Conclusao de Curso

[ ]By CAROLINA VOLPATO, JENNIFER NSIAH AND STEPHEN THANNICKAL

Summer 2010

STRATEGIC MANAGEMENT

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Critical Success Factors

R & D to adapt to consumer’s changing preferenceso Development of new productso Health- consciousness

Regulationso International lawso FDA authorization (U.S.)

Increasing growth rate of domestic Hispanic and Asian population Mergers/Acquisitions Accessibility/ Convenience

o Fast-Paced Lifestyle Trademark/Brand Protection Size of Market Share (domestic and global) Brand loyalty and recognition

o Effective marketing Technological advancements in production and packaging Customer service Product differentiation Continuous growth

o Overseas expansion and franchisingo Increased Foreign competitiveness

Legal Compliance Reducing operating costs Company restructuring

o Financiallyo Scaling back locations

Ability to franchise Thorough distribution channels

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o Strategic alliances

Problem Identification

After defining the critical success factors and evaluating Krispy Kreme, the following problems were revealed:

Krispy Kreme Problem Identification Weight

Weak International Presence 0.17Healthy/ Nutritious products - weak 0.33

Focused on too few products 0.30

Lower revenues 0.20

General Environment

Political/Legal Environment

The Lanham Trademark Act of 1946 This law explains the rights of trademark owners, as well as the remedies that are required when a trademark is infringed. The law provides protection against false reports that are stated to damage a business or its reputation (U.S. Trademark Law 2009).

Franchise RegulationsThe FTC’s Trade Regulation Rule on Franchising (“FTC Rule”) and certain state and foreign laws require that companies furnish potential franchisees with a franchise disclosure document with information prescribed by the FTC Rule and applicable state and foreign laws and regulations. Businesses also must fulfill with a numeral state and foreign laws that legalize some aspects of the franchisor-franchisee relationship.

FDA & US Department of Agriculture RegulationsThe FDA is charged with protecting public health by ensuring that foods are safe and pure, cosmetics and other chemical substances harmless, and products safe, effective, and honestly labeled (Krispy Kreme 10K, sec.gov).

Local RegulationsTo be able to have new doughnut stores in specific areas, the company is subject to obtain the required licenses and authorizations by local government figures with respect for land use, environmental factors and zoning. Any franchisees are required to obey with all appropriate federal, state and local laws and regulations. This also includes the ones in the United States and in international markets, which include health, sanitation, safety, fire, building and other agencies in the states or municipalities in which the stores are located. (Krispy Kreme 10K, sec.gov).

Employment RegulationsFood product manufacturers are subject to state and federal labor laws that govern relationships with employees, such as minimum wage requirements, overtime and working conditions and citizenship requirements. Furthermore, the work conditions at

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store facilities are regulated by the Occupational Safety and Health Administration and are subject to periodic inspections by this agency.

Food, Drug & Cosmetic ActThe Food, Drug and Cosmetic Act is enforced through the FDA and sets forth specific standards for food preparation, branding, packaging, transportation and other necessities companies must keep an eye on in order to serve the general public in the food industry.

The Bioterrorism ActThe Act contains a number of provisions designed to improve and track the food safety efforts of the Food and Drug Administration (FDA) in cooperation with U.S. Customs and Border Protection (CBP) (fda.gov).

Federal Trade Commission Act Under the Federal Trade Commission Act (15 U.S.C. Act 41-58), the Commission is empowered to (a) prevent unfair methods of competition, and unfair or deceptive acts or practices in or affecting commerce; (b) seek monetary redress and other relief for conduct injurious to consumers; (c) prescribe trade regulation rules defining with specificity acts or practices that are unfair or deceptive, and establishing requirements designed to prevent such acts or practices; (d) conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce; and (e) make reports and legislative recommendations to Congress. (ftv.gov)

U.S. Environmental Protection AgencyThe U.S. Environmental Protection Agency (EPA) controls environmental regulations influencing the construction requirements for warehouses and facilities. The EPA also leads the nation in environmental research, with their goal in mind of protecting human health and safety. The U.S. CWA was derived from the Federal Pollution Control Act of 1972, which regulates water pollution.

Political/Legal Environment SummaryThe political/legal environment for the food industry is unfavorable due to the fact that it is highly regulated by the Federal Drug Administration (FDA) and the US Department of Agriculture. It must also meet strict requirements governed by the Federal Trade Commission (FTC) which regulate the offer and sale of franchises. In addition, the EPA regulates several areas that affect operations. International regulations also influence operations and expansion. However, the political/legal environment also shows that increasing efforts are being made in defense of innovative companies to deter trademark infringement.

Socio- Cultural

Perceived good food/ Quick Casual RestaurantsCurrently in America, people’s perception of good food is shifting from just good taste to proper nutrition benefits the food tends to provide the body with. FDA has advertisement on children’s channels encouraging healthy eating lifestyles and even good choices when it comes to snacks. This becomes a threat to KKD as well as others in the quick casual restaurant industry. The quick casual restaurant is a $6 billion segment and also one of the fastest growing niches in the

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restaurant industry. This significant growth is attributed to aging baby boomers who are willing to pay a little more for quality food in a comfortable environment and a youth culture that needs a place to, well, hangout (ENRG, 2010).

Socio- Cultural SummaryThe Socio- cultural environment of KKD is favorable because Americans have a culture of patronizing doughnuts or breakfast items such as KKD’s. Although much fuzz is being made about healthy eating which is a threat to the quick casual restaurants, with the following generations after the boomers still longing for family times, and connecting, there is much hope for this industry

Demographics

The U S populationAccording to the U S census bureau 2010 data, the United States ranks third in world population with 310,232,863 people after China and India with 1,330,141,295 and 1,173,108,018 respectively. However for consistency in data, we shall use the 2008 population of 304,059,72 as of July 1.

Gender distributionACS shows a 2006-2008 gender distribution of 49.3 and 50.7 for male and female respectively (census bureau, 2008).

Gender Distribution of the U. S.

female (50.7%)male (49.3%)

Population by raceBy race the white population is 74.3 % of the total, black or African American 12.3%, Asian 4.4%, Native Hawaiian and other pacific islander 0.1% while Hispanic population is 15.1% and some other race is 5.8% (fact finder, 2006- 2008).

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Population by Race

White (74.3%)Black/AA (12.3%)Asian (4.4)Native Hawaiian (0.1)Hispanic (15.1%)Other race (5.8%)

Hispanics versus Non-HispanicsIn order to get a clearer picture of the Hispanic population in the United States, the America Community Survey and Pew Hispanic Center (2008), divided the general population into two segments: Hispanic or Latino and Not Hispanic or Latino. The Hispanic and Latino race were over 15 percent (2008) of the total United States population (Those of Hispanic or Latino origin can be of any race).Researchers predict that the Latino or Hispanic population is bound for rapid increase. The following chart illustrates the percentage of those who are Hispanic compared to those who are not in the United States and their projected growth rates.

(Source: pew research, 2008)

Age Ages 5 years, 18 years and over and 65 years have percentages 6.9, 75.5 and 12.6 respectively of the entire population while the median age is estimated at 36.7 years for 2008 (fact finder, 2008).

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Baby boomers/ Generations X & Y and MillennialThe baby boomers are the portion of the U.S. population born between 1946 and 1964 and represent (Pew 2010). This large number of people will be one of the large contributors to the increase in the 65 and over category by year 2025. For the Millennial, their values in life are not far from the things older generations value. Family comes first, and fame and fortune are much less important. In a rating of how important a series of life goals are to them personally, being a good parent ranked at the top for all four generations. Overall, 50% of the public says this is one of the most important things in their lives. About half (52%) of millinnials say being a good parent is one of the most important things to them. This compares with 50% of those ages 30 and older (Pew research, 2010).

Millennia’s are significantly less likely to be working full time (41%) than Gen Xers (65%) or Boomers (54%), reflecting in part the very different life circumstances of millennial. At the same time, these youngest members of the labor force are about twice as likely to work part time (24%) as are members of the Gen X (10%) or BabyBoom (13%) generations. Also, according to Pew Research Center surveys, the older generations have more spending power than the millennial though the latter have much hope of higher buying power for the future.

