By: Mark Lor T.

Munar

 Founded by Vemon Carver Rudolph in 1937 and opened

on July 13, 1937 in Winston-Salem, North Carolina The company started out by selling doughnuts to local grocery stores. Rudolph decided to cut a hole in the wall of the bakery so that his Hot Original Glazed doughnuts could be sold directly to the customers. In 1950, the doughnut making process was mechanized with the use of KK automatic doughnut cutter. Hand-cut doughnuts became a thing in the past. All the process in the bakery becomes automatic.

Type Industry Founded Headquarters

Public (NYSE: KKD) Restaurant 1937 Winston-Salem, North Carolina, United States 3,700 (2009) krispykreme.com

Employees Website

 Krispy Kremes product line consists of the following:

Coffee

Doughnuts Iced Drinks and Kool Kremes

To be the worldwide leader in sharing delicious tastes and creating joyful memories
To touch and enhance lives through the joy that is Krispy Kreme
The points included in the mission: 6. Philosophy, 8.Public image.

The proposed MISSION: Our mission is to provide our customers1 with the best of our Krispy Kreme doughnuts and coffee2, and to insure consistency in all of KKD branches around the world3. We are looking forward to watch our franchisees9 financially to keep going to achieve our vision5. We make sure that the ingredients we use are the best6. The public image has a high priority in our company so we'll keep participating in the community through supporting the social events and donations8. Our signature original glazed will continue to be our unique product and offered in all of our stores around the world7.
1) Customer,2)Products or service, 3)Market, 4)Technology 5)Concern for survival,6)Philosophy, 7)Self concept, 8)Concern for public image, 9)Concern for employees.

 Even though Krispy Kreme has vertically integrated but their core competency is still in the doughnut making business. Krispy Kreme has strategic advantage over others because of forward and backward integration. There are other big players in the industry such as Dunkin Donuts, Winchell`s Donut House, Tim Hortons and LaMar`s Donut but the point that differentiate Krispy Kreme from other players is the HOT DOUGHNUT EXPERIENCE and the company owned stores that give a classic touch to the donut experience which it termed as Doughnut Theatre

Revenue Cost of Revenue, Total Gross Profit Selling/General/Administrative Expenses, Total Research & Development Depreciation/Amortization Interest Expense (Income), Net Operating Unusual Expense (Income) Other Operating Expenses, Total Operating Income Interest Income (Expense), Net NonOperating Gain (Loss) on Sale of Assets Other, Net Income Before Tax Income Tax - Total

2009 383.98 345.01 38.98 23.46 0.0 8.71 0.0 0.55 1.5 4.76 0.0 0.0 2.82 -3.56 0.5

2008 429.32 380.01 49.31 26.3 0.0 18.43 0.0 57.34 0.01 -52.78 0.0 0.0 -2.97 -64.73 2.32

2007 461.2 389.38 71.82 48.86 0.0 21.05 0.0 28.49 1.92 -28.5 0.0 0.0 -0.45 -41.03 1.21

Preferred Dividends General Partners' Distributions Basic Weighted Average Shares Basic EPS Excluding Extraordinary Items Basic EPS Including Extraordinary Items Diluted Weighted Average Shares Diluted EPS Excluding Extrordinary Items Diluted EPS Including Extraordinary Items Dividends per Share - Common Stock Primary Issue Gross Dividends - Common Stock Interest Expense, Supplemental Depreciation, Supplemental

2009 0.0 0.0 65.94 -0.06 -0.06 65.94 -0.06 -0.06 0.0 0.0 10.68 8.1

2008 0.0 0.0 63.81 -1.05 -1.05 63.81 -1.05 -1.05 0.0 0.0 9.8 17.8

2007 0.0 0.0 61.87 -0.68 -0.68 61.87 -0.68 -0.68 0.0 0.0 20.33 20.3

Normalized EBITDA Normalized EBIT Normalized Income Before Tax Normalized Income After Taxes Normalized Income Available to Common
Basic Normalized EPS Diluted Normalized EPS Amortization of Intangibles

