Krispy Kreme

Krispy Kreme executives no longer rush to implement new plans before the time is right. They carefully study each geographical location to make sure its market will support a full-scale doughnut operation. Also, management spends time checking out sites for individual stores. Potential franchisee and employees are required to maintain certain standards and are thoroughly screened.

The Krispy Kreme, Inc. case investigates the contributing factors that caused this particular darling of Wall Street’s stock to suddenly plummet more than 80% in 2004. In the year 2000, Krispy Kreme went to public and boasts iconic status by became the hottest brand in America. Less than a year after its initial public offering, the company’s shares were selling for 62 times earnings. However, in 2004 the market was shocked by the company’s stocks that plummeted more than 80% over the following 16 months.

Krispy Kreme is a branded specialty retailer and manufacturer of premium quality doughnuts. Its principal business is to own and franchise Krispy Kreme doughnut stores in the U.S. and internationally. The main product is the Hot Original Glazed, a one-of-a-kind doughnut with an established brand. Each outlet also sells over 20 other varieties of doughnuts and coffee products. Product quality and consistency has provided the Company with a very loyal customer base.3

Throughout Kentucky Fried Chicken’s (KFC) lifespan as a division of the company Yum Brands, they have developed and establish grounds that have helped make Yum Brands the company they are today. Within this lifespan, KFC has expanded not only throughout the United States, but globally to more than 125 countries and territories building and establishing more than 20,500 KFC outlets (About KFC). Although expansion is often times a great step for a company, sometimes they are successful and unsuccessful. One of the major countries KFC is successful in is China, and one of the countries they have not been so successful in is India. At the root of KFC success and failures are a few very basic marketing techniques, the four P’s (product, price, promotion, place), their target market, and KFC’s strengths, weaknesses, opportunities, and threats which are continually changing as KFC continues to expand and their market continue to grow.

Can you picture “riding down the street then you look over to see the big red” “hot and ready “sign on for those delicious little glazed donuts, and you just have to stop in for a dozen but when you get in there you end up buying two dozen. Trust me, I always do. Krispy Kreme is the best donuts in the world to me and they just melt in your mouth. Before you know it you will have ate a whole entire box by yourself. Krispy Kreme Doughnuts, is one of the world 's driving retailers and wholesalers of doughnuts and bundled desserts. They were very successful when they first started up but like any other company they also had downfalls. The Krispy Kreme grow so reckless that they almost had to file bankrupt and close some of their profitable stores.

From the “Management Discussion & Analysis” section, it is evident that Krispy Kreme is facing many risks that are being faced by almost all companies in the market. Those risks include:

1. What can the historical income statements (case Exhibit 1) and balance sheets (case Exhibit 2) tell you about the financial health and current condition of Krispy Kreme Doughnuts, Inc.?

In March of 2009, the SEC filed a cease-and-desist order to Krispy Kreme Doughnuts Inc., for their actions in prior years. The corporation had purposely inflated their earnings throughout 2003 and 2004 in an attempt to meet Wall Street expectations and retain their investors. With the over inflation of their actual earnings, Krispy Kreme was able to present a higher earnings per share (EPS) to the public and therefore become more favorable among investors. In this case there are three primary transactions known as “round-trip” transactions that occur. This meaning that the company was paying set amounts to franchisee’s and then expecting them to return the payments in a prearranged manner. In doing so, this would allow Krispy Kreme to record extra pretax income and therefore inflate their profits. There were also reports of channel stuffing that surfaced from former employees once the SEC began investigating Krispy Kreme. According to the reports Krispy Kreme would send double orders at the end of the year in order to boost their sales and meet expectations. Those orders would then be returned and credited at the beginning of the next fiscal year. Price-Waterhouse-Coopers were the auditors at the time and would then face serious questioning as to why they never noticed the increased shipments at the end of each year followed by the credits when the orders were returned the next year.

Krispy Kreme doughnuts, Inc is facing a crisis of a drop in share price like never before since its initial public offering in the year 2000. The situation of Krispy Kreme does not look so bright after it has reacquire the underperforming franchisees’ stores worth of 170$ million. In the end of 2004, the company has some problem related with its accounting for the acquisitions of certain franchisees that it has to restated its financial statement, which would lower the pretax income by 6 to 8 million. The company fails to file the report on time. This puts the company at risk of being delisted out of NYSE, moreover there’s a low carbohydrate diet trend coming. All those

Any company who wants to achieve higher margins of profits, first and foremost aims at reducing the cost of its production. KFC is no different than any other company. They do so by attaining high efficiency in production, operational and marketing areas. It provides its differentiated products at an affordable rate and gives a good value to its

Krispy Kreme is a worldwide selling doughnut chain store which was established in 1937 in North Carolina, U.S.A. The main store of Krispy Kreme Doughnuts, Inc is located in Winston-Salem. Krispy kreme has many varieties of doughnuts, but its most famous item is the glazed doughnut. Doughnuts of Krispy Kreme are available in many places such as Malls, Airports, Parks, grocery stores, gas stations e.t.c. worldwide. Krispy Kreme had well balanced growth during its initial stages but its profit margin has been declining recently while having a strong competition against Starbucks, Tim Horton’s, Dunkin Donuts, and now also McDonalds.

Substantial capital costs. The costs for establishing new food restaurants are fairly moderate therefore some business may find it easy to establish their respective restaurants. This may affect Nando’s and KFC in a way in which they introduce competition. However, the costs for establishing a well-known brand is high and therefore new business can be disadvantaged.

Moving forward, as the company scaled up, CK and Kim found it difficult to pass on their values and vision to independent franchisee owners. Eventually, they came up with a new ‘Internal Franchisee’ scheme where in they promote their top performing employees as outlet owners and share 50% profit of the outlets revenue.

Can you picture “riding down the street then you look over to see the big red” “hot and ready “sign on for those delicious little glazed donuts, and you just have to stop in for a dozen but when you get in there you end up buying two dozen. Trust me, I always do. Krispy Kreme is the best donuts in the world to me and they just melt in your mouth. Before you know it you will have ate a whole entire box by yourself. I bet you’re thinking how can I invest in something I don’t know anything about this company. Well I can help you with that with a brief summary of history.

Opportunities are elements that the company can exploit to its advantage. Most internationally located stores purchase their ingredients from local merchants rather than the Krispy Kreme Supply Chain. If KKD can find a cost effective way to provide these ingredients, they can capitalize on supply chain efficiencies to make a profit.