Krispy Kreme Analysis
Since Krispy Kreme was established in 1937, it has been in the donut business for 71 years. The company introduced its donuts to the southeast market in 1937. Between 1937 and 1950, the company started to invest in manufacturing its own donut-making machines. By the 1960s, Krispy Kreme was well-known throughout the southeastern United States, and it began to expand into other areas of the country. During Krispy Kreme’s growth, new entrants entered the market: Dunkin Donuts and Tim Hortons, Winchell’s Donut House.
Because of the death of Vernon Rudolph, the founder of Krispy Kreme, the growth of the company slowed down. Krispy Kreme began another phase of rapid expansion in the 1990s, opening stores outside the southeastern United States where most of its stores were located [www. wikipedia. com]. The company experienced growth on its sales between the years 1990 and 2000. During the 1990s a new competitor entered the national market with 165 stores: Starbucks. “Most products are in the maturity stage of the lifecycle… ” [Kotler and Keller].
Although it is a longstanding establishment, Krispy Kreme started its rapid growth in the 1990s. After its rapid growth in the 1990s the company experienced decline in its sales growth at the beginning of the 2000s. According to the company’s SEC files, through 1999 to 2006, the company’s sales (in thousands) were $220,243, $300,715, $394,354, $491,549, $665,592, $707,776, $543,361, $461,195, respectively [www. krispykreme. com]. Despite its quadrupled stock price between 2000 and 2003, the sales growth rate decreased from 36. % to -15%. These sales data shows that since 1999 the company have been acting in the maturity life cycle of the product life cycle. As we know, the maturity stage is divided into three phases: growth, stable and decaying maturity. Krispy Kreme’s SEC files show that the company’s sales growth rate started to decline from the year 1999 to 2004 from 36. 5% to 6. 3% because of an increased rivalry between competitors. Also there was a huge decline between the year 2002 and 2003 from 35% to 6. 3%.
The reason for this big decline is the consumers’ preference changes from the foods with high calories to healthier foods such as low-carb foods. Because the company is in the maturity stage, the market is almost saturated in the populated areas. Due to the decreasing sales, the company started to experience losses after 2004. In addition to the sales growth, as I mentioned at the preceding paragraph, between the years 1948 and 2000 new competitors entered to the market, such as Dunkin’ Donuts (1950), Tim Hortons (1964), Winchell’s Donut House (1948), Starbucks (1971), and nowadays the number of donut producers stabled.
The stabilized number of companies in the market also proves that Krispy Kreme is in the maturity stage. Krispy Kreme’s Competition and the Competitive Forces Competition Krispy Kreme has many core competencies, such as its excellent marketing department, product strategy, advertisement strategy, and experience. The advertisement strategy that the company follows by aiding local groups and charities, and giving away free donuts to TV, newspapers and radio stations before entering a market shows that its marketing department plays its role cleverly.
By aiding local groups and charities, Krispy Kreme has a good reputation and rapport in the domestic market. In addition to its reputation, its fresh donuts are also one of the company’s competitive advantages. Krispy Kreme’s “Hot Doughnuts Now” sign serves as its biggest signal to the freshest donuts being offered. Due to its charity tie in and the fresh donuts that it produces, the company has an effective word-of-mouth advertisement. Since Krispy Kreme is the oldest firm in the donut industry, its 71 years experience is another competitive advantage.
Finally, Krispy Kreme’s “Doughnut Theater” and fifties-style store design is another competitive advantage that attracts consumers’ interest. The donut industry carries the characteristics of oligopolistic competition; small numbers of large firms produce donuts that range from highly differentiated to standardized [Kotler, Keller]. There are both major players as well as small retailers that have a reasonable share in this market. The companies that are competing in the same market with Krispy Kreme are Dunkin’ Donuts, Starbucks, Winchell’s Donut House, and Tim Hortons. Industries differ greatly in ease of entry. It is easy to open a new restaurant… ” [Kotler, Keller]. In the entry, mobility and exit barriers basis, the donut industry has very few entry barriers. Because of the major players such as Krispy Kreme and Dunkin’ Donuts, it is required to have a flexible capacity large enough to produce the number of donuts needed to meet the customers’ needs, which bear a requirement to make large investments on the donut machines, hence fixed costs at the beginning.
In addition to that barrier, the presence of established strong brands within the donut market can be a barrier to entry. On the other hand, since making donuts is a fairly simple process, and knowledge is disseminated throughout the world, there are few barriers to enter. In addition to barriers to entry, because the donut manufacturing does not require much investment in non-transferable fixed assets, there are almost no barriers to exit. In the degree of vertical integration basis, almost all of the firms are not vertically integrated, except Krispy Kreme.
In addition to its donut production, the company also manufactures its own donut-making machines. Krispy Kreme also sells flour mix, donut-making machines, and donut supplies to its franchised stores. The degree of globalization in the donut industry is not much high. Dunkin’ Donuts and Starbucks are the only highly globalized companies in the industry. Krispy Kreme is not globalized as much as its competitors. According to Rayport and Javorski’s model of profiling a company’s direct and indirect competitors, we can list the consumer activities: purchasing donuts and purchasing coffee.
In the light of consumers’ activity of purchasing donuts, Krispy Kreme is in direct competition with other donut producers such as Dunkin’ Donuts, Winchell’s Donut House, and Tim Horton. In addition to these direct competitors, Starbucks is also a direct competitor for Krispy Kreme on the basis of purchasing coffee activity of consumers. In addition to its direct competitors, Krispy Kreme has also several competitors. In terms of consumers’ coffee purchasing activity, I can say that most of the coffee bean producers, such as Nestle’s Nescafe, Jacobs Coffee, etc. re Krispy Kreme’s indirect competitors. Moreover, because the chocolate producers are satisfying the consumers’ sugar need, most of the chocolate producers, such as Hershey’s, Mars, Amano Artisan, etc. Some bakeries also offering various types of coffee and pastries, such as Panera Bread, Au Bon Pain, so they are also indirect competitor for Krispy Kreme. Since McDonald’s is offering coffee and sugar kind of thing, it is another competitor for Krispy Kreme.