Krispy Kreme is one of the oldest names in donuts and has been operating for more than 65 years now. In recent years the company has been facing immense competition from other giant companies and thus, is under pressure to innovate and evolve. The companys recent statistics show modest revenue of 351Mn, an operating margin of 4.4 and a quarterly revenue growth of -11.4 which is indicative of its dire situation. (Yahoo) The company mostly relies on franchising for expansion however it has recently had bad experiences with franchising as a couple of its franchisees went into bankruptcy and affected the general reputation of the company. The company is trying to enter foreign markets but is facing difficulties owing to a lack of diversity of its product lines and other negative perception.
Problem Identification
Major problems that could be identified with Krispy Crme are diverse in nature yet, most of these are grounded within the managerial sphere and therefore can be addressed. Some of its problems are reputational such as its filling of chapter 11 bankruptcies, which severely affected its ties with its stakeholders and financiers and therefore, also affected its ability to secure finances in the future. Failure to maintain quality across its different franchises especially international franchises is also one issue leading to closure of a number of foreign outlets. High trans fat levels in its donuts despite the claim of zero-trans fat claim too has gone against the company in the past and especially became a controversy for its Hong Kong outlets that served donuts with high trans fat levels. (Parry) More so, an aggressive marketing strategy followed by unchecked and unrestrained expansion led to the eventual closure of a number of its outlets in recent years. A comprehensive expansion strategy bringing in consideration all important factors is of immense importance. However, most important issue Krispy Kreme faces is its ineffective management of its franchises that eventually led to decline in quality of products, defamation, law suits
Researching Internal and External Factors
As discussed earlier, most of the issues faced by Krispy Kreme stem from franchise mismanagement, a failure to innovate and the inevitable effects of the global economic crisis.
Krispy Kreme falls within the Restaurant Industry, which is facing hard times due to the recent economic turmoil. According to a report by the NPD group, guest traffic has plunged by approximately 2.6 for US restaurants. However, quick serving restaurants of the like of Krispy Kreme fair better with an approximate decrease of 2 as compared to a decrease of more than 6 for casual dining restaurants. (Yahoo)
Nevertheless, job losses have been borne equally by all the market players. Major industry players include McDonalds, Yum Brands, Darden Restaurants, Starbucks and Autogrill but more pertinent to our analysis are the direct competitors, which include Starbucks, Tim Horton, and Dunkin Brands that serve somewhat similar products as Krispy Kreme. Of these, the largest Market Capitalization belongs to Dunkin Brands and Starbucks exceeding 35Bn whereas, market capitalization of Krispy Kreme stands at a modest 201.6Mn. (Yahoo) As the freshness of its product is one of the most critical selling factors for a restaurant, Krispy Kreme emphasizes on that by making transparent, its production process. Supply and demand, as discussed before are relatively elastic and therefore have been partially hit by the prevailing economic conditions in the US leading to closure of outlets and subsequent job loses. Krispy Kreme faces tough competition by direct competitors of the likes of Starbucks and Dunkin Donut however localized competition has also affected its performance on various instances. On the product end, Krispy Kreme struggles to provide a more diverse range of products to its customers relying more on its Glazed Donut. Recent addition of Coffee to its product portfolio has not proven to be a big success as coffee still makes up only 10 of its total revenue compared to 60 at Starbucks. Additionally, there is little threat from new entrants or the suppliers. (Thompson)
Globalization in recent decades, has been a driving force for most companies in the Industry however, Krispy Kreme has been unable to fully utilize that potential. Its international presence is much less pronounced than that of either Dunkin Donuts or even Starbucks. Another important factor driving the industrial change is product diversity. Most Direct competitors have diversified their menu by offering additional drinks, cakes and sandwiches whereas Krispy Kreme still relies on its Glazed Donuts for the larger part of its sales therefore increasing business uncertainty for itself and its franchisees.
Force Field Analysis
Various factors influence the ability of Krispy Kreme to revive its lost status. Factors that improve its odds of revival include a loyal customer base, operational efficiency, Krispy Kremes buying power vis--vis the suppliers and an expected surge in the demand for bakery items. Factors that resist resurgence include a still stagnant economy, stringent WHO regulations applicable on the food industry, a difficulty to enter foreign markets, influence of competitors and limitations pertaining to franchisees.