IncomeThe 2008 data of American Community Survey (U.S. Census Bureau) estimated 112,386,298 American households, 74,870,525 American families, and 37,515,773 American nonfamily households.The average American household made $71,128 a year in income. The income bracket of$50,000 - $74,999 a year accounted for 18.8 %, or 21,109,871 households, in 2008. This is the largest income bracket, followed by the income bracket of $35,000 - $49,999 a year that accounted for 14.2 % of households.Also, on the average American families made $82,719 a year in income. The income bracket of $50,000- $74,999 a year accounted for 20.2% or 15,159,442 families in 2008. This is the largest income bracket, followed by the income bracket of $100,000 - $149,999 a year that accounted for 15.3 percent of families. Also, the average American nonfamily households made $45,160 a year in incomeThe median income for American families is $63,211 (U.S. Census Bureau, 2008).There have been fluctuations in the median household income between 1967 and 2008, but the income level has not dropped below that of 1967. Real median household income peaked in 2000, but began decreasing in 2002 through 2004 until 2005 when there was a slight increase in median income and even more, in 2008.

Household income brackets or ranges population percentage

Total number of Households 112,386,298 112,386,298

Less than $10,000 8,045,626 7.2%

$10,000 to $14,999 6,139,558 5.5%

$15,000 to $24,999 11,921,076 10.6%

$25,000 to $34,999 11,899,350 10.6%

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$35,000 to $49,999 15,951,147 14.2%

$50,000 to $74,999 21,109,871 18.8%

$75,000 to $99,999 13,992,314 12.5%

$100,000 to $149,999 13,758,104 12.2%

$150,000 to $199,999 4,858,631 4.3%

$200,000 or more 4,710,621 4.2%

Median household income (dollars) 52,175 (X)

Mean household income (dollars) 71,128 (X)

Families 74,870,525 74,870,525Less than $10,000 3,241,830 4.3%$10,000 to $14,999 2,383,126 3.2%$15,000 to $24,999 6,123,123 8.2%$25,000 to $34,999 6,958,316 9.3%$35,000 to $49,999 10,256,471 13.7%$50,000 to $74,999 15,159,442 20.2%$75,000 to $99,999 11,064,155 14.8%$100,000 to $149,999 11,463,137 15.3%$150,000 to $199,999 4,164,789 5.6%$200,000 or more 4,056,136 5.4%Median family income (dollars) 63,211 (X)Mean family income (dollars) 82,719 (X)Per capita income (dollars) 27,466 (X)Nonfamily households 37,515,773 37,515,773

Median nonfamily income (dollars) 31,547 (X)Mean nonfamily income (dollars) 45,160 (X)Median earnings for workers (dollars) 29,530 (X)Median earnings for male full-time, year-round workers (dollars)

45,425 (X)

Median earnings for female full-time, year-round workers (dollars)

35,269 (X)

(Source: fact finder; U. S. Census Bureau http://factfinder.census.gov/servlet/ADPTable?geo_id=01000US&ds_name=ACS_2008_3YR_G00_&qr_name=ACS_2008_3YR_G00_DP3YR3&_lang=en&_sse=on Retrieved June, 2010)

PovertyThe United States Government uses money income and poverty thresholds to compute and measure poverty status (U.S. Census Bureau, 2010). Those in poverty are usually supported by 800 hours of work per year, or 16 hours per week. Seventy-five percent of children would come 16 out of official poverty if at least one adult worked 40 hours per week. In 2008, 13.2 percent of the population was in poverty. All families in poverty were at 9.6%, female householders estimated 28.2%, while those with children under age 18 were at 36.5% and 44.5% for those with children under age five. In 2007 it was 13.3% of the total population. All families were at 9.8% while families with female householder and no husband present had estimated 28.6%. Moreover, female householders with children under age 18 were at 36.9% while worst off; those with children under five years were at 45.5%.

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EducationFor ages 25 and over there is a percentage of 84.5 with education high school or a higher education while 27.4 have attained a bachelor’s degree or higher. Education is usually positively correlated with income and spending.

Spending Habits of AmericansThe table below, extracted from the Bureau of Labor Statistics (BLS) shows the spending attitudes of Americans from ages under 25 years to 75 years and older. On the average, the total number of consumer units of 120,770 has a disposable income of $61,774 and spends an average of $6,443 on food from their total annual expenditure of $50,486. Also, on the average all consumer units spend $507 on cereal and bakery products and also $337 on bakery products only. The consumer unit that spends so much on cereal and bakery products or on bakery products alone is ages 35-44. They spend $620 and $407 which is above the average of all the consumer units on cereal and bakery product and bakery products alone respectively. They are followed closely by ages 45-54 who also spend $600 and $397 on the above mentioned foods. On the whole the under 25 spends less which is $281 and $178.

Table 47. Age of reference person: Shares of average annual expenditures and sources of income, Consumer Expenditure Survey, 2008

Item

All consumer units

Under 25

years

25-34 years

35-44 years

45-54 years

55-64 years

65 years and

older

65-74 years

75 years and

olderNumber of consumer units (in thousands)

120,770 8,227

20,208

22,834

25,614

19,826

24,062

12,580

11,481

Consumer unit characteristics:

Income before taxes$63,56

3$28,1

27$59,8

78$77,5

82$81,8

44$71,6

53$39,3

41$45,2

32$32,8

86

Income after taxes$61,77

4$27,9

07$58,8

09$75,6

77$78,5

37$69,0

09$38,8

41$44,4

02$32,7

47Age of reference

person 49.1 21.5 29.6 39.7 49.4 59.3 75.0 69.0 81.6

Average number in consumer unit:

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Persons 2.5 2.0 2.8 3.3 2.7 2.1 1.7 1.8 1.5Children under

18 0.6 0.4 1.0 1.4 0.6 0.2 a/ 0.1 a/Persons 65 and

over 0.3 a/ a/ a/ a/ 0.1 1.4 1.4 1.3Earners 1.3 1.3 1.5 1.6 1.7 1.3 0.4 0.6 0.2Vehicles 2.0 1.2 1.7 2.1 2.4 2.2 1.6 1.8 1.3

Percent distribution:Sex of reference

person:Male 47 47 50 46 47 49 43 46 40Female 53 53 50 54 53 51 57 54 60

Average annual expenditures ($)… 50,486 29,325 48,159 58,808 61,179 54,783 36,844 41,433 31,692 Food............................................. 6,443 4,447 6,229 7,849 7,696 6,357 4,692 5,338 3,935 Food at home.................................... 3,744 2,330 3,393 4,509 4,452 3,710 3,075 3,421 2,667 Cereals and bakery products............ 507 281 454 620 600 492 435 473 390 Cereals and cereal products...............170 103 169 213 203 152 131 142 118 Bakery products............................... 337 178 286 407 397 340 304 332 271 Meats, poultry, fish, and eggs............. 846 573 742 1,014 1,018 845 687 781 576 Gifts of goods and services................ 1,209 429 579 856 2,037 1,752 1,016 1,291 700 Food............................................ 97 37 51 73 155 155 72 90 51

Source: extracted from Bureau of Labor Statistics, 2010 (: Average annual expenditures and characteristics, Consumer Expenditure Survey, 2008)

Summary

Technology

Internet UsageThe use of the Internet continues to rise according to usage statistics provided by internetworldstats.com. In 2009, internet users represented 26.6% of the global

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population compared to 5.93% in year 2000. In the US, internet usage is highest at 76% population penetration with e-commerce sales reaching almost $142 billion in 2008. According to information from the US Census Bureau, e-commerce sales grew at an annual average rate of 21% from 2002 to 2008 compared to total retail sales growth of 4%. (U.S. Census Bureau, 2008)

The internet is playing an important part in consumer decision process with levels of trust increasingin the content posted. In research conducted by Nielsen Wire, it found that 70% trusted consumeropinions posted online, 70% trusted brand websites, 37% for online video ads and 33% for Onlinebanner ads. (Nielsen, 2009)

Communication ChannelsIn a survey conducted by Datatran Media in December 2009 from 5,000 Fortune 500 companies,marketing executives felt that the use of technology in advertising performed better than otherchannels. In that survey, advertising through email, search, social media and mobile accounted for68.5% of the channels that rated as more effective.

