Krispy Kreme Doughnuts Case Study

Topics: Franchising, Financial ratio, Dunkin' Donuts Pages: 4 (1165 words) Published: October 16, 2012
The case depicts KRISPY KREME's franchise system growth and decline as a lesson to entrepreneurs running a company as a franchisor. KRISPY KREME, one of the successful companies in the food-service industry, began as a single doughnut shop in the early 20ths. The rapid expansion of its business scale made the corporation suffer its first economic crisis by the early 1980s. A group of franchisees later took charge of the heavily-debt company bringing new management ideas which helped the KRISPY KREME find way back to the game and become the role model in the industry. KK generated revenues through four primary sources: on-premises retail sales, off-premises sales, product mix and machinery, and franchisee royalties and fees. However, as its market getting bigger yet the business strategy getting radical and unclear, KK gradually got itself into trouble. The crisis revealed on 2004 when the company’s earning was overestimated by the investors. A series of remedial measures were adopted which, unfortunately, had little effect. As the KK’s troubles mounted day by day, the majority of the analysts began to be pessimistic about the company’s stock and future.

The rise and fall of KRISPY KREME indicates that there are lots of things worth learning while running a company. The KRISPY KREME’s decline could be attributed to four factors: immature franchise system, high expectations on stock valuation, aggressive growth, and unreasonable accounting practices. a) Immature franchise system

Franchising is the practice of using another firm's successful business model. As shown in the exhibit 3, the ratio of the store numbers of the company-owned store and franchised store remained stable during the five years as 2 to 3. Franchising owns many advantages, one of which is quicker cash. The exhibit 1 the income statement illustrates that the operating cash flow during the period turned out to be satisfying....
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