Krispy Kreme business model and market strategy

Krispy Kreme Doughnuts is a specialty retailer of doughnuts, owning and franchising stores where it makes and sells over twenty varieties of doughnuts, including its famous Hot Original Glazed variety (Company profile, Yahoo! Finance). As of February 1, 2004, there were 357 Krispy Kreme factory stores in operation, of which 338 were located in the United States. It also uses third-party retailers to distribute its product. To grow its business, Kripy Kreme has sought aggressive domestic and international expansion of new factory stores and has expanded into coffee roasting to attract some of Dunkin' Donuts loyal coffee market (Rusch). The company has also introduced a new line of frozen blended beverages to grow revenue (Drinking those cool Krispy Kremes. 2004).

Like most companies, Krispy Kreme has a lengthy code of business conduct and ethics. However, Krispy Kreme is currently being investigated by the U.S. Securities and Exchange Commission and is being sued by shareholders for making false statements about its business (Krispy Kreme lenders grant 2-month waiver, 2005). And, the company has not responded to consumer demands for more healthy products (Drinking those cool Krispy Kremes. 2004).

Krispy Kreme's closest direct competitor is Dunkin' Donuts (Rusch). Krispy Kreme makes doughnuts fresh, in full customer view, three times a day. Dunkin' Donuts, on the other hand, ships its doughnuts from a factory. Krispy Kreme enjoys a strong brand image that hasn't changed since 1937 and is known for maintaining rigorous quality control. Dunkin' Donuts, however, was first to market in many regions, has a strong parent company, and a robust coffee and doughnut business. Further, Dunkin' Donut has acombined regional tastes and local ingredients to achieve success in the Middle East, the Philippines and Latin America.

Krispy Kreme faces many challenges as it expands nationally and internationally. The most notable is the trend for health-conscious consumers to shy away from this company's products (Krispy Kreme crisis increases losses, 2004). As a result retailers have cut back on the number of doughnuts in their stores, replacing them with low-carb products. Many analysts believe that Krispy Kreme has already over expanded after opening thirty-two new stores in the first half of 2004 (Krispy Kreme crisis increases losses, 2004). These stores increased total store sales by 9.6%, but average weekly sales at individual stores dropped by almost twenty percent compared to the previous year. And, Krisky Kreme is at financial risk. In January 2005, the company averted defaulting on a $150 million credit facility after its lenders agreed to give it another two months to prepare financial statements that are being restated due to accounting errors (Krispy Kreme lenders grant 2-month waiver, 2005). Weak demand, excess capacity and financial weakness all add up to cut backs rather than expansion.