In their plans for use of digital marketing channels in 2010, the marketing executives indicated that59.8% would use over half of their overall multi-channel advertising campaign versus print, radio,television, outdoor, etc. (Datatran, 2010)

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(Source: Datatran Media LLC, 4th annual marketing and media survey, 2010)

The use of smartphone technology in the US is on the rise accounting for 21% of overall cell phone market in 2009, according information from Nielsen Wire. According their projections, by 2011 smartphone users will account for 49% of the market versus 51% of non-smartphone users. (Entner, 2010) In market research conducted in 2009 indicated that 37% of smartphone users purchased products using the device, 41-43% used the device to check prices at alternative locations, 31-39% checked customer reviews. (Stambor, 2010)

AutomationIn this current environment of increased competitiveness, companies are seeking new ways to improve productivity and decrease operating cost. The use of technology such as Radio Frequency Identification (RFID) has enabled companies to more efficiently process, package and manufacture their products. In the food industry for example, this is a key element in reducing waste and shortening lead times due to the time sensitivity of the perishable nature of the products. Manufacturing concepts such as lean principles, production systems and mass customization principles with the use of greater automation are used in the food industry, similar to those used in the traditional manufacturing industry. With labor, health and safety costs rising, companies have been turning to more automation to improve its efficiencies and remain competitive. (Mahalik, 2010)

Technology SummaryThe technology environment is favorable towards Krispy Kreme and the food service industry. The increasing use of the internet has enabled companies to promote their products via communication channels such as social networking sites, smart phones and companies own websites. It has enabled companies to be greater aware of consumer tastes and trends. Technological innovations in food processing, manufacturing and packaging have greater efficiency in the industry.

Economic

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Gross Domestic Product (GDP)The US economy has continued to slow in the past few years, with the GDP in decline from 2.1% in 2007, 0.4% in 2008 to -2.1 in 2009, compared to a 2.7% average over the previous 7 years. (U.S. Department of Commerce, nd) Despite the declining numbers, the CBO forecasts a growth of 2.0% in 2010 and 4.0% in 2011. (Congressional Budget Office, nd)

Consumer Price Index (CPI-U)The U.S. Bureau of Labor Statistics reported that the CPI-U increased to 2.7% in 2009 from a low of 0.1% in 2008. Forecasts by the CBO in January, 2010 are that the CPI-U would be 1.6% in 2010 and drop slightly to 1.1% in 2011. (U.S. Department of Labor, 2010). The CPI for food away from home has gradually increased in the past few years as indicated below, but has leveled off in 2008 and 2009.

UnemploymentThe unemployment rate has continued to remain consistently over the 9% mark from May 2009 to May 2010, which is a significant indicator on the shape of the US economy considering the fact that the unemployment rate was around 5.5% just 1 year prior in May 2008. The CBO’s forecast for 2010 done in January, 2010 was that the unemployment rate would rise even higher to 10.1% before lowering slightly in 2011 to 9.5%. Their longer term forecast for 2012 through 2014 is that average unemployment rate will be 6.5%. (U.S. Department of Labor, 2010)

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Source: U.S. Department of Labor, 2010 http://www.bls.gov/news.release/pdf/empsit.pdf

Disposable IncomeAn important indicator for businesses to focus on is consumer disposable income, which was at its lowest level of increase in 2009 at a meager 1% compared to 3.9% increase in 2008. The contrast is even greater if we look at the average disposable income of 5.46% from 2000-2007, according figures from the Bureau of Economic Analysis. The chart below from the US Economic Research Service indicates despite the overall increase in disposable income, spending on purchase meals & beverages as a percent of disposable income has decreased.

Economic Summary

The economic environment is favorable to unfavorable to operate in. High unemployment has led to lower disposable income and coupled with increases in the Consumer Price Index, have

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affected the food service industry. However, there are favorable signs in the quick service food sector which has seen minimal increases despite the difficult economic situation.

Global Environment

DemographicsAccording to the U.S. Census Bureau's latest estimates, the global population now is close to 6.8 billion. It’s increasing at a rate of 143 people a minute, 8,607 people an hour, nearly 206,550 a day and 75 million this year. The world population increased from 3 billion in 1959 to 6 billion by 1999, a doubling that occurred over 40 years. The Census Bureau's latest projections imply that population growth will continue into the 21st century, although more slowly. The world population is projected to grow from 6 billion in 1999 to 9 billion by 2045, an increase of 50 percent that is expected to require 46 years. Although their underlying assumptions could change, Census Bureau demographers see world population totaling roughly 9.0 billion by the middle of the next century, given present trends (Census Bureau 2009). With the increasing number of the world’s population, firms are exposed to more consumers that are demanding exceptional products and services. The elderly (age 60 or older) in Europe represented 21 percent of the people in 2006, but will represent 34 percent in 2050. Other countries that are not as advanced will also see a rise in the number of people age 60 and over; it is projected that these countries will experience an increase from 8 percent (2006) to 20 percent (2050).

Mergers/Acquisitions/ConsolidationsAlmost every day, there is news of some new billion-dollar combination: banking, healthcare, and tobacco in just the past few days. Behind the new surge in acquisitions is a much healthier stock market. Since the beginning of the year, stock prices are up between 15 and 20%. This has given companies the means to snap up competitors, some weakened by an economic downturn. In the current general environment, there are also

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important global trends. Several large companies, instead of developing products internally, have grown through acquisitions in serious segments in order to create a presence overseas (Standard & Poor’s Industry Trends 2010). Companies will acquire another company that already has a specific segment, providing a faster and cheaper way to meet that consumer demand, other than developing products internally. (Standard & Poor’s Industry Trends 2009). In addition, there is a global trend toward consolidation in the retail channel, particularly in Europe and the United States. There is still room for global expansion into emerging markets, and larger companies already have the established distribution systems to easily “launch new products that smaller niche competitors lack” (Standard & Poor’s Industry Trends 2009 and Business Monitor Online 2009).

Forward and Backward IntegrationMany companies have begun to take control of their customers in the distribution process. This gives more control to the supplier. Having full control over operations will strengthen your product’s position to the market

Global EconomyGlobalization could raise economic growth of developing regions substantially, leading to a drastic shift of production activities to these countries. Moreover, increasing links between regions could affect consumer preferences and the dissemination of new technologies.The global economic downturn has had a significant impact on the retail sector, although to a lesser extent on Modern Grocery Distribution (MGD), due to the fact that food remains a non-discretionary purchase. Grocery retailers have primarily responded to the downturn in two ways. One is by promoting value through, for example, the expansion of discount stores, economy ranges, price investments and increased promotions. The other is by reducing costs and therefore preserving cash. This has come in the form of slowed expansion plans and employee dismissals.Over the next five years, the Top 30 are expected to grow sales through groceryformats at a compounded annual growth rate (CAGR) of 5.2%, compared to the10.8% recorded for the previous five years. Store numbers are expected to rise at aCAGR of 3.5%, reflecting the fact that a slowdown in expansion will see retailers focusing on their most profitable existing stores.As capital expenses budgets get squeezed, resulting in a slowdown in almost every grocery channel, it has turn out to be more significant constantly for retailers and manufacturers to be sure they are investing in the winning formats and in the winning regions.Indian growth has been behind China’s, even though both countries had per capita incomes in 1980. Indian growth has enhanced and importantly it has become less variable, in more recent years. Chinese growth forecasts recommends that GDP growth can be projected to average levels close to 9% in the period to 2015 providing a constant foundation for strong commodity demand growth. A fresh study by the Development Research Centre under China’s State Council decided that China’s industrialization period will last into the 2020’s with possible GDP growth rate at 10% in the period to 2015 and 8% from 2015 to 2020. China is also getting a ‘turning point’ in its growth

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generating potential for resource severe growth in excess of 10% over the next two decades.

