Krispy Kreme Doughnut Co. Presented by: Cevdet KIZIL.

Krispy Kreme Doughnut Krispy Kreme Doughnut Co.Co.

Presented by:Presented by:

Cevdet KIZILCevdet KIZIL

Company HistoryCompany History

July 13, 1937 – Founded by Vemon Rudolph in Winston-July 13, 1937 – Founded by Vemon Rudolph in Winston-Salem, North Carolina. First donuts 25 cents per dozen.Salem, North Carolina. First donuts 25 cents per dozen.

1940s – Small chain of stores, family owned. Development of 1940s – Small chain of stores, family owned. Development of first distribution system.first distribution system.

1950s – Improving and automating the doughnut making 1950s – Improving and automating the doughnut making equipment.equipment.

1960s – Steady growth throughout the Southeast. Consistent 1960s – Steady growth throughout the Southeast. Consistent store designs.store designs.

1973 – Founder Vemon Rudolph dies.1973 – Founder Vemon Rudolph dies. 1976 – Company sold to Beatrice Foods and growth slowed.1976 – Company sold to Beatrice Foods and growth slowed. 1982 – Franchisees bought company back.1982 – Franchisees bought company back.

Company History (cont.)Company History (cont.)

1996 - Expands outside the Southeast region, first store in 1996 - Expands outside the Southeast region, first store in New York.New York.

1999 – First store in California, national expansion underway.1999 – First store in California, national expansion underway. April 2000 – Initial Public Offering (IPO) of common stock. April 2000 – Initial Public Offering (IPO) of common stock.

Registered to NYSE with KKD.Registered to NYSE with KKD. December 2001 – First international store in Canada.December 2001 – First international store in Canada. October 2003 – First store in Europe at England (London).October 2003 – First store in Europe at England (London). Today – Operates in 44 states of U.S., Canada, England, Today – Operates in 44 states of U.S., Canada, England,

Mexico, Australia, New Zealand.Mexico, Australia, New Zealand.

Company IndicatorsCompany Indicators

Sells over 20 types of doughnuts. Produces 5 million Sells over 20 types of doughnuts. Produces 5 million doughnuts a day and 1.8 billion a year.doughnuts a day and 1.8 billion a year.

Profit Margin: 7.67 % (2004)Profit Margin: 7.67 % (2004) Revenue Growth: 35.40 % (2004) Revenue Growth: 35.40 % (2004) Earnings Growth: 70.50 % (2004)Earnings Growth: 70.50 % (2004) Sales Growth: 35.4% (2004)Sales Growth: 35.4% (2004) Sales (mil.): $665.6 (2004)Sales (mil.): $665.6 (2004) Net Income (mil): $57.1 (2004)Net Income (mil): $57.1 (2004) Net Income Growth: 70.4 % (2004)Net Income Growth: 70.4 % (2004) Total Employees: 6982 (2004)Total Employees: 6982 (2004) Employee Growth: 78.4 % (2004)Employee Growth: 78.4 % (2004) CEO: Scott Livengood, paid $791.00 K (2004)CEO: Scott Livengood, paid $791.00 K (2004)

Company StrategyCompany Strategy

Franchisees operate almost two-thirds of the Franchisees operate almost two-thirds of the chain’s locations. chain’s locations.

Plans to expand to New England domestically, Plans to expand to New England domestically, and Eastern Europe, Asia, Japan, South Korea and and Eastern Europe, Asia, Japan, South Korea and Spain internationally.Spain internationally.

Sells its doughnuts to retail grocery outlets and Sells its doughnuts to retail grocery outlets and convenience stores (distribution). convenience stores (distribution).

Aggressive growth.Aggressive growth. Customer service (employees are friendly, Customer service (employees are friendly,

smiling, sociable, free donuts & hats, apologies smiling, sociable, free donuts & hats, apologies for long lines, free coupons).for long lines, free coupons).

Small marketing budget. Focuses on community Small marketing budget. Focuses on community events, sponsorship of school and church groups events, sponsorship of school and church groups and other local marketing opportunities, and other local marketing opportunities, publicizing new store openings. publicizing new store openings.

Company Strategy (cont.)Company Strategy (cont.)

““Doughnut-making theatres“ to prove healthy Doughnut-making theatres“ to prove healthy production.production.

Packaging. The boxes are longer and flat to protect Packaging. The boxes are longer and flat to protect the glaze, also a very effective symbol.the glaze, also a very effective symbol.

Extensive use of technology (latest machines to Extensive use of technology (latest machines to produce doughnuts, effective computer network produce doughnuts, effective computer network connecting each store, customized web portal. connecting each store, customized web portal. Forecast tools, financial and analytics systems, Forecast tools, financial and analytics systems, ordering supplies, training demos are all online. So ordering supplies, training demos are all online. So ordering errors down 90%, managers run twice as ordering errors down 90%, managers run twice as many shops, provides immediate online shipments, many shops, provides immediate online shipments, helps very fast reporting. Now 3,000 problem orders helps very fast reporting. Now 3,000 problem orders compared to 26,000 in 2000. 10 district managers compared to 26,000 in 2000. 10 district managers currently handle 320-plus stores compared to 144 in currently handle 320-plus stores compared to 144 in 2001. 2%-3% more profitability just from the portal. 2001. 2%-3% more profitability just from the portal. IBM & Geac Computer Corp. hardware and software. IBM & Geac Computer Corp. hardware and software.

Major Critics for the StrategyMajor Critics for the Strategy

Too much reliance on sales in grocery stores and Too much reliance on sales in grocery stores and other retail outlets. This makes doughnuts more other retail outlets. This makes doughnuts more available and therefore less unique.available and therefore less unique.