SWOT Analysis
According to the SWOT Analysis, key strengths of the company lie in its customer loyalty, operational efficiency, ubiquity, and its buying power vis--vis suppliers. Its weaknesses lie in a lack of publicity and the general perceptions of donuts being unhealthy. Opportunities lie in its ability to locate in small areas conveniently and exploit niche markets however, it is often threatened by large competitors, local bakers, and the diversification of services offered by local diners and restaurants, therefore, offering similar services as Krispy Kreme.
Possible Solutions
A well rounded franchising strategy complemented by an effective marketing scheme and a comprehensive long term expansion plan are the most crucial factors that need to be incorporated. Additionally, Krispy Kreme has to enhance its financial standing and boast its viability from an investment point of view so that its prevailing liquidity issues could be addressed. However, to improve its investment appeal, internal changes are needed most importantly, a revision of its core objectives, toning them down and making them more realistic. Diversity too, needs to be introduced in its product line thus, introducing different yet related products such as sandwiches, drinks, pastries, chocolates etc. To counter the macroeconomic impact upon donut sales, the demand elasticity factor should be countered effectively by introducing cheaper donut varieties, bringing down production costs through implementing more efficient production techniques or economies of scale, and optimizing workforce by retaining the minimum level of employees so that fixed overhead costs could be decreased drastically. Theses are some of the major strategies that could be introduced to improve performance of the company.
Best Solution Recommendation
The most important issue that Krispy Kreme faces is related to the management of its Franchisers, which are also its only hope, if it wants to increase its sales drastically. However, recent events display how the company has been unable to secure financially strong franchises. It is well known that to expand locally or internationally, franchising is of critical importance to Krispy Kreme however, does the company have an effective recruitment or franchise management strategy In my view, this is the area demanding most attention and therefore, Krispy Kreme needs to develop a strategy for recruiting franchises. To retain value of its product, the company should also make sure that uniformity of quality is maintained through implementing like production strategies and similar product mixes. Also, to make franchises more attractive product diversity is needed and the company should introduce different lines of product. Therefore, the future of the company relies upon effective franchising through individuals and groups with a sound understanding of the business and strong financial backing.
Problem Identification
Major problems that could be identified with Krispy Crme are diverse in nature yet, most of these are grounded within the managerial sphere and therefore can be addressed. Some of its problems are reputational such as its filling of chapter 11 bankruptcies, which severely affected its ties with its stakeholders and financiers and therefore, also affected its ability to secure finances in the future. Failure to maintain quality across its different franchises especially international franchises is also one issue leading to closure of a number of foreign outlets. High trans fat levels in its donuts despite the claim of zero-trans fat claim too has gone against the company in the past and especially became a controversy for its Hong Kong outlets that served donuts with high trans fat levels. (Parry) More so, an aggressive marketing strategy followed by unchecked and unrestrained expansion led to the eventual closure of a number of its outlets in recent years. A comprehensive expansion strategy bringing in consideration all important factors is of immense importance. However, most important issue Krispy Kreme faces is its ineffective management of its franchises that eventually led to decline in quality of products, defamation, law suits
Researching Internal and External Factors
As discussed earlier, most of the issues faced by Krispy Kreme stem from franchise mismanagement, a failure to innovate and the inevitable effects of the global economic crisis.