Foreign Exchange Rates/ Imports and Exports TrendsBecause global real estate portfolios include assets influenced by different national economies, with very different drivers, growth rates, and risk, the correlation of total returns between assets in these markets can be very low. The movement of foreign exchange rates must be considered, however, as unfavorable currency movements can severely hamper performance. Broadening our perspective to the entire private equity universe, expectations for capital flows to international real estate are the same, as it becomes more difficult to find attractive domestic investments in a period of unprecedented pricing, record-low cap rates, and a slowing U.S. economy. (Journal of Portfolio Management).Operating in international markets involve exposure in currency exchange rates, which affects inflation, the economic growth, interest rate, and other aspects. Once these alterations take place, they will cause food companies such as Krispy Kreme to regulate its operating and financing strategies. Changes in currency exchange rates that would have the biggest impact on decoding Pepsi’s international operating profit include British pound, Mexican peso, Brazilian real and Canadian dollar and. Through years, macro-economic conditions in Brazil, Mexico, and Russia and across Asia Pacific have impacted on Pepsi’s operations. The value of U.S. agricultural exports totaled $30.1 billion in the three months ended March 2008, up 50% from the comparable year-earlier period; meanwhile, the value of agricultural imports to the U.S. rose 12% to $20.2 billion, according to the USDA The weak value of the dollar may be another contributing factor to the increase with overseas buyers having more purchasing power.Prospects for the agricultural sector in the near term reflect continuing U.S. and global adjustments to the recession of 2008-09 and the subsequent economic recovery. A resumption of steady global economic growth will support increases in consumption, trade, and prices in the longer run. Additionally, long run developments for global

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agriculture reflect continued demand for biofuels, particularly in the United States and the European Union. The value of U.S. agricultural trade and cash receipts to farmers grow through the projection period. Increases in production expenses offset some of the gains in cash receipts, resulting in net farm income in the United States rising moderately from 2011 to 2019. U.S. retail food prices increase more than general inflation through 2012, but then return to a longer term relationship of rising less than the general inflation rate over the last half of the projection period.

International RegulationsIt should be noted that the elimination of trade barriers increases the efficiency of the world economic system by enabling countries to specialize in those sectors in which they possess economic advantages, which includes those sectors in which they possess favorable natural environmental conditions. The United States, as do many other countries, controls the export of certain items. Export control may mean that a product, service or technology cannot be exported to another country. The U.S. government, either unilaterally or as a result of the actions of international organizations such as the United Nations, prohibits trade with some countries or with certain individuals wherever located. Some form of U.S. trade embargo, for example, exists for Cuba, Iran, North Korea, Libya, the Sudan and Syria. These policy-based and policy-driven programs even affect businesses that do not market to a particular country.

When conducting business internationally, companies must comply with the applicable laws in those countries. Competition laws are especially critical to large companies and their monopolizing power in certain jurisdictions around the world. China’s Commerce Ministry enforces anti-monopoly laws that took place in August 2008 (Chinese Officials 2008). These laws protect China’s famous domestic brands. The European Food Safety Authority (EFSA), along with the UKFSA (United Kingdom Food Standards Agency), conducts extensive studies and regulates ingredients and preservatives in foods and drinks (Euro News 2007). Also, the EU Accession has tightened controls on labeling of food and beverage products in the European Union.

Internationally, the production and distribution of products come under immense scrutiny and must comply with statutes and regulations. International laws also include “Eco taxes” or fees that must be paid by companies using certain packaging materials that are potentially harmful to the environment.

Summary

The global environment is favorable to unfavorable. Many companies are merging and acquiring other companies to expand product lines and increase market penetration. With that being said, it increases foreign competition with inexpensive labor internationally. Additionally, international regulation generates a major threat to expansion. The cost of energy and raw materials generate an unfavorable environment, as these are necessary elements for operations. Overall, private-label products are becoming more popular on a global scale, also contributing to increased foreign competition.

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General Environment Opportunities and ThreatsEnvironment Opportunities Threats Climate Importance

Political/Legal 1 Lanham Trademark Act 1 FDA & USDA Regulations

Unfavorable 1

2 Local Regulations

3 Franchise Regulations

4 Waste Management

5 Employment Regulations

6 Food, Drug Cosmetic Act

7 Bioterrorism Act

8 FTC Act

Demographic 1 Good number of boomers 1 Concern for healthy diet Favorable 1 2 Millinials: family time

3Rise in median household income

Socio/Cultural 1 Culture of eating out 1 Obesity concerns Favorable 2

Technological 1 Internet Usage 1 Favorable 32 Communication Channels3 Automation

Economic 1 CPI-U forecasted to fall 1 Unemployment at a high Favorable - 12 Disposable Income rising 2 Consumer Spending down Unfavorable

3 GDP in decline

Global 1 Population Growth 1

International food Reg. Foreign Country Favorable 1

2 Acquisitions 2 Translations

Unfavorable

3 Increase Exports/Imports 3 Inc.Foreign Competition

4 Increasing Costs(energy)

Critical Success Factors – General Environment Regulations

o FDA (U.S.)o International laws

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Health-consciousness Growth rate of domestic Hispanic and Asian population (increasing) Size of Market Share (domestic and global) Mergers/Acquisitions Increased Foreign competition Accessibility - Lifestyle (fast-paced) Brand Protection

Porter’s Five Forces – Industry

Porter's Five Forces - Industry

Current DomesticFuture

DomesticCurrent Global

Future Global

Barriers: New

Entrants

High Moderate High High

 Difficult for new entrants to enter because this “jammed”&industry. Threat from generics

 This market is maturing but generics post high threats

 Many markets in this industry are still growing

 The large markets are likely to gain market share in the growing environment

Substitutes

Very High Very High Very High Very High

Numerous substitutes that bring different fulfillment and reasons for consumption

Numerous substitutes that bring different fulfillment and reasons for consumption

Numerous substitutes that bring different fulfillment and reasons for consumption

Numerous substitutes that bring different fulfillment and reasons for consumption

Rivalry

High Very High Very High Very High

 Many equally large competitors and rapid increase in generic competition

Consumers’ increasing consciousness of healthy meals and increase in generics

 Large competitors and high generic competition

 Increase in generics

Supplier Power

Low Low Low Low

Commodity prices decreasing, many suppliers in the industry

Commodity prices decreasing, many suppliers in the industry

Commodity prices decreasing, many suppliers in the industry

Commodity prices decreasing, many suppliers in the industry

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Buyer Power

Very High Very High Moderate High

 Highly saturated, cost conscious, numerous substitutes

 Highly saturated, cost conscious, numerous substitutes

 Potential for greater consumer spending in growing economies

More choices likely with increased competition

Barrier to New EntrantsIt is difficult for new entrants to enter this industry in the current and future domestic as well as global because this is an already mature industry. However, it is possible that the larger markets would continue to gain market shares while the market progresses. Though this is a differentiated market, the size or volume of the market plays an important role because the margin of this industry is usually on the low side.

SubstitutesThe threat of substitutes is very high in the current and future domestic and global industries. The retail bakery industry is very mature with an extensive diversity of food choices that can substitute a baked good with no changing costs. It is easy to find substitutes for these food choices. Many substitutes exist for example, breakfast cereals, rice and potatoes are all possible substitutes and individuals can also make all of the baked goods they want at home. Bakeries count on upon price and convenience to keep individuals switching to a substitute or baking what they need at home.

RivalryThe threat of rivalry is very high in this industry because this is a price differentiated market and so generics with cost advantages pose very high threats especially in these two years of the recession. Also, others that seem to provide nutritional advantages pose threats in an environment whose consumers are getting health-conscious.

Supplier Power Suppliers do not have much negotiating power in the bakery business due to the well developed markets for their products and the commoditized nature of what they are selling. Bakeries can be affected by price swings of the raw inputs, but the changes are a result of global supply and demand determinants rather than suppliers' negotiating power.

