Krispy Kreme Doughnuts Case Study

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The case depicts KRISPY KREME 's franchise system growth and decline as a lesson to entrepreneurs running a company as a franchisor.
KRISPY KREME, one of the successful companies in the food-service industry, began as a single doughnut shop in the early 20ths. The rapid expansion of its business scale made the corporation suffer its first economic crisis by the early 1980s. A group of franchisees later took charge of the heavily-debt company bringing new management ideas which helped the KRISPY KREME find way back to the game and become the role model in the industry. KK generated revenues through four primary sources: on-premises retail sales, off-premises sales, product mix and
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After the recovery, KRISPY KREME again decided to expand its operation scale by tripling the stores within five years and marching toward the overseas market.
The more stores open, the more investments are required, the more management and regulation are needed, and all of which do not necessarily get the proportional returns. As mentioned above, most of the new stores belong to franchisees and they were called Area Developers who were responsible for developing new sites and building in markets with high potential. Such method is very risky for no one could guarantee that all the franchisees are qualified enough to decide how where and when to run the business.

d) Unreasonable accounting practices
Unlike other restaurant operators, KRISPY KREME does not amortize, or reduce the value of those assets, on its books over time. An enterprise shall amortize intangible assets from the time when it is available for use to the time when it is not confirmed as the intangible assets any more. 4 Not amortization means that the KK would not require its franchisees to pay any fees while using the intangible assets.
The KK’s revenue composition seems questionable as well. Most successful franchise companies build their business around the royalty payment. KK, on the other hand, build it around equipment sales. Enlarging the proportion of the franchisee royalties and fees could not only help build a great image for the company but also motivate the franchisees to operate

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