The company is growing very fast, that makes it The company is growing very fast, that makes it really harder to control the operations and track really harder to control the operations and track the external environment.the external environment.

The new stores are underperforming.The new stores are underperforming.

FranchisingFranchising

The minimum cost for franchising is too high. Because The minimum cost for franchising is too high. Because when granted the franchise, you are required to build a when granted the franchise, you are required to build a chain of 15 Krispy Kream stores for the development of chain of 15 Krispy Kream stores for the development of the market which costs $ 30,000,000. This is an the market which costs $ 30,000,000. This is an important factor limiting the entrepreneurs. important factor limiting the entrepreneurs.

2/3 of the stores are franchisees.2/3 of the stores are franchisees. Looking for franchisees in Eastern Europe, Asia, Looking for franchisees in Eastern Europe, Asia,

Japan, South Korea, Spain (international) & New Japan, South Korea, Spain (international) & New England (domestic).England (domestic).

Krispy Kreme VS Dunkin’ DonutsKrispy Kreme VS Dunkin’ Donuts

Dunkin’ Donuts implements an intensive advertising for Dunkin’ Donuts implements an intensive advertising for its coffees, has more reputation compared to Krispy its coffees, has more reputation compared to Krispy Kreme for coffees.Kreme for coffees.

More diverse line of breakfast foods at Dunkin’ Donuts More diverse line of breakfast foods at Dunkin’ Donuts with bagels, muffins and breakfast sandwiches in with bagels, muffins and breakfast sandwiches in addition to its own doughnuts compared to Krispy addition to its own doughnuts compared to Krispy Kreme.Kreme.

An estimated 30.6 million adult Americans (15.5 percent An estimated 30.6 million adult Americans (15.5 percent of the entire adult population) have eaten at Dunkin' of the entire adult population) have eaten at Dunkin' Donuts in the past 30 days compared with 7.6 million Donuts in the past 30 days compared with 7.6 million (3.9 percent) who have eaten at Krispy Kreme (1.3 (3.9 percent) who have eaten at Krispy Kreme (1.3 percent have eaten at both). percent have eaten at both).

Krispy Kreme VS Dunkin’ Donuts (cont.)Krispy Kreme VS Dunkin’ Donuts (cont.)

Females show a slight penchant for Krispy Kreme over Females show a slight penchant for Krispy Kreme over Dunkin' Donuts, an imbalance offset by men's preference Dunkin' Donuts, an imbalance offset by men's preference for the latter. for the latter. Individuals with higher incomes are more likely than the Individuals with higher incomes are more likely than the average American to take a break at Krispy Kreme. In average American to take a break at Krispy Kreme. In fact, adults earning $ 50,000 a year or more are 34 fact, adults earning $ 50,000 a year or more are 34 percent more likely than average to eat at Krispy Kreme. percent more likely than average to eat at Krispy Kreme. Adults who earn $ 20,000 a year are 5 percent less likely Adults who earn $ 20,000 a year are 5 percent less likely than average to eat there. The opposite holds true for than average to eat there. The opposite holds true for patrons of Dunkin' Donuts. Adults earning less than $ patrons of Dunkin' Donuts. Adults earning less than $ 20,000 annually are 21 percent more likely than the 20,000 annually are 21 percent more likely than the average American to eat at Dunkin' Donuts, while those average American to eat at Dunkin' Donuts, while those who earn $ 50,000 or more are 8 percent less likely than who earn $ 50,000 or more are 8 percent less likely than average to stop by for a bite.average to stop by for a bite.

The latest trends (issues)The latest trends (issues)

Recently, Krispy Kreme has been losing some of Recently, Krispy Kreme has been losing some of its sales and profitability. Stock falling down.its sales and profitability. Stock falling down.

Growing popularity of the low-carbohydrate diet Growing popularity of the low-carbohydrate diet fad leads consumers to think that Krispy Kreme’s fad leads consumers to think that Krispy Kreme’s products are unhealthy. Some groups in Australia products are unhealthy. Some groups in Australia protest Krispy Kreme for that reason. In U.S., it’s protest Krispy Kreme for that reason. In U.S., it’s estimated that 6-7% of the consumers are on low-estimated that 6-7% of the consumers are on low-carbohydrate diet. So Krispy Kreme is planning to carbohydrate diet. So Krispy Kreme is planning to offer a low-sugar doughnut to attract dieters and offer a low-sugar doughnut to attract dieters and diabetics.diabetics.

Wall Street’s concerns about the company’s Wall Street’s concerns about the company’s aggressive pace of new store openings resulted aggressive pace of new store openings resulted fall for Krispy Kreme stock.fall for Krispy Kreme stock.

The latest trends (issues) (cont.)The latest trends (issues) (cont.)

Securities Exchange Commission (SEC) Securities Exchange Commission (SEC) investigates the company about its repurchase of investigates the company about its repurchase of franchises, lowered earnings, non-amortized franchises, lowered earnings, non-amortized assets (to show high profits). Stock fell down 15%. assets (to show high profits). Stock fell down 15%.

Krispy Kreme doubled its debt load last year Krispy Kreme doubled its debt load last year (2003) with an aggressive effort to buy back (2003) with an aggressive effort to buy back franchises from individual franchisees.franchises from individual franchisees.

The table shows Krispy Kreme’s The table shows Krispy Kreme’s

profitability for the month ofprofitability for the month of

August, 2004. Resource: usatoday.comAugust, 2004. Resource: usatoday.com