Buyer PowerThe current environment in the domestic market is a reflection of the numerous choices in the domestic market for the Quick Service segment that Krispy Kreme competes in. Buyers are seeking value and healthier options. We see the buyer power continue to be very high in the future. However, opportunities currently exist for expansion globally in markets such as China, India and the middle-east (where KKD has some presence already).

Industry Opportunities

Rearrangement or reorganization to reduce costs Intensifying healthy products Growth Strategies

o International development (China and India)

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o Franchisingo Acquisitions

Developing a differentiated channelo Superstores and small groceries store, vending machines, restaurants, convenience

stores, cafeterias, drugstores. Fairly easy entry in the industry Neutroceutical Advancements Technological Improvements

o Packaging, manufacturing ,distributiono Connecting self-checkouts

Industry Threats

Strong Competition – lower margins due to consumer price consciousness Decline in consumer spending due to low consumer confidence Access to capital for possible expansion Health Concerns – more health conscious consumer Increased regulation on labeling, safety Higher Taxation Higher Energy costs – Crude oil and Natural Gas

Critical Success Factors – Industry

Brand loyalty and recognitiono Effective marketing

R & D to adapt to consumer’s changing preferenceso Development of new productso Health conscious consumers

Technological advancements in production and packaging Customer service Product differentiation Continuous growth

o Overseas expansion and franchising Legal Compliance Reducing operating costs Company restructuring

o Financiallyo Scaling back locations

Ability to franchise Thorough distribution channels

o Strategic alliances

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COMPETITIVE ANALYSIS

Company Name 2010 Sales (Mil) 2010 Net Income (Mil)

Number of Employees

Krispy Kreme $ 346.5 $ (.157) 2,460Dunkin Donuts $ 6,900.0* N/A 1,126*Einstein Noah $ 408.95 70.71 380Starbuck’sIndustry averages

$ 10,080.0$ 559.64

$ 760.30N/A

142,0005600

* as of 2008

Dunkin Donuts

Strengths Strong Overall Brand Recognition Focus on Coffee in the store and packaged in other stores Diverse Products – Breakfast sandwiches/Ice Cream Alliances with P&G coffee supplier and smaller retail outlets Strong International Presence Customer Service Reputation

Weaknesses Healthy product choices Franchise bankruptcies Lower demand for coffee Low margins on products

Opportunities Less expensive option than Starbucks (main competitor) Increase international presence Lower costs for commodities – wheat, corn, sugar Repeat Customers - Loyalty and value focus reputation

Threats Unhealthiness – obesity, heart disease Highly competitive coffee segment Product Substitution from competitors Economic Concerns – high unemployment, cost sensitive

Starbucks SWOT Analysis

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Strengths

Largest coffee corporation of the planeto Relatively big international presence.o Brand loyalty (most of Starbucks’ consumers drink only Starbucks’ coffee).o Huge brand recognition.o Present in all 50 states and 47 countries (Over 16,000 stores).o Over 170 locations for distribution, storage, and headquarters.

Innovative product portfolioo Continuing development into aliment industry.

Strong relationships with supplierso Fully controlled coffee bean supplier

Key allianceso Hewlett Packardo Pepsio Kraft Foodso Syscoo US Foodservice

Prime retail locations R & D

o Changing taste preferences ($7.2 million) Deeply cultured

o Strong mission and visiono Global environmental concerno Motivated employees

Company operated retail stores 84% of revenues Financials

o Strong Revenue Growth until 2008o Stability

Weaknesses Publicly held. Geographic concentration in U.S. (it makes harder to achieve international success). High concentration on one product (coffee). Weak infrastructure. Cross-functional management Closed over 200 stores in 2008 (stores were not franchises) Financially unstable since 2008

o Stock price dropped from $39.43 to $16.92o 8% revenue drop in 2008o Negative outlook for 2009

Opportunity Entry into emerging Asian markets like India, Pakistan, Bangladesh and China.

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Diversification of product line. Market penetration in International countries other than Asia (Brazil). Co-branding with other food manufactures. Whole bean sales in supermarkets (Wal-Mart, Carrefour (Brazil)). Expansion into retail operations. Technological advances. New distribution channels (delivery) as well as distribution agreements. Brand extension. Continued domestic expansion and domination of its segment.

Threats Present recession may perhaps impact the sales. Entry barrier in the global market. Amount of competitors is greater than ever. Disparity of coffee prices in emergent countries. Company facing massive resistance in international countries over political and cultural

matters. People started to become more health conscious leaning towards caffeine free products. Competitors are imitating. Labor Unions problems in America and international countries. Competition (restaurants, street carts, supermarkets, other coffee shops, other caffeine

based products), mainly overseas. North American market saturation. Negative image from poorly treating farmers in supplying countries.

Einstein Noah SWOT Analysis

Strengths Leader of Quick Casual restaurant industry.

o Operates primarily under the Einstein Bros. and Noah's New York Bagels® brands and primarily franchises locations under the Manhattan Bagel® brand.

o Five distinct brands in four quick casual restaurants and one coffee chain; (Einstein Bros. Bagels, Noah's New York Bagels, Manhattan Bagel chains, Chesapeake Bagel Bakery and the New World Coffee).

o About 600 restaurants in 36 states and the District of Columbia. This makes it strong competitively in terms of volume (overall about 690 company-owned and franchised locations in more than 35 states)

o 300 Einstein Bros locations within 38 DMA markets in 27 states.o Manhattan Bagel boasts of 23 fresh-baked bagel varieties and 15 different cream

cheese flavors available dailyo Over 100 Manhattan Bagel locations in the US.o New World Coffee specializes in 30 varieties and blends of fresh roasted coffee

from around the world.

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o Weak international presence.o Brand loyaltyo Good brand recognition.

Innovative product portfolioo The unique atmospherics of ENRG ties in well with their brand.

Strong relationships with supplierso Fully controlled coffee bean supplier

Key allianceso Aramarko Sodexhoo HMS Hosto AAFESo Compass Group ando Hyatt Hotels

Prime retail locations R & D

o Changing taste preferences and state-of-the-art test kitchen facility (Golden, Colorado)

Deeply culturedo Strong mission and vision

Financialso Strong Revenue Growth until 2008o Stability

Weaknesses

Publicly tradedo NASDAQ (GM): BAGL

Low earning per share Growing concerns of consumers for cutting spending on specialty eateries So much competition in the quick casual restaurant industry

Opportunities Less expensive option than Starbucks (main competitor) Increase international presence Lower costs for commodities – wheat, corn, sugar Repeat Customers - Loyalty and value focus reputation

Threats Unhealthiness – obesity, heart disease Highly competitive coffee segment High product substitution from competitors Economic Concerns – impact of recession

o high unemploymento cost sensitive

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INTERNAL ANALYSIS

Krispy Kreme’s Strengths Strong reputation in the industry for their differentiation/ market share and sales

capabilities Large number of outlets and franchises Large overall sales because of volume of outlets 1.1% rise in same-store sales in April 2010 There is a predicted rise in revenue in the low to mid single digits for the 2011 fiscal year

(S&P Analyst Research Notes)

Krispy Kreme’s Weaknesses According to S&P Analyst Research Notes and other Company News

(April 16, 2010), KKD posts $0.01 Q4 EPS vs. $0.01 loss on 1.1% rise in same-store sales.

Total revenue fell 5.6%. (not including the effects of refranchising company stores, consolidated)

Equally large competitors increasing Low earnings per share Effects of the recession of these two years and its influence on consumers’ spending on

special eateries.

Summary KKD is well positioned in the Quick Casual Restaurants industry; however, because there are quite a large number of competitors who are as huge (and still advancing), KKD is in a tough position to sustain, except with especially good marketing abilities and advantages.