2009 14.02 5.31 -3.01 -3.7

2008 22.99 4.56 -7.39 -29.78

2007 21.04 -0.01 -12.53 -23.72

-3.7
-0.06 -0.06 0.61

-29.78
-0.47 -0.47 0.63

-23.72
-0.38 -0.38 0.75

Growth Rate %
Sales (qtr vs year ago qtr) Net Income (YTD vs YTD)

Krispy Kreme
-11.40 NA

Industry
5.00 34.70

Net Income (qtr vs year ago qtr)

Sales (3 years annual average) Net Income (3 years annual

59.40
-9.97 NA

30.20
6.20 14.37

average)
Dividens (3 years annual average) NA 24.05

Price ratio
Current P/E Ratio P/E Ratio 3 Years High

Krispy Kreme
NA NA

Industry
17.3 6.7

P/E Ratio 3 years Low

Price/Sales Ratio Price/ Book Value Price/Cash Flow Ratio

NA
0.74 4.26 35.60

3.8
2.35 6.29 11.60

Profit Margin %

Krispy Kreme

Industry

Gross Margin Pre-tax Margin Net Profit Margin

13.9 0.3 -0.3

35.3 5.1 13.6 36.3 15.1

3 Years Gross Margin (Average) 13.4 3 Years Pre-Tax Margin (Average) 3 Years Net Profit Margin (Average) -16.1 -15.6

10.6

Financial Condition
Debt/Equity Ratio Current Ratio

Krispy Kreme
0.81 1.5

Industry
2.16 1.0

Quick Ratio
Interest Coverage Leverage Ratio Book Value/Share

1.2
0.9 2.8 0.90

1.0
25.6 4.2 11.94

Investment Return %

Krispy Kreme

Industry

Return on Equity

-1.6

54.2

Return on Assets
Return on Capital Return on Equity (3 Years

-0.5
-0.7 -55.5

12.5
14.9 27.8

Average)
Return on Assets (3 Years Average) -21.7 9.8

Return on Capital (3 Years

-29.7

12.2

Management Efficiency Income/Employee

Krispy Kreme -254

Industry 10,444

Revenue /Employee
Receivable Turnover Inventory Turnover Assets Turnover

91,067
17.1 18.7 1.9

98,255
49.5 97.5 1.1

Date

Average P/E

Price/Sales

Price/Book

Net Profit Margin (%)

02/09 02/08 01/07 Date

-51.30 -6.20

0.24 0.43

1.62 3.34 10.22 ROA (%)

-1.1 -15.6 -9.2 Interest Coverage

-13.10 1.73 Book Debt/Equi ROE Value/Shar ty (%) e

02/09
02/08 01/07

$0.86
$0.87 $1.26

1.30
1.35 1.36

-7.0
-118.5 -53.5

-2.1
-33.1 -12.1

0.4
-5.4 -1.4

STRENGHTS: 1. Strong Brand Recognition and Recall 2. Krispy Kreme makes it possible for different organizations throughout the community to use their product as a fundraiser. Fundraising program has helped non-profit organizations raise millions of dollars in needed funds. 3. Krispy Kreme has Strong Channel of Distribution. Krispy Kreme is most popular in grocery and convenience stores which gives customers easy access to the product. 4. Employees are better trained. 5. Expanded assortment of offerings at KKD stores including beverages 6. It has a unique brand and variety of freshly made donuts. Wide appeal of signature hot original glazed doughnuts 7. KKD can offer to have customers watch product being made at the donut theater.

