Gross Margin for the last year has been competitive with the industry at 23.53 % and 27.60 respectively. The figures for the net profit margins are also identical for the industry and KKD at around 7.5%.
The 5 yrs. average Return on Equity for KKD is 15.83% and the industry is at 14.83%. On comparing the Price to Free Cash Flow Ratio for the last 12 months we find the Krispy Kreme with 46.24 comfortably beats the industry at 28.69 reflecting the good cash management of Krispy Kreme. The IPO for KKD was issued in 2000 and became one of the most successful openings gaining close $10 on the first day. The Stock price has shown a fair degree of fluctuation ever since, going up to $50 in August 2003 and is at about $17 currently.
Resources
The biggest asset that Krispy Kreme enjoys currently is customer confidence. The company does not spend any money on advertising budgets, to build a hyped up brand, but still the perception among the customers is that Krispy Kreme is the best doughnut available in the market. Customers eagerly wait for a Krispy Kreme factory store to open up in their location. The company also enjoys great franchisee confidence, as franchisees are still willing to pay twice the setup cost they would for a Dunkin Donut store
The prime capability that Krispy Kreme is enjoying currently is a fantastic leader. Scott Livengood became the CEO in 1997 and the chairman two years later and the company stores have grown from 95 to 357 in 2004. The other officers in the top ranks, COO John Tate and the CFO Michael Phalen are extremely capable at their respective jobs.
The Core Competency for Krispy Kreme is the great taste and consistent quality of their products. Customers just love the taste of the hot fresh doughnut, made from the secret yeast-raising recipe. Customers keep coming back to the stores because of the hot tasty doughnuts that “just melt in the mouth”. The Logistic system supplying the stores with the equipment and the fresh dough is part of their competency.
The sustainable competitive advantage for Krispy Kreme would be maintaining the great taste and quality and the logistic system, while continuously expanding into newer areas, while making sure that competitors do not imitate their products i.e. continuous improvement in their products.
The Business Level Strategy that Krispy Kreme follows is Broad Differentiation. The products are ‘different’ from its competitors while the market is the mass market. The Corporate level strategy that Krispy Kreme follows in order to grow and expand is
using Acquisitions and Strategic Alliances. Krispy Kreme Acquired Digital java a coffee company to control its coffee brewing operations and also acquired Montana Mills, a bakery chain to try outs its satellite store experiment. With these satellite sores KKD wants to venture in the market for cold doughnuts.
INDUSTRY ANALYSIS
Krispy Kreme belongs to the Restaurant industry in the Service sector. Narrowing that down, we can say that KKD belongs to the Doughnut market which has total market size of $4.7Billion, of which it has about 15%. The total market capitalization of the industry is $113.2Billion, and the revenue growth rate is 17.22%. The score of the market is global, and there are 88 listed companies in the industry, and thousands of other unlisted ones.
Porter’s 5 Force Analysis
The rivalry among existing sellers is very high as every restaurant is competing against every other restaurant in a given area. The total number of restaurants in US is 878,000 and so the competition is very high. There is continuous threat from new entrants in the industry as it is an ever booming and lucrative industry. People always will want to eat outside in restaurants which continuously invite new entrants in the industry. There is no great threat of substitution to the industry itself, as people will always eat food outside their houses. But the threat of substitute is very high for any given competitor in the market, as a new entrant might bring along a product which serves as a substitute to the existing restaurant. The power of buyers and suppliers vary from region to region. Any region with very high density of restaurants will result in great buyer power. In developing countries the supplier power is very low but in developed countries the power is very high.
Driving Forces
The force that drives the industry most is, FDA regulations about the quality of the product offered. Technological advancements discovering the nutritional value of a particular commodity can go a long way to drive the industry. Understanding for the different cultures and eating habits of the people around the work can be a driver in the industry. Other drivers can include natural disasters such as flood and famine, when the demand for food goes up dramatically.
Competitor Analysis
The main competitor that Krispy Kreme has in the doughnut market is the market leader Dunkin Donuts. Dunkin has approximately 70% of the doughnut market world-wide. The competitive advantage that Dunkin enjoys is mainly volumes, economies of scale and large market capitalization. The weakness of Dunkin is that probably it has achieved the maximum achievable share in the doughnut market, and the growth will become stagnant now. Also customers perceive Krispy Kreme Doughnuts to be better in quality than Dunkin. Some of the other competitors in the doughnut market are LaMar’s, Tim Horton’s and Wintchell’s. The other com main company that Krispy Kreme perceives as its competitor is the coffee giant Starbucks. Starbucks is the high end coffee retail seller with $18.5bllion in market capitalization and about $4B in revenue, growing at 30% every quarter. The competitive advantage enjoyed by Starbucks is the distribution channels and the differentiated product line. There is nothing that can be stated as a weakness for Starbucks apart from that it is a high end product and so will not make inroads in the developing countries.
Key Success Factors for the industry:
The key success factor in the industry is customer service. The restaurant industry is part of the service industry and great customer service is a key factor for success. The perceived quality of the product offered and the value of the brand also are major key factors. The perceived nutritional value of the offered product can be a deciding factor. Other factors will include, low cost, technological breakthroughs, advertising campaign, location of the store and know-how of the regional delicacies
SWOT ANALYSIS
The strengths include strong brand national awareness and accessibility, its secret recipe of doughnut mix, fresh and hot doughnuts with theatre technology and vertically integrated supply chain. Improved assortments of coffee and beverage products is also fetching market share. Its involvement in fund raising events also creates goodwill.
The weaknesses include lack of a proper mission statement which doesn’t incorporate objectives, lack of advertising and experience in the international markets. Also despite of increasing its product line, it still lags behind in terms of product differentiation.
There are several opportunities to Krispy Kreme like expansion into international markets, adding more stores in the current markets. Also, expanding their product lines into premium coffee brands and other bakery products so as to compete with companies in other segment presents a great opportunity for Krispy Kreme. Furthermore, it is introducing modular Hot Doughnut Machine, which will allow it to open small satellite retail outlets with low capital expenditure.
The biggest threat is increasing health conscientious among people and also healthier products alternatives getting introduced. In international markets, local bakery presents threat and it needs to be aware of other international brands like Dunkin Doughnuts. Doughnut fad and corresponding premium may reduce through time as the brand becomes ubiquitous through channel flooding. Modular doughnut making machine is still being tested and may not succeed. Also, Competition may arise from unforeseen other brand leaders, like Starbucks, once it tries to enter coffee and bread product categories.