Krispy Kreme’s Opportunities

Growth Strategieso International growth (China and India)o Acquiredo Franchising

Increasing healthy products Smaller store operations Utilizing in-store distinctiveness Breakfast products

Krispy Kreme’s Threats

Highly competitive segment – numerous substitutes Health Concerns – few healthy choice items

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Menu Choices – product diversity Increased regulation on labeling, safety Higher Taxation Higher Energy costs – Crude oil and Natural Gas

29

Positioning Relative to the Competitive Profile Matrix

CPM DUNKIN STARBUCKS EINSTEIN NOAH KRESPY KREME

CRITICAL SUCCESS FACTORS WEIGHT RatingWEIGHTED Rating

WEIGHTED Rating

WEIGHTED Rating WEIGHTED

SCORE SCORE SCORE SCORE

Product 0.16 Health-consciousness 0.04 3 0.12 4 0.16 4 0.20 1 0.04 Product Mix 0.05 3 0.15 3 0.15 4 0.20 1 0.05 Quality 0.03 4 0.12 4 0.12 4 0.24 2 0.06Diversification 0.04 4 0.16 3 0.12 3 0.1 1 0.04Company Changing Aspects (Tang.) 0.16 Franchising 0.05 4 0.2 4 0.2 3 0.09 2.5 0.125 Employees 0.03 3 0.09 2 0.06 2 0.1 2 0.06 Culture 0.03 3 0.09 2 0.06 4 0.2 2 0.06 Locations 0.05 2 0.1 4 0.2 3 0.09 1 0.05Changing Aspects (Intang.) 0.14 Brand Awareness/ Protection 0.05 4 0.2 4 0.2 3 0.12 2 0.1 Alliances 0.03 3 0.09 4 0.12 2 0.06 2 0.06 Sponsorships 0.02 2 0.04 3 0.06 2 0.06 3 0.06 Brand Loyalty 0.04 2 0.08 3 0.12 4 0.2 2 0.08Supply Chain Mgmt. 0.1 Delivery/Supply 0.005 4 0.02 4 0.02 4 0.2 4 0.02 Vertical Integration 0.005 4 0.02 4 0.02 4 0.2 4 0.02Publicity/Advert. 0.09 Communication Channels 0.05 3 0.15 3 0.15 3 0.09 1 0.05 Packaging 0.04 4 0.16 3 0.12 3 0.09 2 0.08R&D 0.12Catering to Taste Preferences 0.05 4 0.2 4 0.2 4 0.3 1 0.05 Health/Nutrition 0.03 3 0.09 3 0.09 3 0.08 1 0.03 New products 0.04 3 0.12 3 0.12 3 0.04 1 0.04Expansion 0.15Catering to Local Tastes 0.05 4 0.2 4 0.2 4 0.2 1 0.05 Locations 0.03 4 0.12 4 0.12 4 0.12 1 0.03 Emerging Markets 0.03 4 0.12 3 0.09 2 0.06 4 0.12 Selling Lower Prices 0.04 4 0.16 3 0.12 2 0.06 2 0.08Regulations 0.08International Laws 0.04 4 0.16 4 0.16 1 0.04 4 0.16Domestic 0.04 4 0.16 3 0.12 3 0.06 4 0.16TOTAL 1 3.12 3.1 2.71 1.675

Competitive profile matrix (CPM) is an important strategic management instrument to relate the firm with the main players of the industry. It shows the clear picture to the firm about their

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strong and weak points relative to their competitors. The score is measured on basis of critical success factors, each factor is measured in same scale mean the weight continue the same for every single firm only the rating varies. Ratings range from 1 to 4 with 1 representing a major weakness, 2 representing a minor weakness, 3 representing a minor strength and 4 representing a major strength.

By doing the CPM for this industry, all three companies are relatively close to the same score; though Dunkin Donuts is first with a score of 3.12. This is mainly due to their large size and competent operations. They show flexibility to the current economic times and ongoing growth through overseas expansion. Following the ranking is Starbucks with a score of 3.10. A big part of this score is due to their huge size and well-organized operations. They have a massive quantity of stores and are continuing to grow in emerging markets overseas regardless of the downturn in the economy. Right before KKD is Einstein Noah with a score of 2.71. On the whole, Einstein Noah has a strong product mix with good health consciousness because of its mix of salads among others and a large number of locations but has weak international presence relative to the competition.

Krispy Kreme ranks the lowest among all of its competitors on the Competitive Profile Matrix, with a score of 1.675. The company’s focal problem is the misalignment of its corporate owned stores and its incapability to change or give a special attention to the current health trends of today. They would need precise R & D to forecast this problem. By doing the research, it was not found that Krispy Kreme had a research and development program internally at this time, nor does it outsource one. Many of the other factors that received low scores in this matrix are bi-products of the above-mentioned issues.

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KRISPY KREME EFE MATRIX

Critical Success Factors Weight RatingWeightedScore

OpportunitiesUniqueness 0.14 4 0.56Expansion(Asia/India) 0.12 3 0.36Alliances 0.08 2 0.16Health Consciousness 0.14 1 0.14Store Operation – small 0.1 1 0.01ThreatsProduct diversity 0.09  2 0.18Health Concerns 0.07 1 0.07Market Saturation 0.07 1 0.07Higher Taxation 0.06 1 0.06Increased Regulation 0.07 1 0.07Higher Energy costs 0.06 1 0.06

TOTAL 1 1.74

EFE SUMMARY

EFE matrix can be defined as the strategic tool to evaluate external environment or macro environment of the firm include economic, social, technological, government, political, legal and competitive information. The EFE matrix is similar to IFE matrix the only difference is that IFE matrix evaluate the internal factors of the company and EFE matrix evaluate the external factors.There are significant amount of threats for firms in this industry in the Domestic market and in looking closer at Krispy Kreme, it shows that work needs to be done in reducing their impact and even shifting some of the threats to opportunities. More importantly threats that Krispy Kreme needs to focus on diversifying its product line and offering more healthy options in the highly competitive Quick Service segment. Krispy Kreme has a low score of 1.74, which reveals that significant work needs to be done to take advantage of the opportunities in focusing on its uniqueness and exploring global markets for future expansion.

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IFE SummaryIFE (Internal factor evaluation) matrix is one of the best strategic tools for internal audit of the company. IFE is use for internal audit of functional area of business such as finance, marketing, IT, operations, accounts and others depend upon the nature of business and its size. Internal factors are removed after deep internal analysis of the company. Obviously every company has some weak point and strong point that is the reason why internal factors are divided into two categories, specifically; strengths and weakness.Krispy Kreme is on the border of a strong internal position, as indicated by the weighted score of 3.04. This means that it is maximizing its strengths and minimizing its weaknesses to a degree but there would have to be an improvement to take them above this score and where they slack there is a possibility for them to drop closer to the average which is between 2.0 and 2.99.

KRISPY KREME IFE MATRIX

Critical Success Factors Weight Rating Weighted Strengths Score

Market share (global &domestic)

Strong reputation

Large number of outlets and franchises

Brand Recognition (Hot Now)

1.1% rise in same-store sales in April 2010

 0.16

0.13

0.14

0.08

0.1

 4

4

4

3

3

 0.64

0.52

0.56

0.24

0.30

Predicted rise in revenue (l-m single digits 2011FY) 0.1 3 0.30

Weaknesses

Total revenue fell 5.6%

Low earnings per share ($0.01 Q4)

Weak health conscious meals

Few product lines

0.07

0.05

0.11

0.06

1

2

1

2

 0.07

0.10

0.11

0.12

TOTAL  1.0 3.04

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Summary of Sustainability

Sustainable competitive advantage is the focal point of a corporate strategy.  It allows the preservation and development of the company’s enterprises competitive position in the market.

It is a benefit that enables business to last against its competition over a long period of time. Sustainable competitive advantage have four criteria that each one of the competitors can use to evaluate their capabilities and resources to specify if they have the possibility of being core competencies, or if they already are core competencies. If resources and capabilities meet the criteria of: rare, valuable, costly to imitate, and non-substitutable, then they are considered to be core competencies. A sustainable competitive advantage is accomplished when competitors have not been able to replicate the benefits of a firm’s strategy.

Valuable Rare

Costly to Immt.