WEAKNESSES: 1. Lack of more International locations in the United Kingdom, Japan and Spain 2. Manufactures all equipment internally in its Manufacturing and Distribution Department 3. Non-interactive website 4. No online ordering capability 5. Uncertainty of International markets 6. KKD snacks are not healthy (need to consider lowcalorie donut) 7. Perishability of product

STRENGHTS: 8. It has a high capacity to make 4,000 to 10,000 donuts daily. 9. Krispy Kreme Doughnuts prides themselves on high customer satisfaction with fresh quality donuts. 10. It offers additional products through businesses acquisitions. 11. Krispy Kreme offers a product that is second to none, with regards to taste, freshness and the finest ingredients. It has a great desire for growth and success of people and company. 12. KKD has great service and innovation. 13. Krispy Kreme has Doughnut machine Technology. It also has e-commerce which gives owners access to real-time information. 14. KKD has a drive through window for sales. 15. It also has a new fall product line of donut called Spice. 16. It is expanding into Dunkin Donuts territory.

WEAKNESSES: 8. Limited product line (heavy reliance on doughnut sales) 9. Overextended (i.e., Montana Mills acquisition) 10. Pricing in some locations 11. Bad Relations with Franchisees (cost of equipment, packaging, ingredients etc) 12. No other Standout Products (Weak Menu)

INTERNAL FACTOR EVALUATION (IFE) MATRIX of Krispy Kreme Doughnuts Key Internal Factors Weight Rating Weighted Score Strengths 1 Strong Brand Recognition and Recall 0.14 4 0.56 2 Wide appeal of signature Hot Original Glazed 0.08 4 0.32 Doughnuts 3 Strong Channel of Distribution 0.06 3 0.18 4 Customers watch product being made at the 0.05 3 0.15 Donut Theater 5 High customer satisfaction with Fresh Quality 0.08 4 0.32 Donuts. 6 Doughnut machine Technology 0.09 3 0.27 7 Gained Reputation through various fundraising 0.05 3 0.15 programs 8 New fall product line of donut called Spice 0.04 3 0.12

INTERNAL FACTOR EVALUATION (IFE) MATRIX of Krispy Kreme Doughnuts Key Internal Factors Weight Rating Weighted Score Weaknesses 1 Lack of more International locations in the 0.10 1 0.1 United Kingdom, Japan and Spain 2 Limited product line (heavy reliance on 0.09 1 0.09 doughnut sales) 3 KKD snacks are not healthy (need to consider 0.06 2 0.12 low-calorie donut) 4 No online ordering capability 0.05 1 0.05 5 Bad Relations with Franchisees (cost of 0.06 2 0.12 equipment, packaging, ingredients etc) 6 Pricing in some locations 0.05 1 0.05 TOTAL 1.00 2.6 Total weighted score for the Krispy Kreme internal factor is 2.6 which is above average. So it is internally strong but it indicates that there is still room for further improvement.

 Dunkin' Donuts is the world's largest coffee and baked goods chain, serving more than 3 million customers per day. Dunkin' Donuts sells 52 varieties of donuts and more than a dozen coffee beverages as well as an array of bagels, breakfast sandwiches and other baked goods. LaMars Doughnuts strategy is to go to its customers by operating neighborhood, bistrostyle doughnut stores with gourmet espresso bars in high traffic areas. Currently they operate 40 franchised and company owned gourmet doughnut stores in seven states, and the goal is to open 1200 stores nationwide by 2010.

 Starbucks (SBUX) is an international coffeehouse that has built one of the world's most powerful and recognizable brands upon high-quality coffee and the unique "Starbucks Experience." Starbucks has sought to capitalize on its growing popularity through expansion; the addition of over 1500 stores in just over a year brought its total store count to over 16,600 in 2008. Tim Hortons (THI) is the largest fast food restaurant chain in Canada (and the fourthlargest in all of North America) based on sales and number of restaurants. Tim Horton's also has a food menu to complement its beverage selection, offering doughnuts, sandwiches, and other food items.

