Krispy Kreme Case Study

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KRISPY KREME DOUGHNUTS IN 2005
ARE THE GLORY DAYS OVER?
CORPORATE BACKGROUND
Company History
First getting its corporate bearings on July 13, 1937 in Winston-Salem, North Carolina, Krispy Kreme Doughnuts have seen the many stages of financial gain and loss. Through the 1930’s and 1940’s the company saw regional growth and by the late 1950’s Krispy Kreme had opened 29 shops in 12 states. 1960 marked an era where management Vernon Rudolph and Mike Harding began to emphasize corporate standardization through its brand image. All Krispy Kreme shops were made with a green roof, a red-glazed brick exterior, a viewing window inside, an overhead conveyer for doughnut production, and bar stools. Original owner Vernon Rudolph in 1973, so Harding continued the growth and under their management the company’s revenues grew from more than $1 million in 1954 to $58 in 1974. Two years later, Beatrice Foods bought Krispy Kreme and tried to make some changes to the brand image and doughnut recipe. After seeing how the changes negatively affected sales, the owners changed the lettering and recipe back to the originals. A group of franchisees bought out the company in 1982 and due to double-digit interest rates no expansion was made. Eventually, corporate revenues grew steadily to $117 million 1989 and then edged off for six years. New Management and Rapid Growth (Objectives)

Joining just a few years out of college, Scott Livengood joined the company in 1978. By 1992 he was president and chief operating officer, a member of the board of directors in 1994, president and CEO in 1998, and president, CEO, and chairman of the board in 1999. With Livengood’s leadership came a change in corporate objectives. By the mid-1990’s the company had fewer than 100 Krispy Kreme branded stores (franchised and company-owned), and total sales were stuck in the $110-120 million dollar range. This last for six years until 1996 when management decided it needed a new strategy for aggressive expansion. Krispy Kreme objectives were to reposition the company to a retail focus and away from wholesale distribution. The company also increased doughnut sized and decided to expand the numbers of store nationally. In order to do this the company decided it needed to create stores a bit larger than normal in the 2,400- to 4,200- square foot range. By early 2000 the company had contracted with 13 developers to make 130 stores in the next five years. Growth continued and by April of 2000 the company decided to go public. The IPO of 3.45 million shares was oversubscribed at $21 per share and in May 2001 the stock began trading on the NYSE. New Markets Breed New Opportunities (Strengths)

Between 2000 and early 2004, the company increased the number of Krispy Kreme stores from 144 to 357, raised doughnut sales from an average of 3 million a day to an average of 7.5 million a day. During those years the company entered foreign markets, first in London and continuing in Australia, Canada, and Mexico. In fiscal 2004, Krispy Kreme achieved an estimated 30.6% of the market for packaged donut sales, compared to 23.9% a year earlier and 6.4% the year before. Krispy Kreme had developed strengths in their vertically integrated supply chain selling proprietary donut manufacturing equipment as well as mixes. Another company strengths was their great word-of-mouth advertising. Before a store opened in a new part of town it wasn’t uncommon for people to camp out the night before and have TV crews and radio stations broadcast from the opening. In 2003, the donut manufacturer ranked ahead of Starbucks in Restaurants and Institutions Choice in Chains category, at the number one spot. Brand loyalty was high and perceived quality was high as well, as evidenced by statements made customers, “I ate one and literally it brought a tear to my eye. I kid you not.” Many franchises had found nontraditional ways to sell their doughnuts: in grocery stores, in ball parks, over...
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