Krispy Kreme's acquisition of Montana Mills and domestic expansion strategy

Krispy Kreme Donuts 2004

Determine whether you think KKD paid too much for Montana Mills.

The fact that KKD and Montana Mills merged together, with all of Montana Mills' stock being converted to KKD common stock, indicates that there was no actual price paid by KKD for Montana Mills. Rather, KKD chose to have all Montana Mills' stock converted to its own, which in effect preserved the value of KKDs' stock with no effect to shareholders' value and no actual cash paid for the merger. As a result, KKD did not pay too much for Montana Mills as the conversion of their stock to KKD incurred no actual cost and actually increased the value of Montana Mills stock in the process.

Determine whether you think KKD should expand globally, and if so, where and how fast, or should the firm be expanding further domestically?

As the efforts to expand into Great Britain have shown, cultural differences between the U.S. And other nations specifically on which foods are customarily served with breakfast, the way these breakfast foods are purchased (walk-up vs. drive-up), hot beverages served (tea vs. coffee), flavors of the food, and even type of location layout all have a significant effect on if a quick serve restaurant (QSR) will be successful in a foreign country or not. These critical success factors for KKD are Americanized and as a result do not easily scale into other nations with different cultures. Of the countries that KKD competes in today including Australia, Canada, and Great Britain. The novelty aspect of KKD in Great Britain is underscored by their being sold in that nations' premier department store, Harrods'.

As a result of the critical success factors being unique to a car-based commuter culture, of which Australia and Canada are in addition to the U.S., KKD needs to instead concentrate on challenging Dunkin' Donuts for market share in key states that Montana Mills already has locations in. These states that Montana Mills is already present in could form the foundation of an aggressive new campaign to market share away from Dunkin' Donuts. Montana Mills has locations in New York, Ohio, Pennsylvania, and Connecticut. What KKD needs to do is invest more heavily in Montana Mills' higher-end store locations, of which there are 22 today, to have breakfast, lunch and dinner items on their menu in addition to the traditional KKD donuts. As demographic analysis presented in the case illustrate, older, more affluent customers are eating out more, and this is being driven by the lack of time many couples and families have as both husband and wife are working. What KKD needs to do then is turn the 22 Montana Mills locations into locations where lunch and light dinners are served based on the wide variety of pastries available, and offer donuts branded by KKD for morning commuters on the way to their offices. In addition, KKD needs to launch stores throughout the Boston area, as Massachusetts is one of the more populated states in the Northeast U.S. that KKD, either on its own or through Montana Mills, has a location. By concentrating on the Northeast region of the U.S. And capitalizing on the investment already made in Montana Mills, KKD has a better chance for profitable growth relative than attempting to expand globally.

Develop a three-year strategic plan for KKD, which is in a real fight with Dunkin' Donuts for market share.

As the case study culminates in 2004, the following strategy plan addresses the period of time from that year to 2007. The critical success factors for KKD in creating a strategic plan must first center on product quality and freshness, as this has proven over decades to be the company's primary and most effective differentiator. Second, the plan needs to work to create a more unified strategic base to work off of; today the company seems to be moving in multiple directions at once yet not having a consistent, single, strong direction. Third, KKD needs to concentrate on penetrating the Northeastern market and challenging, then winning market share from Dunkin' Donuts. Lastly, the western United States have not been addressed at all in the context of this case study and there is significant room for growth in the larger sunbelt and costal cities of Phoenix, Tucson, San Diego, Los Angels (with a population over 8 million), San Francisco and the Bay Area (population 15 million) and Seattle. There is abundant opportunity in the western U.S. that KKD has yet to address. Each aspect of the strategy plan is now addressed by functional area:

Market Development

Over the next three years, KKD needs to first concentrate on competing more effectively in those regional markets where Dunkin' Donuts to this point has dominated the sale of donuts and related food and beverage items. This must begin with a build-out of the 22 Montana Mills stores in states where Dunkin' Donuts has the majority of market share, followed by selective expansion in western states including Arizona, Colorado, California, Nevada and Washington. The use of joint ventures, co-branding of retail locations, and private labeling needs to be aggressively used to penetrate the new markets in western states which have to date been unaddressed.

In terms of global market development, KKD needs to consider investments in Australia, Canada and Great Britain as opportunities to look for how to align their unique service and food business model to cultures comparable to the U.S. And still retain profitability. As KKD executes the best in the U.S., the company needs to expand domestically as much as possible before making further international investments.

Product Quality

As KKD moves into multiple distribution agreements and arrangements, and looks to increase its share in the northeastern U.S., the company must continually look to the quality of their donut making and baking process as their core differentiator. Without consistent product quality, KKD will not survive. The concentration on quality management throughout the entire mixing and baking process is critical for their success.

As a result of how critical product quality is, KKD needs to start auditing its own processes and in effect create its own auditing division to make sure all aspects of donut production and delivery are consistently executed to the highest standards. Over the next three years KKD needs to make each of the production processes of their donuts abundantly clear to existing and new franchisees, retail locations, and joint venture partners so they can retain their uniqueness and differentiation.

Summary

Taken together these factors, when executed over three years, will give KKD the ability to not only expand into entirely new markets in the western U.S. where their main competitor, Dunkin' Donuts, does not have significant market share today, but will also make them more able to challenge Dunkin' Donuts in the northeastern U.S. As well. The concentration on the northeastern U.S. through the Montana Mills stores, the development of more effective information systems and e-commerce plans including online ordering, and the development of more comprehensive quality management programs can be combined over three years to give KKD strong competitive advantage against Dunkin' Donuts.