Key Success Factor/Strength Measure Quality/Product Performance Reputation/image Manufacturing capability

Weigh t 0.15 0.1 0.2 3 3 3

Krispy Kreme

LaMars Dunkin Tim Starbuck Doughnu Donuts Hortons s ts 0.5 2 0.4 2 0.6 1 0.3 0.2 0.2 4 3 4 0.6 2 0.3 2 0.8 2 0.3 0.2 0.4 4 3

0.45 3 0.3 0.6

Technological skills
Dealer network/distribution capability New product innovation capability

0.05
0.05 0.05

3
2 2

0.15 2
0.1 0.1 2 2

0.1 2
0.1 2 0.1 2

0.1
0.1 0.1

3
3 3

0.2 3
0.2 2 0.2 2

0.2
0.1 0.1

Financial Resources
Relative cost position Customer Service Capability Sum of Weights Weighted Overall Strength rating

0.05
0.05 0.3 1

2
2 2

0.1
0.1 0.6

2
2 3

0.1 2
0.1 2 0.9 3

0.1
0.1 0.9

2
2 3

0.1 1
0.1 2 0.9 3

0.1
0.1 0.9

2.5

2.9

2.1

3.3

2.3

1st 2nd 3rd

Starbucks Dunkin Donuts Krispy Kreme LaMars Doughnuts Tim Hortons

3.1 2.92 2.74 2.5 1.82

Analysis:

4th 5th

The Firm with the largest overall competitive strength rating enjoying the strongest competitive position is Starbucks followed by Dunkin Donuts and then Krispy Kreme. Here Krispy Kreme score exceeds Tim Hortons and LaMars Doughnuts. So Krispy Kreme is at net competitive disadvantage against Starbucks and Dunkin Donuts.

 Analysis: After quantitatively analyzing the current market with a weighted competitive strength assessment, it can be concluded that Dunkin Donuts has a few distinct advantages over Krispy Kreme that will allow more lasting power for Dunkin Donuts. Although Krispy Kreme outperforms Dunkin Donuts in taste and freshness, Dunkin Donuts sweeps all of the other categories. They have greater manufacturing capabilities, distribution capabilities, customer awareness, lasting power, and coffee taste.

OPPORTUNITIES: 1. Growth in two-income households will increase snack-food consumption 2. Untouched domestic locations 3. Increasing popularity of coffee shops and bakery cafes 4. Customer receiving "Hot-Donut" now instead of waiting 5. All equipment and Uniforms are supplied 6. Penetration into foreign/intl. Markets and popularity of American foods and fashion in overseas markets 7. Americans continue to experience time-starvation 8. Acquisition of Atlanta Bread 9. Expansion of new locations (Maine, Mass) 10. Entertaining opportunities moving from home to work environment 11. Channel expansion possibilities (i.e., Internet preordering) 12. Technological advancements (i.e., paperless ordering, predictive modeling software, hand held

THREATS: 1. Competitors like Dunkin Donuts, Tim Hortons, Starbucks and other National Chains/Specialty Eateries. 2. Low-carb trend in eating preferences 3. Increasing cost of Ingredients 4. Increasing utility and fuel costs 5. All-natural, organic, healthy eating trends 6. Krispy Kreme stores went up too fast 7. Cultural differences in breakfast and snack foods 8. Increase in eating at fullservice restaurants combined with a decrease in the use of fast-food restaurants 9. Store locations too scattered

EXTERNAL FACTOR EVALUATION (EFE) MATRIX OF Krispy Kreme Doughnuts Key External Factors Weight Ratin Weighted g Score Opportunities 1 Growth in two-income households will increase 0.14 4 0.56 snack-food consumption 2 Untouched domestic locations 0.09 3 0.27 3 Increasing popularity of coffee shops and bakery 0.06 3 0.18 cafes 4 Channel expansion possibilities (i.e., Internet pre- 0.07 4 0.28 ordering) 5 Penetration into foreign/intl. Markets 0.08 3 0.24 6 Technological advancements 0.05 3 0.15 7 Acquisition of Atlanta Bread 0.04 2 0.08 8 On-Premise sales royalties 0.04 2 0.08

