Marketing 551 – Marketing Management

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Krispy Kreme Service Launch

Jennifer Crymes
Manit Chanthavong
Michael Lamp
John Pena
Benjamin McGreer

Murray Hilibrand
May 29, 2002
Marketing 551 – Marketing Management
Krispy Kreme Service Launch
Krispy Kreme is the premier doughnut provider. Their product is second to none and their service is more of an experience than simply purchasing junk food. Our learning team will review Krispy Kreme as a company. This paper will focus on current products and services, sales, costs, profits, market, competitors, distribution, and the macroenvironment and will conclude by suggesting a new service for Krispy Kreme.

Current Products and Services/Sales/Costs/Profits

Krispy Kreme Doughnuts, Inc. founded in 1937 in Winston-Salem, North Caroline owns, operates, and franchises retail stores that sell doughnuts and related items. Krispy Kreme stores specializes in making doughnuts, including their signature Hot Original Glazed. Krispy Kreme offers a unique retailing experience by fully displaying the production process, also known as the doughnut making theater. “An estimated 5 million Krispy Kreme doughnuts are sold every day and more than 2 billion are sold each year” (Moore, 2002). In addition to doughnut sales, the company earns revenues from franchise and development fees and the collection of royalties from franchises. Furthermore, the company sells doughnut-making equipment and mix and other ingredients to company-owned and franchised stores.

The company’s fiscal year ends on the Sunday closest to the last day in January. The current fiscal year (53-weeks) ended on February 3, 2002. Krispy Kreme’s gross revenues for 2002 were $394,354,000 with a net income of $26,378,000. The trend of gross revenues and net income has been positive since 1999. The 5-year growth rate for sales has been 24%, and increased by 31% from 2001 to 2002. Meanwhile, operating expenses only increased by 26% from 2001 to 2002. In terms of profitability, the company appears strong as income from operations almost doubled from 2001 to 2002 and net income increased 79% over 2001 levels. In terms of assets, total assets increased from 2001 to 2002 by 49%. Property and Equipment net of deprecation increased from $67,611,000 to $101,769,000 from 2001 to 2002, due to the additional store openings in 2002. Other large increases in assets include accounts receivables and intangible assets. Likewise, total liabilities increased, with large increases in accounts payable, accrued expenses, and long term debt and obligations. However, total shareholders’ equity increased 49%, based on issuing additional shares of common stock and the increase in retained earnings. Krispy Kreme Doughnuts, Inc. became a public traded company in April 2000. As of May 24, 2002, the common stock price per share was $39.66, with a 52-week high of 46.90 and a 52-week low of $25.00. As of April 8, 2002, there were 54,400,000 shares of common stock outstanding. The company’s stock current price to earnings ratio is relatively high at 79.32% when compared to the industry average of 26.90%, but has decreased from a high of 142.62% during 2001. Krispy Kreme Dougnuts, Inc. has no history of dividends paid, which is seen as a positive variance to the industry in terms of company strength. This has helped the company to increase retained earnings by $26,378,000 from 2001 to 2002. Based on a strong first quarter for 2002, Scott Livengood, CEO, Chairman, and President of Krispy Kreme, recently announced in a press release the expansion into five new markets with a new projection of new store openings for the current fiscal year to increase to 62 from original projections of 59 stores (Moore, 2002).

Market and Competitors

Retail sales of doughnuts were $1.78 billion in the year 2000. Americans have come to love and indulge in doughnuts due to the marketing by doughnut chains. According to a research by Modern Baking,...
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