollout decision.

Beverages
We have implemented a complete beverage program which includes drip
coffees. both coffee-based and noncoffee-based frozen drinks, juices. swdas,
milks, water and packaged and fountain beverages. In addition. many of our
stores offer a complete line of espresso-based coffees. including flavors. We
continue to seek to improve our beverage program.

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KRISPY KREMES FINANCIAL

Income Statement

Revenues and Expenses

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Balance Sheet

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 V. (Areas of Consideration)

S.W.O.T ANALYSIS

Strengths

Affordable, high-quality doughnuts with strong visual appeal and one-of-a-kind taste.
Neon "Hot Doughnuts Now sign encourages people outside the store to make an impulse
purchase.
Market research shows appeal extends to all major demographic groups including age
and income.
Hot shop" stores save money while keeping KKD customer experience intact.
Vertical integration helps ensure high quality product.
Consistent expansion; now in 16 countries.
Product sold at thousands of supermarkets, convenience stores, and retail outlets through
U.S.

Weaknesses

Return on equity, assets, and investments all negative in the trailing twelve months; skill
of mgmt. is questionable
Shareholders have not received dividends recently, and are not expected to in near future;
stock price in state of flux
Closing stores when stores should be opening globally at steady rate to keep up with
competitors' growth
Management states in recent 10-K that it is struggling with how to make stores profitable
Product line slow to expand with nothing outside "sweet treats" to draw in health-
conscious customers
Advertising not aggressive enough to appeal to areas outside southeast of U.S. where
most stores are
Revenues down, net losses in each of past three years

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Opportunities

Development into diversified product markets

Detection of the problem occurring in the management of the business and thus the fall
in business and profitability
Develop the social outreach programs to promote the doughnuts and to promote the
customer based objectives and mission of the organization.
Reaching the market to really know what the customers want and then to develop the
marketing and strategic policy in accordance to that.
Asians love sweets and are open to trying foreign foods
Starbucks lacks a diversified and distinctive pastry line
Dunkin' Donuts does not have hot doughnuts to sell
Many children love sweet treats

Threats
Tough competition and increasing global recognition of Starbucks and Dunkin Donuts.
Global presence of the competitors
More health conscious customer base
Development of organic markets
Starbucks has approximately 25 times the amount of stores worldwide that Krispy Kreme
Donut has
Restricted cash flow from banks and massive layoffs have stifled the world economy,
decreasing discretionary income
Europeans prefer their local brands of doughnuts
Britons tend not to have cars, which inhibits drive-thru customers, and their eating habits
and office etiquette differ from
Americans Shareholders may sell KKD stock for lack of returns and dividends compared
to other similar firms in the industry.

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ENVIRONMENTAL ANALYSIS

Internal

Strong brand recognition and recall

Wide appeal of signature glazed doughnuts
Vertical integration
Development in international markets
Strong channel of distribution
Quality of product
Expanded assortment of offerings at KKD stores including beverages
Doughnut machine technology.
Perishability of product
Limited product line (heavy reliance on doughnut sales)
Overextended (i.e., Montana Mills acquisition)
Lack of locations in some areas
Pricing in some locations

External

Increasing popularity of coffee s hops and bakery cafes

Popularity of American foods and fashion in overseas markets
Growth in two-income households
Americans continue to experience time-starvation
Entertaining opportunities moving from home to work environment
Technological advancements (i.e., paperless ordering, predictive modeling software, hand
held computers for delivery drivers) Channel expansion possibilities (i.e., Internet pre-
ordering )
Competitors like Dunkin Donuts and Starbucks
Low-carb trend in eating preferences
All-natural, organic, healthy eating trends
Cultural differences in breakfast and snack foods
Increase in eating at full-service restaurants combined with a decrease in the use of fast-
food restaurants

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 VI. (Alternative Course of Action)

1. Representatives of the company within the country will visit every branch quarterly

2. General Managers will have a seminar twice a year on managerial skills and knowledge

3. The company should consider factors that might affect the franchisers (currency,
position)
4. Conduct a corporate-wide financial and operational audit of random stores, both company
owned and franchised to determine causes of negative ratio of revenues to expenses.
5. Development or enhancement of the marketing department

ACA 1 - There will be a surprise inspection for each branch.

ACA 2 - GM's will have a 1 week seminar in the main office to have their training and
enchancement of managerial skills

ACA 3 - The company should be more considerate to the economic health of a country that is
interested in franchising the brand. Krispy Kremes case is one that can be remembered for a
long time because their problems are very common. They can also happen in businesses
nowadays. Krispy kreme is a successful doughnut company. Behind the fact that there are many
competitors, Krispy Kreme is still able to maintain the quality of their products.

ACA 4 - The benefit(s) of conducting this audit would be that it would assist management in
identifying causes of increased operating expenses incorporate stores vs. the
franchise operations. Another benefit would be in discovering the accounting errors in existing
systems that resulted in reduction of net income by from 2.7% - 8.6%.

ACA 5 - probably the primary, and most critical, problem in the operational area is in the lack of
a cohesive marketing structure within or a strategic marketing plan for the organization. Flawed
or absent marketing research has resulted in store closings and or expansions that were not
backed up by market data or evidence that this investment would be feasible. This is needs to be
counteracted quickly by the development or enhancement of the marketing
department. This should be done by recruitment of competent in-house marketing specialists to
develop a marketing plan and carry it out either through in-house efforts, or (preferably), through
the use of an external marketing firm. This marketing plan must contain elements addressing
appropriate marketing research of industry environment and a marketing strategy addressing
current and possible future competition. Secondary Sources for marketing research are often a
good place to obtain base-level data at minimum financial outlay. This kind of data for the
restaurant and food service industry can be obtained through online sources

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OTHER ALTERNATIVE COURSE OFACTION

Strengthen ties with franchisees to ensure expansion and survival.