EXTERNAL FACTOR EVALUATION (EFE) MATRIX OF Krispy Kreme Doughnuts Key External Factors Weight Ratin Weighted g Score Threats 1 Competitors like Dunkin Donuts, Tim Hortons, 0.10 2 0.2 Starbucks and other National Chains/Specialty Eateries. 2 Increasing cost of Ingredients 0.08 1 0.08 3 Store locations too scattered 0.07 2 0.14 4 Increase in eating at full-service restaurants 0.08 3 0.24 combined with a decrease in the use of fast-food restaurants 5 Cultural differences in breakfast and snack foods 0.04 2 0.08 6 All-natural, organic, healthy eating trends 0.06 1 0.06 TOTAL 1.00 2.64 Total weighted score for the Krispy Kreme external Factors is 2.64 which indicates that the business has above average ability to respond to external

STRENGTHS 1. Strong brand recognition and recall 2. Wide appeal of signature glazed doughnuts 3. Vertical integration

WEAKNESSES Perishability of product Limited product line (heavy reliance on doughnut sales) Overextended (i.e., Montana Mills acquisition) Lack of locations in some areas WO STRATEGIES Pricing in some locations 1. Increase products offered in locations (i.e., coffee, sandwiches) 2. Develop Montana Mills in a way that fits the mission of KKD

4. Development in international markets OPPORTUNITIES 1. Increasing popularity of coffee shops and bakery cafs 2. Popularity of American foods and fashion in overseas markets 3. Growth in two-income households SO STRATEGIES 5. Strong channel of distribution 1. Development of bakery cafs 2. Development of store locations in overseas markets

3. Increase locations to be convenient for 3. Increase locations busy traffic areas in several markets

4. Americans continue to experience time-starvation

5. Entertaining opportunities moving from home to work environment

4. Provide special offerings geared towards encouraging people to bring doughnuts to work
5. Continue to be innovative in technological applications that can improve efficiency

4. Offer standardized, but value pricing compared to Starbucks

STRENGTHS 1. Strong brand recognition and recall 2. Wide appeal of signature glazed doughnuts 3. Vertical integration

WEAKNESSES Perishability of product Limited product line (heavy reliance on doughnut sales) Overextended (i.e., Montana Mills acquisition) Lack of locations in some areas WT STRATEGIES Pricing in some locations 1. Develop new product offerings

THREATS 1. Competitors like Dunkin Donuts and Starbucks 2. Increase in eating at fullservice restaurants combined with a decrease in the use of fast-food restaurants 3. Low-carb trend in eating preferences 4. All-natural, organic, healthy eating trends

4. Development in international markets ST STRATEGIES 5. Strong channel of distribution 1. Focus on signature glazed doughnuts as a differentiating advantage over competitors 2. Offer nutritional information with an emphasis on new low-carb, low-calorie, or organic offerings 3. Develop low-carb doughnuts 4. Develop doughnut made with organic ingredients

2. Offer value-based and consistent pricing

3. Expand product line with low calorie doughnuts and beverages

Internal Strategic Position Financial (FP) +6 best, +1 worst +1_ Return on investment +1_ Leverage +3_ Liquidity +1_ Working capital +1_ Cash flow +1_ Ease of exit from market +4_ Risk level of business + 1.7__ average

External Strategic Position Stability (SP) -1 best, -6 worst -3_ Stage of technological life cycle -3_ Rate of inflation -2_ Demand variability -2_ Price range of competing offerings -1_ Barriers to entry into market -4_ Competitive pressure -3_ Price elasticity of demand -2.57__ average Industry (IP) +6 best, +1 worst +3_ Stage of industry/alliance evolution +3_ Growth potential +4_ Profit potential +4_ Financial stability +4_ Technological know-how +4_ Resource utilization +3_ Capital intensity +3.67__ average

__-0.87__ ycoordinate (FS + ES)

Competitive (CP) -1 best, -6 worst -3_ Market share -2_ Price/quality ratio -3_ Product life cycle -2_ Customer loyalty -2_ Competition's capacity utilization -2_ Technological know-how -3_ Bargaining power -2.43__ average Vector magnitude: square root of (y2 + x2) = _1.51____ versus maximum 7.07

__1.24__ xcoordinate (CA + IS)

FP

Conservative Market Penetration Market Development Product Development Related Diversification

