YoNuts Company Analysis Essay

The type of innovation represented for YoNuts is an innovation in production that changes the dynamic between the user and the production.  Normally, supermarket doughnuts are produced ahead of time in a factory, then shipped and sold.  YoNuts are entirely different in that they are only partially produced at a factory, shipped frozen, and then the final production is done at the site of the end user.  It is akin to the difference between going to the store and buying a bag of popcorn versus going to the store and buying a pack of Orville Redenbacher.  Things like Jiffy Pop and microwave popcorn have a large share of the grocery store popcorn because, quite frankly, the consumer gets a fresher, better product.  So it is with YoNuts.  The innovation allows consumers to produce the freshest, best doughnuts at home.  

The benefit to the consumer is that the end product is vastly superior to other doughnuts that one can buy at the grocery store.  As with any fried product, freshness is key to flavor, and so on that point most store-bought doughnuts lean heavily on powdered sugar and other flavors for their taste.  Additionally, they must rely on chemical preservatives and other stabilizers to maintain some semblance of freshness, and this not only makes them even less healthy but it detracts from the flavor as well.  YoNuts are different.  They are shipped frozen, so do not need chemical preservatives, and they are produced at home.  This means that they are fresher than any competitor.  

The inspiration for YoNuts came from a few different ideas coming together.  The first was taking inspiration from the rise of doughnuts as a popular food again.  In trendy areas, doughnuts are popular again, with new artisan doughnut businesses springing up across the country.  They often feature both classic and non-traditional flavors, again providing some inspiration for how our flavor line-up will be envisioned.  Knowing that the market is growing was a big source of inspiration.

Many other elements of the concept flowed from this as well.  For example, the target market for trendy doughnuts shops is quite a bit different from the target market for more traditional doughnuts.  When you think about Dunkin Donuts or the old cliché about cops and doughnuts, you really do not think there is much of a growing market, but rather a tired, aging market that is not at all cool.  So seeing the cool restored to the doughnut business is something that has a lot of power.  The coolness factor tells us that doughnuts can be a growth market, but only when avoiding the more traditional channels for doughnuts sales.  If they are marketed as a luxury good – or at least the sort of little daily luxury one can afford oneself easily in life – then they have a chance to capture the new and growing market for premium artisan doughnuts.  That is the space in which YoNuts will operate, deliberately avoiding head-on competition with the other supermarket doughnuts.  For example, YoNuts are sold in the freezer section, not on the same shelves as the other doughnuts.  Also, YoNuts are mainly going to be sold in stores that are higher-end, and therefore might well be the only doughnut in the store.  The approach can almost be encapsulated by going into the places where Little Debbie isn't good enough to go.

As noted, there are a few different ways to envision the competition. YoNuts are not going to compete head-to-head with conventional supermarket doughnuts, and this is by design. First, the whole point is that YoNuts should not be associated with such products and second, those are large companies capable of strong competitive response, which YoNuts would like to avoid.  So  with that in mind, a few words on the different competitors.

The cake-based supermarket doughnuts like Little Debbie's (and countless other similar brands that infest old-fashioned supermarket shelves) are probably the largest competitors in terms of market share.  Exact figures are unavailable.  These products are produced in large commercial bakeries and have large distribution.  There are national and regional brands both, as these are fairly easy products to make.  They are low-quality snacks, and are usually priced as such.  Buyers tend to lack food sophistication.  There are few market similarities between these doughnuts and YoNuts, which are a batter-based doughnut sold to the premium market.  The products, channels, buyers, consumer behavior and positioning are all different.  Again, this is by design.  YoNuts is a small company, and the product innovation adds costs that make it impossible for YoNuts to compete on the basis of price alone, so avoiding the low-cost competitors entirely is a logical strategy. Many of these competitors, including McKee Foods (Little Debbie) and Hostess, are privately-held large corporations, and they market a broad line of baked snacks, of which doughnuts are just one component.

Krispy Kreme is a batter-based doughnut that is often sold through a variety of retail channels, including grocery stores, convenience stores and gas stations.  They also have their own stores, making them a unique competitor.  Krispy Kreme has a strong brand, annual sales of $461 million, and a product that is positioned at a premium to most any doughnut company that is bigger, so they are a legitimate competitor.  However, they also court the mass market, something that takes them away from direct competition with YoNuts to some extent.  

Many consumers see doughnuts as something to eat out, rather than something to purchase from a grocery store.  This is because doughnuts are better fresh.  As such, any doughnut shop is a legitimate competitor as well.  Krispy Kreme ($569 million in sales from 239 units) has already been discussed.  There are larger, mainstream doughnut shops as well. These including very large national or regional brands like Dunkin Donuts ($6.2 billion in sales from 7306 units) and Tim Horton's ($532 million in sales from 804 units, and rapidly growing) (Oches, 2013).  YoNuts intends to distance itself from these competitors, which tend to rely on cake-based doughnuts and coffee sales.

The more relevant competition among standalone doughnuts shops comes from independent doughnut shops, especially the modern artisan ones that provided the initial inspiration for YoNuts.  These shops are small, sometimes with only one location, and minor sales.  Most have little to no retail presence, but their product is closest to that of YoNuts and they compete for the same market. Because of the small size of the competitors, less is known about the market, but each city will have different market characteristics.  Part of the strategy for dealing with these competitors will be to create a brand in YoNuts and distribution that transcends any of these local doughnut operators.

Lastly, doughnuts are a snack product.  Snacks are either sugary or salty, and YoNuts competes primarily in sugary (though savory doughnuts are being explored).  As such, YoNuts roughly competes against any other sugary snack, a very broad category ranging from cookies to cakes, even as far as ice cream.  Competition in sugary snacks is both broad and deep, ranging from one-person companies to baking at home to massive multinational corporations.  In any retail outlet, there will be a lot of competition, as this market is worth tens of billions per year in America.  YoNuts needs to carve out a niche, in part by targeting channels where doughnuts are underrepresented, and by presenting a premium alternative to the wide range of low-grade sugary snacks on the market.  Avoiding direct competition with multinationals is part of the survival strategy, and it is also part of the positioning strategy, as premium positioning is going to be necessary to earn premium prices that will deliver profits.

YoNuts will receive premium positioning.  There are several reasons for this.  First, premium positioning separates YoNuts from pretty much every other doughnut available through retail channels.  This is important, because most doughnuts are in a declining or flat market.  It is only the premium market that is showing signs of life, and growth for the extended future.  Second, premium positioning allows for higher prices.  There is an innovation from which YoNuts is derived, and typically innovative products receive premium pricing, and the innovation in fact justifies the premium pricing.  The pricing will help make the product profitable, which would be impossible should it compete against the plethora of low-cost sugary snacks on the market.

Premium positioning also hits the target market.  The target market is younger, with more discretionary income, than the usual doughnut market.  So positioning away from the doughnut market is probably a good thing, because that market is unlikely to actually pay more for a premium product.  The traditional doughnut market is too price conscious and quite frankly does not appreciate higher quality goods.  YoNuts appeals to a target market that has demonstrated a willingness to pay more for a premium product, and the channels that have been targeted for distribution reflect that.  Premium pricing and positioning is simply expected in this market – artisan doughnuts can retail for over $3 apiece sometimes, compared with the normal $1 on the conventional market.