Krispy Kreme – Assignment Example
Ron Steele John Smith Management 500 25 August This paper will examine recent strategic management moves by Krispy Kreme Doughnuts, including strategic policy effectiveness. I will also propose recommendations for further improvements and will briefly examine the industry competition that Krispy Kreme faces.
According to David Milstead at ctvnews.com, Krispy Kreme’s new CEO Jim Morgan has done outstanding in helping the company turnaround from losses and poor strategy choices of top executives who preceded him in the previous 5 to 10 years (Milstead 2).
Several moves have been recently made with strategy. One is with closing unprofitable stores to increase cash flow and reduce a large amount of company debt. According to the author, debt has dropped from $123 million two years ago to the current $43 million. In addition, Krispy Kreme’s first quarter profit in 2010 was $4.5 million, which was more than double the prior year’s quarter. (Milstead 2). The article notes that one analyst following Krispy Kreme found that recent strategic movements have stopped the downward slide, but it will take time for the recent positive changes to be reflected in the stock price (Milstead 2).
Additional moves of importance are having smaller stores with less square footage. In past years, the company would build a few large “factory like” locations where customers could watch the donut making process from start to finish. That strategy has been scaled back. The stores now will receive the donuts already cooked; yet customers can still see the “waterfall of glaze” being applied to the final product (Milstead 3).
Krispy Kreme is on schedule to report a positive final year net income in 2010 for the first time in 6 years (Milstead 1). Another noteworthy item is that the company is sticking to its most profitable geographic area in the Southeast United States. Franchisees are given the choice if they want to risk competing in locations where other establishments such as Dunkin Donuts is already doing well, but Krispy Kreme is not assuming the risk for it (Milstead 4).
I feel that Krispy Kreme has made excellent strategic choices. They are trying to be more conservative in opening new stores with less square footage and doing away with the more expensive ‘factory style’ setting where people could watch the entire doughnut making process. They are also concentrating on a geographic market that is their strongest, which is the southeast United States. Cutting debt and eliminating unprofitable stores was a needed first step as the company had overextended itself in the previous decade.
In examining industry competition, selected current financial data for Krispy Kreme Doughnuts along with Starbucks Corporation and Panera Bread are listed as follows as found on www.advfn.com website:
Debt Ratio 1 Yr Revenue Chg. Return on Assets Return on Equity Free cash flow EPS
Krispy Kreme 62.0 (-1.4%) -.1 0 .07 0
Starbucks 45.4 7.4% 7.0 12.8 1.72 .52
Panera 28.7 21.0% 11.4 16.6 6.28 .46
A strategic move that I would recommend to the CEO is to work on better and more diversified menu selections. Krispy Kreme is going with introductions of ice cream and a new high calorie cheeseburger. According to cbsnews.com, Dunkin Dounuts recently introduced a choice of a turkey or vegetable sandwich with less than 300 calories each. Dunkin also started offering multigrain bagels and low calorie muffins (cbsnews.com 2). Americans are trying to make better choices in their food selections, and having healthier options would be positive.
Ways to implement this strategy would be to start with performing customer surveys and watching industry trends. Finding out if the customer would prefer more healthy choices are the best way to know how to implement policies. Continuing examination of competitor trends such as Dunkin Donuts is critical since they have already attempted introducing healthier items recently.
Krispy Kreme lost brand equity it when it starting expanding into Wal-Marts, convenience stores, and even gas stations. It could be worth considering if the recent turnaround occurring this year with financial decision improvements could be taken further in where they sell their product. Marketing plans that stress a return to the ‘traditional way’ of doing business is a possibility. The company’s expansion overseas seems like a good strategy to continue, while learning from past mistakes and using the best practices for the new emerging overseas market locations.
ADVFN.com. 2010. Web. http://www.advfn.com/ accessed 25 August 2010.
CBSnews.com. 2008. Dunkin’ Donuts Goes Healthy With New Menu. Web.
http://www.cbsnews.com/stories/2008/07/30/health/main4307721.shtml accessed 25 August
Milstead, David. 2010. Krispy Kreme Beckons sweetly to Investors Again. CTV News. Web.
http://www.ctv.ca/generic/generated/static/business/article1677749.html accessed 25 August