CP

+6 +5

+4
+3 +2 +1

Aggressive Backward, Froward Horizontal Integration Market Penetration Market Development Product Development Unrelated/Related Diversification
-1 -2 -3 -4 -5 -6 IP

+6

+5

+4

+3

+2 +1

0 -1 -2

V = 1.51

Defensive Retrenchment Divestiture Liquidation

-3 -4 -5 -6 SP

Aggressive Backward, Froward Horizontal Integration Market Penetration Market Development Product Development

So as the V quadrant suggests a defending approach, Krispy Kreme is suggested to adapt the hold and maintain strategy that concerns mainly with market penetration and product development.

KKD should evaluate their present approach to marketing seriously. Although the industry is growing, they are unable to compete effectively. They need to determine why the firms current approach is ineffective and how the company can best change to improve its competitiveness.

As a last resort, divestiture or liquidation should be considered..

SPACE Alternative Strategies Forward Integration Backward Integration Horizontal Integration Market Penetration Market Development Product Development Related Diversification Unrelated Diversification Retrenchment Divestiture Liquidation Joint Ventures x x x x x x

I/E

GRAND TOTAL 1 1 2 3 3 3

x x x

x x x x

x x

1 1

These are strategies that should be used in implementing the specific strategies identified in the SWOT analysis
Score 4.2 3.4 3.08

1. Market Penetration 2. Market Development 3. Product Development

Begin advertisements in TV Expand product line with low calorie doughnuts and beverages This would increase the visibility on the market Increase of sales It contributes to the penetration of new and international market

Using a credible celebrity would definitely impact the sales

Expand product line with low calorie doughnuts and beverages

This would retain customers who are starting to be health conscious

It contributes to the penetration of new Increase of sales

Give emphasis to Research and Development As noticed, KKD does not have a R & D team/department. This is a very important area for the business to be sustainable. Hire marketing experts and food technologists and scientists

This would lead to the creation of healthy foods

Tap and collaborate with other research facilites to come up with innovative customer solutions.

Diversify product mix, develop culturally oriented products, This would attract new customers and attract international market It will make the company more competitive This would increase sales

Continue and develop more Donut Making Theater This is attractive to the children for educational purposes as well as the rest of the consumers. Knowing how your food was prepared safely gives you confidence on eating and buying it. This also would improve customer experience while buying thier doughnuts. Continue with the Fund Raising Campaigns Aside from the CSR aspect, this is also a sort of advertisment It creates a notion to the customer that everytime they buy, they are helping the calamity victims and the less fortunate.

Penetrate Asia and the Middle East Make use of the development aggreement .
This is a huge market to penetrate and opportunities are huge. This would lead to increase in revenues.

Create a Vision and Mission Statements Come up with a good mission statement

Reduce Operating Cost by 10% gearing towards Operational Efficiency Conserve. Supply Chain-Strategically position production areas and centralize as much as possible to save fixed cost. KKD can use Transportation Method and Assignment Method for this in order to determine the lowest possible cost in the distribution and manufacture of the products. Establish exclusive partnership with suppliers. Encourage Innovation within the organization in relation to operational efficiency, high performace and dollar impact. Review and close unprofitable stores and focus on other domestic areas and global This would increase capital from locations and properties

Decrease loss and develop new market

 Review /revisit underlying bases of strategy formulation. Examine major changes that affects the internal and external position of the firm Prepare revised IFEM and EFEM
Compare the existing IFE and EFE matrices with the revised. Check of firm is heading towards achieving its objectives. Make necessary changes when appropriate.

Measure organizational performance:

1. Compare actual progress against planned toward meeting stated objectives.

2.

Quantitative measurements such as financial ratios, revenue growth, asset growth, must be considered.

3. Qualitative measurements must also be considered, such as

Is the strategy internally consistent or with environment Is strategy appropriate in view of available resources or is it too illusionary Does the strategy involve an acceptable degree of risk Does the strategy have an appropriate time framework

4. Take corrective actions where appropriate