Non substitutable

Competitive Consequence Performance Implication

Dunkin Yes Yes Yes No Temporary Competitive Advantage. Avg/Above Avg Returns

Einstein Yes Yes Yes No Temporary Competitive Advantage. Avg/Above Avg Returns

Starbucks Yes Yes Yes No Temporary Competitive Advantage. Avg/Above Avg Returns

Clearly, Dunkin, Einstein and Starbucks brand have successfully rushed their resources and capabilities to form core Competencies that distinguish them from competitors, on the other hand, the strategies used by its competitors are exchangeable and for that reason it only gives them a temporary competitive advantage. The competitors core competencies of the include characteristics such as strategic alliances, the ability to change to taste preferences, quality of products and company size and ability.

SummaryDunkin, Einstein and Starbucks are clearly unique, and operate in a highly competitive environment. The companies’ have core competencies and abilities that have given them a provisional competitive advantage with average/above average returns. It is crucial that every single company continue to produce and reinforce their organizations, and readjust if necessary, for example Starbucks, to keep up as industry leaders.

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IE MATRIX

SUMMARYThe IE matrix employs two key dimensions which is the IFE total weighted score on the X-axis and the EFE total weighted score on the Y-axis. On the X-axis, a total weighted score of 1.0 to 1.99 is considered weak, 2.0 to 2.99 is average while 3.0 to 4.0 is strong. Also, on the Y-axis and EFE, a total weighted score of 1-0 to 1.99 is low, 2.0 to 2.99 is medium while 3.0 to 4.0 is high. Moreover, the matrix is divided into three main regions; cells I, II and IV are classified as growth and build, cells III, V, and VII are hold and maintain while cells VI, VII and IX are classified as harvest or divest. For Krispy Kreme, the combined score of IFE and EFE puts it in cell VIII which is a harvest or divest. This translates that the business strategies to be employed by KKD should be defensive, appropriate sub-strategies include concentric diversification and divestiture.

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IE Matrix - Geographic

IFE Total Weighted ScoreE

FE

Tot

al W

eigh

ted

Sco

re

I II II

IV V VI

VII VIII IX

Strong 3.0 to 4.0

Average 2.0 to 2.99

Weak 1.0 to 1.99

High 3.0 to

4.0

Medium 2.0 to 2.99

Low 1.0 to 1.99

2 3

5

14

EF

E T

otal

Wei

ghte

d S

core

VII VIIILow

1.0 to 1.99

2 3

5

14

IE Geographic Summary:

The IE Geographic matrix indicates sales by region, with the Krispy Kreme’s largest share of

sales being in the US, followed by the Asia Pacific, Middle East, Other North American

countries and lastly Europe. The US quick service industry as whole is highly competitive and

price/value sensitive. Krispy Kreme’s presence internationally is currently week and greater

focus needs to be placed on increasing its market share in the growing Asia Pacific regions.

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IE Matrix – Sales

EF

E T

otal

Wei

ghte

d S

core

Sales Type 2010% of sale

Retail Sales (1) 103,856.00 42.20%Fundraising (2) 13,481.00 5.48%Grocers/Mass Merchants (3) 70,952.00 28.83%Convenience (4) 55,451.00 22.53%Other Off-premises (5) 2,371.00 0.96%Total 246,111.00 100.00%

Summary

The IE Sales Matrix indicates Krispy Kreme’s strength in its core retail sales channel, located in

the Grow and Build quadrant I area. The fundraising channel has proved to be fairly effective

accounting for 5.48% of overall sales. The Grocers/Mass Merchants (28.83%) and Convenience

Store (22.53%) channels have contributed effectively to sales for Krispy Kreme resulting in its

position in quadrant IV(Grow and Build) on the matrix. Based on these numbers, we can safely

recommend that Krispy Kreme strengthen its efforts in Retail, Grocers/Mass Merchants and

Convenience store sales channels.

37

38

SPACE MATRIX

Conservative +6 Aggressive+5+4+3+2+1

+6 +5 +4 +3 +2 +1 -1 -2 -3 -4-1-2-3-4-5-6

Space Matix Scoring

X A

xis

Internal Factors External FactorsCompetitve Advantage (CA) Rating Industry Strengths (IS) RatingMarket Share -6 Growth Potential 4Product Quality -3 Profit Potential 2Product Life Cycle -4 Financial Stability 2Customer Loyalty -1 Resource Utilization 3Technology Know-how -2 Productivity 3

Average -3.20 Average 2.80Total X axis score: -0.40

Y A

xis

Financial Strength (FS) Rating Environmental Stability (ES) RatingGross Profit Margin 1 Technological Changes -1Return on Invested Capital 1 Rate of Inflation -2Price/Cash Flow Ratio 5 Demand Variability -3Inventory Turnover 5 Barriers to Entry -2Total Debt/Equity 3 Competitive Pressure -5Revenue Per Share 1 Price Elasticity -2

Average 2.67 Average -2.50Total Y axis score: 0.17

Space Summary:

The Space Matrix is an evaluation tool in the strategic decision process that dettermines the current position of where a company stands the four cells, which are Aggressive, Competative, Conservative or Defensive. The four factors that postion a company in the appropriate cell are

39

Internal, External, Financial and Enviromental. Based on our evaluation of these factors, we feel that Krispy Kreme is in the Competitive section of the matrix. We feel that Krispy Kreme can strengthen its position in taking advantage of the external factors by increasing its presense internationally. It can also work on improving its internal factors, by developing newer products that are health conscious and improving choice which will envariablly result in increased sales.

Grand Strategy

SUMMARYKrispy Kreme is located in Quadrant II of the Grand Strategy Matrix which indicates a better

position than might have been a few years ago. This position on the matrix general recommends

that companies focus on Market Development, Market Penetration, Product Development,

Horizontal Integration, etc. Krispy Kreme should focus on improving its position internationally

and improving its product line. Being in the highly competitive quick service sector, Krispy

Kreme needs to be focused on price sensitivity and therefore deliver its products in an efficient

and cost effective manner.

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BCG MATRIX

SUMMARY…Krispy Kreme is located in the Question Marks position on the BCG Matrix. It has a low

Relative Market Share Position but a high industry Growth Rate. Companies in this section of

the BCG, need to focus on market penetration, market development and product development.

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TOWS

Krispy Kreme

Strengths Weakness1 Strong Reputation 1 Fall in Total Revenue 5.6%2 Big Market Share 2 Low Earnings Per Share3 Rise in Sales 3 Few Products

44 Weak Health-Conscious Meals

Opportunities S-O Strategies W-O Strategies1 Uniqueness 1 12 Expansion (Asia/India)3 Alliances 2 24 Health Conscioueness5 Store Operations- Small 3 3

Threats S-T Strategies W-T Strategies1 Product Diversity 1 12 Health Concerns3 Market Saturation (Domestic) 2 24 Higher Taxation5 Increased Regulation 3 36 Higher Energy Costs

Large number of Locations/Outlets

Expand in the US with hub and spoke (S1, O1, O5) Improve Alliances with

retailers/buyers (W1, W2, O3)

Expand Internationally in Emerging Markets (S1, O2)

Restructure Distribution and production Channels (O5, W1, W2)

Improve brand awareness by advertising (S1, O5)

Improve product line with focus on Health (O4, W4)

Acquire Ice Cream/Smoothie retailer (T1, S2, S3)

Close non performing larger retail stores (T3, W1)

Improve Beverage Product line (S4, T1)

Improve food safety training and handling (T2, T5)

Decentralize Donut Mix distribution (S4, T6)

Increase international Presence (T4, T3, W1, W2)

SUMMARY:

The TOWS matrix is a evaluation tool in the strategic decision process that attempts to merge the

Strengths and Weakness with the Opportunities and Threats into formulating effective strategies

that will enable a company to succeed. In summarizing Krispy Kreme’s Tow strategies,

improving its position in the US market by implementing a hub and spoke system for delivery

and sales will enable it to not only develop its market share, but also reduce the need for larger

retail locations. Improving its product line, by offering a greater variety of products and also

addressing the health conscious consumer are important strategies suggested. Another key

strategy that is discussed is the need to expand internationally in growing economies with large

populations such as China and India. Finally, another key strategy that Krispy Kreme needs to

implement is seeking new ways to increase brand awareness, by advertising in local media

sources and using technology such as social media and smartphone technology.