Krispy Kreme falls within the Restaurant Industry, which is facing hard times due to the recent economic turmoil. According to a report by the NPD group, guest traffic has plunged by approximately 2.6 for US restaurants. However, quick serving restaurants of the like of Krispy Kreme fair better with an approximate decrease of 2 as compared to a decrease of more than 6 for casual dining restaurants. (Yahoo)
Nevertheless, job losses have been borne equally by all the market players. Major industry players include McDonalds, Yum Brands, Darden Restaurants, Starbucks and Autogrill but more pertinent to our analysis are the direct competitors, which include Starbucks, Tim Horton, and Dunkin Brands that serve somewhat similar products as Krispy Kreme. Of these, the largest Market Capitalization belongs to Dunkin Brands and Starbucks exceeding 35Bn whereas, market capitalization of Krispy Kreme stands at a modest 201.6Mn. (Yahoo) As the freshness of its product is one of the most critical selling factors for a restaurant, Krispy Kreme emphasizes on that by making transparent, its production process. Supply and demand, as discussed before are relatively elastic and therefore have been partially hit by the prevailing economic conditions in the US leading to closure of outlets and subsequent job loses. Krispy Kreme faces tough competition by direct competitors of the likes of Starbucks and Dunkin Donut however localized competition has also affected its performance on various instances. On the product end, Krispy Kreme struggles to provide a more diverse range of products to its customers relying more on its Glazed Donut. Recent addition of Coffee to its product portfolio has not proven to be a big success as coffee still makes up only 10 of its total revenue compared to 60 at Starbucks. Additionally, there is little threat from new entrants or the suppliers. (Thompson)
Globalization in recent decades, has been a driving force for most companies in the Industry however, Krispy Kreme has been unable to fully utilize that potential. Its international presence is much less pronounced than that of either Dunkin Donuts or even Starbucks. Another important factor driving the industrial change is product diversity. Most Direct competitors have diversified their menu by offering additional drinks, cakes and sandwiches whereas Krispy Kreme still relies on its Glazed Donuts for the larger part of its sales therefore increasing business uncertainty for itself and its franchisees.
Force Field Analysis
Various factors influence the ability of Krispy Kreme to revive its lost status. Factors that improve its odds of revival include a loyal customer base, operational efficiency, Krispy Kremes buying power vis--vis the suppliers and an expected surge in the demand for bakery items. Factors that resist resurgence include a still stagnant economy, stringent WHO regulations applicable on the food industry, a difficulty to enter foreign markets, influence of competitors and limitations pertaining to franchisees.
SWOT Analysis
According to the SWOT Analysis, key strengths of the company lie in its customer loyalty, operational efficiency, ubiquity, and its buying power vis--vis suppliers. Its weaknesses lie in a lack of publicity and the general perceptions of donuts being unhealthy. Opportunities lie in its ability to locate in small areas conveniently and exploit niche markets however, it is often threatened by large competitors, local bakers, and the diversification of services offered by local diners and restaurants, therefore, offering similar services as Krispy Kreme.
Possible Solutions
A well rounded franchising strategy complemented by an effective marketing scheme and a comprehensive long term expansion plan are the most crucial factors that need to be incorporated. Additionally, Krispy Kreme has to enhance its financial standing and boast its viability from an investment point of view so that its prevailing liquidity issues could be addressed. However, to improve its investment appeal, internal changes are needed most importantly, a revision of its core objectives, toning them down and making them more realistic. Diversity too, needs to be introduced in its product line thus, introducing different yet related products such as sandwiches, drinks, pastries, chocolates etc. To counter the macroeconomic impact upon donut sales, the demand elasticity factor should be countered effectively by introducing cheaper donut varieties, bringing down production costs through implementing more efficient production techniques or economies of scale, and optimizing workforce by retaining the minimum level of employees so that fixed overhead costs could be decreased drastically. Theses are some of the major strategies that could be introduced to improve performance of the company.
Best Solution Recommendation
The most important issue that Krispy Kreme faces is related to the management of its Franchisers, which are also its only hope, if it wants to increase its sales drastically. However, recent events display how the company has been unable to secure financially strong franchises. It is well known that to expand locally or internationally, franchising is of critical importance to Krispy Kreme however, does the company have an effective recruitment or franchise management strategy In my view, this is the area demanding most attention and therefore, Krispy Kreme needs to develop a strategy for recruiting franchises. To retain value of its product, the company should also make sure that uniformity of quality is maintained through implementing like production strategies and similar product mixes. Also, to make franchises more attractive product diversity is needed and the company should introduce different lines of product. Therefore, the future of the company relies upon effective franchising through individuals and groups with a sound understanding of the business and strong financial backing.
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