Pros:

Will ensure existence of the business.

Easier market reach.

Less manpower expense.

Cons:

Too much enfranchisement would mean more restrictions in making creative business
strategy.

Unreliable loyalty to the product.

Focus on company owned, company oriented strategy

Pros:

Less restrictions in strategy casting.

Less worries and protecting patent and ensuring product authenticity.

May enable higher revenue.

Cons:

Challenge lies on the capacity of the management to provide capital in every expansion
(manpower, machines, etc.).

Market reach may tend to become slack.

Aggressive competition may cause KKD.

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 VII. (Decision Matrix)

CRITERIA ACA1 ACA2 ACA3 ACA4 ACA5

Effectiveness 3 3 4 4 5

Efficiency 3 4 5 4 4

Easy to 3 3 3 4 4
Implement

Total 9 10 12 12 13

Legend:

5- Excellent

4- Very Good

3 -Good

2- Fair

1- Poor

CONCLUSION

ACA#5 shows it potentials that Krispy kremes encountered problem can be solved with this
action, and gathering the highest total score could be concluded that this might be one of the
many ways offered that can actually solve certain problem. Especially that the company
struggles on meeting the demand of their health conscious customers who wanted to try new
healthy products that they could offer, and also, with this course of action it will attract more
customers to try krispy kreme doughnuts.

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 VIII.( Recommendation)

1. Reduce operating expenses (down-size individual stores)

Change entire manufacturing and distribution strategy -Implement par baked manufacturing
operation
to allow individual stores to decrease in size, thus lowering per store operating costs to a more
appropriate level for sales volume
Increased efficiency - smaller workforce per store, par-bake allows for minimal waste -
inventory as needed (important b/c fresh goods - low shelf life
Par bake will allow for "hot doughnuts now" all of the time.
Implications of transition to par bake operation
New Plant Equipment - freezers. production equipment. freezer trucks for distribution/delivery.
Store Equipment - freezers. oven for various par baked goods. fryers for doughnuts.
R&D for unique par hake operation
2. Develop stronger relations and control of franchisees
Short-term period of one year - postpone new franchise agreements/new store openings
Implement Franchise Support Systems
Communication - between corporate and franchisees
Support - training. Advertising
Utilize recommendation number 1 in order to lower operating expenses for franchisees.
3. Implement Marketing Strategies
Advertising - national television and radio advertising campaign based on "hot doughnuts
now".
Marketing research - periodic research to stay abreast of trends.
R&D - product development
4.Strengthen Competitive
Strengthen Competitive Advantage through differentiation in products and services.
Continue to utilize "hot doughnuts now"
Expand product line
Account with A&S "New York- Bagels (par baked). Par baked will allow for "Hot Bagels Now
5.Focus on the customers
Any business strategy, whether KKD adapts company operated or franchising approach
has its advantages and risks and either way, the goal is to hit sales targets.. That being said, we
believe that focusing on customers by understanding complex lifestyles, interests and needs and
ensuring KKDs products and services can measure up to these complexities is the first and
most important action to ensure KKDs existence and survival in the industry.

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6. Develop and enhance employees skills

It is very critical for KKD to find, develop and retain people who can work under fast-
paced environment, knowledge across industries , and expertise in running all facets in
the organization and therefore, KKD should focus on capitalizing on their workforce
through creation of positive organizational culture and career development.

In this case, Planning is the main function of management. It is the basic management
function which includes formulation of one or more detailed plans to achieve optimum balance
of needs or demands with the available resources.

In the 1990s, Krispy Kreme grew rapidly to the national phenomenon with 366 stores in 44
states all for selling doughnuts. This business strategy soon ran to the problem and downturn
because they had too many stores to control, lack of advertising, cost increased in ingredient and
franchises problem. In order to recovery from the crisis, Krispy Kreme have been deployed some
strategic planning included add variable choices to its menu, advertising on TV and radio,
produce healthier products and try to develop based on its own strength. Krispy Kreme become
famous because of its signature Original Glazed Doughnut and the company try to take the
advantage on that when they selling Glazed Doughnut only by a dozen. They know people
loving it. But if they don't do something, they will lose their customers. The writer comment is
Krispy Kreme should close unprofitable store as well as diversify and expand in product mix.
Krispy Kreme potential still very big, they can win their customer back if they change their
strategy into right path.

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 IX. (Action Plan)

1. Top Management of KKD to identify two major groups for the re-branding and
organizational re-structure program, namely:

(a) Business development team (will focus on studying and identifying

current customer trends / lifestyle, competitor activity, and re- branding)

(b) Strategic operations team (will focus on developing operational re- structuring in
alignment to KKDs goal of customer-centric business);

(c) Organizational Development team (will focus on developing organizational

culture, needed competencies, performance management and talent development.)

2. Create top-down approach change management program to aide in the transition from
the traditional ways of working to innovated, new organizational structure and ways of
working.

3. Create employee ambassadors by tapping employees as customers and seek their

opinions about the new changes (products, services, etc.) to be able to build sense of
ownership and elevate commitment level.

4. Involve employees in the re-launch of KKD brand and products.

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REFERENCES

https://prezi.com/ihmgdjrs-h03/krispy-kreme-case-analysis/?webgl=0

https://www.slideshare.net/wajahathailian/krispy-cream-case-study-final

https://www.slideshare.net/szczepjw/krispy-kreme-doughnuts-presentation

https://seekingalpha.com/article/3960360-krispy-kreme-doughnuts-kkd-ceo-tony-thompson-q4-
2016-results-earnings-call-transcript

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