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Summary Table

Strategies IE BCG Space GrandMarket Penetration x x x xProduct Development x x x xMarket Development x x x xBackward xForward xHorizontal x xDivestiture x xLiquidation x

Summary

The summary table brings together the three main strategies from the IE, Space and

Grand Business strategies to bring consensus on which strategies that a company

needs to follow. In looking at summary table, Krispy Kreme’s three ideal strategies that

are recommended are Market Penetration, Product Development and Market

Development.

Strategy Selection

Market Penetration

Increasing number of retail outlet with Hub and Spoke system

Implement an advertising campaign to create brand awareness

Product Development

Improve product line, greater food and beverage choices

Offer alternative healthier products

Market Development

Expand internationally in the growing Asia Pacific region.

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QSPM Matrix

This matrix shows the strategies that stand out to be the best from the inputs of the EFE matrix, IFE matrix, and CPM matrix at the first stage of strategy formulation while the TOWS, SPACE, BCG, IE, and the grand strategy matrixes, all at the second stage of the strategy formulation provide the necessary information for the setting up of the QSPM.

Strategy Selection

Options for Strategy SelectionThe two overarching strategies analyzed for Krispy Kreme were concentric diversification and divestiture. The sub strategies are listed below:

Concentric Diversification Utilizing a merger or acquisition to introduce breakfast products Utilizing a merger or acquisition to introduce healthy products

Divestiture Utilizing a strategic alliance to franchise more small operating store locations

internationally (Asia/India)

Quantitative Strategic Planning Matrix for Krispy Kreme

Market Penetration

Strategic Alternatives

Strategic PR to Increase MS (US &

International)

Strategic Advertising to Increase MS (US & Internation

al

Key Factors Weight AS TAS AS TAS

Opportunities

Uniqueness 0.14 3 0.42 2 0.28

Expansion(Asia/India) 0.12 3 0.36 2 0.24

Alliances 0.08 2 0.16 3 0.24

Health Consciousness 0.14 4 0.56 3 0.42

Store Operation – small 0.1 2 0.2 1 0.1

Threats

Product diversity 0.09 _ _

Health Concerns 0.07 2 0.14 1 0.07

Lower Margins 0.07 _ _

Higher Taxation 0.06 _ _

Increased Regulation 0.07 _ _

Higher Energy costs 0.06 _ _

1

44

Strengths

Market share (global &domestic) 0.16 4 0.64 3 0.48

Strong reputation 0.13 _ _

Large number of outlets and franchises 0.14 3 0.42 2 0.28

Brand Recognition (Hot Now) 0.08 4 0.32 2 0.16

1.1% rise in same-store sales in April 2010 0.1 _ _

Predicted rise in revenue (l-m single digits '11FY) 0.1 2 0.2 1 0.1

WeaknessesTotal revenue fell 5.6% 0.07

_ _Low earnings per share ($0.01 Q4) 0.05

_ _Weak health conscious meals 0.11

2 0.22 1 0.11Few product lines 0.06

_ _

1

Sum Total Attractiveness Score 3.64 2.64

Quantitative Strategic Planning Matrix for Krispy Kreme

Market Development

Strategic AlternativesStrategic

Alliance to franchise

small operating

stores (China&

India)

Open small

operating stores

through Acquisition (China&

India)

Key Factors Weight AS TASAS TAS

Opportunities

Uniqueness 0.14 2 0.28 1 0.14

Expansion(Asia/India) 0.12 4 0.48 3 0.36

Alliances 0.08 3 0.24 4 0.32

Health Consciousness 0.14 _ _

Store Operation – small 0.1 3 0.3 2 0.2

Threats

Product diversity 0.09 1 0.09 2 0.18

Health Concerns 0.07 _ _

Lower Margins 0.07 4 0.28 3 0.21

Higher Taxation 0.06 _ _

Increased Regulation 0.07 _ _

Higher Energy costs 0.06 _ _

1

45

Strengths

Market share (global &domestic) 0.16 4 0.64 3 0.48

Strong reputation 0.13 _ _

Large number of outlets and franchises 0.14 4 0.56 3 0.42

Brand Recognition (Hot Now) 0.08 4 0.32 3 0.24

1.1% rise in same-store sales in April 2010 0.1 _ _

Predicted rise in revenue (l-m single digits 2011FY) 0.1 2 0.2 1 0.1

WeaknessesTotal revenue fell 5.6% 0.07

_ _Low earnings per share ($0.01 Q4) 0.05

_ _Weak health conscious meals 0.11

_ _Few product lines 0.06

1 0.06 2 0.12

1

Sum Total Attractiveness Score 3.45 2.77

Quantitative Strategic Planning Matrix for Krispy Kreme

Product Development

Strategic Alternatives

Introducing Healthy

Products in (US &Intl.)

Introduce New

Breakfast Products

(US & Intl.)

Key Factors Weight AS TASAS TAS

Opportunities

Uniqueness 0.14 4 0.56 3 0.42

Expansion(Asia/India) 0.12 2 0.28 1 0.12

Alliances 0.08 2 0.16 1 0.08

Health Consciousness 0.14 4 0.56 3 0.42

Store Operation – small 0.1 _ _

Threats

Product diversity 0.09 4 0.36 3 0.27

Health Concerns 0.07 4 0.28 3 0.21

Lower Margins 0.07 3 0.21 2 0.14

Higher Taxation 0.06 _ _

Increased Regulation 0.07 _ _

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Higher Energy costs 0.06 _ _

1

Strengths

Market share (global &domestic) 0.16 2 0.32 1 0.16

Strong reputation 0.13 _ _

Large number of outlets and franchises 0.14 _ _

Brand Recognition (Hot Now) 0.08 2 0.16 1 0.08

1.1% rise in same-store sales in April 2010 0.1 2 0.2 3 0.3

Predicted rise in revenue (l-m single digits 2011FY) 0.1 3 0.3 4 0.4

WeaknessesTotal revenue fell 5.6% 0.07

_ _Low earnings per share ($0.01 Q4) 0.05

_ _Weak health conscious meals 0.11

3 0.33 4 0.44Few product lines 0.06

3 0.18 4 0.24

1

Sum Total Attractiveness Score 3.9 3.28

QSPM InterpretationAfter running the QSPM Analysis the following attractiveness scores were assigned to each sub strategy:

Market Penetration Utilizing a strategic PR to increase market share (3.64) Utilizing advertising to increase market (2.64)

Market Development Utilizing a strategic alliance Strategic Alliance to franchise small operating stores

(China& India

Product Development

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EBIT/EPS Analysis

Earnings before interest and taxes (EBIT) or operating income is a measure of a firm's profitability that excludes interest and income tax expenses. An estimated 40 million dollars would be needed to integrate healthy products into Krispy Kreme’s product portfolio. Also the interest rate projected was 13%. The current stock price is attached with the pro-forma analysis statements, with that being said they feel confident that the numbers created would lend support to financing these strategies through debt.

Amount Needed 40Interest Rate 13%Tax Rate 3.60%EBIT 7252Total Debt 146Stock Price 1.97Shares Outstanding 65.8Projected shares outs. 20

Comon Stock Debt FinancingInt. 13% High Mid Low High Mid LowEBIT -3 -23 -43 -3 -23 -43Interest 0 0 0 -0.39 -2.99 -5.59EBT -3 -23 -43 -2.61 -20.01 -37.41Taxes -0.1 -0.828 -1.548 -0.0939 -0.7203 -1.3467EAT -2.89 -22.172 -41.45 -2.516 -19.289 -36.063#Shares 85.8 85.8 85.8 65.8 65.8 65.8EPS -0.03 -0.26 -0.48 -0.04 -0.29 -0.55

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