strategic management - krispy kreme, is turnaround possible?
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Transcript of strategic management - krispy kreme, is turnaround possible?
LI BoyaYE Zhirui
WANG YanyiCHENG Qiaomei
Providence KluganOgochukwu Chrystle Oguamanam
History
· 1933 creation by Vernon Redolph
· 1950s 29shops
· 1960 standardization of making process
· 1982 bought by Joseph Mcaleer
· 1990s aggressive expansion
· 2000Digital Java acquisition
· 2001-2004 rapid growth
· 2005 decline
· 2001 go public
Q1:
What are the chief elements of Krispy Kreme’s
strategy? Was it working?
Strategy in Growth stage
1990's --- 2004Cost-leadership
Economic scaleGrow capability
Aggressive expansionFranchising
Reduce advertisingGo public
Go international
Differentiation
Unique productAtmosphereExperience
Emotional leisureTrend & popularityBrand awareness
Combine with coffee
Mix strategy
Our MissionTo touch and enhance lives through the joy that is Krispy Kreme.
Our VisionTo be the worldwide leader in sharing delicious tastes and creating joyful memories.
Strategy in Mature Stage
Form 2004
Keep going expansionRely on customer loyalty
Strategy Innovation:
Acquisition Motana Mils(2003) – failedLow-carbohydrate diet(2004) – failed
Questionable acquisition seven-unit franchise
Q2:
Identify and explain the key elements of their
business model
Business Model
On-premise Business
Off-premise Business
Business 1: company-own
ed stores
Business 2: franchised stor
es
Business 3: doughnut mixe
d
Business 4: supermarket and convenience st
ore
Business Model
Krispy Kreme's business model involved generating revenues and profits from three sources
1. sales at company-owned storees
2. royalties from franchised stores and franchise fees from new store o
penings
• store in the 2,400 to 4,200-square-foot
• franchise fee: $20,000 to $40,000 for each store
pay 4.5% royalty fee and 1.0% of revenues
3. sales of doughnut mixes, customized doughnut-making equipment, a
nd coffees to franchised stores.
Q3:
What does a SWOT analysis reveal about Krispy
Kreme’s overall situation, including an evaluation
of their financial performance? Do a comparative
strengths and weaknesses assessment using
McKinsey.
Financial Performance
Dollar amounts in thousands
Year Jan.2000 Jan.2001 Jan.2002 Jan.2003 Jan.2004 Jan.2005 Jan.2006
Revenues 220,243 300,715 394,354 491,549 665,592 707,766 543,361
Growth Rate 36.54% 31.14% 24.65% 35.41% 6.34% -23.23%
Financial Performance
Year 2005 • Stock Price: -88%• Stores: -30
SWOT&TOWS
Strengths Quality Brand Awareness Market share Various products Vertically integrated
Weaknesses Communication Management & Control Cannibalization (erode) Financial practice
Opportunities New ways of selling New promoting concept Present menu offerings
SOMarketing
&Social network
WONew markets
&Improving management
Threats Health campaign Competition Increasing cost of ingredients Consumer’s habits change
STPromoting healthy
products&
Economic scale &
CSR
WT
Avoid developing existing markets by existing
products
Mckinsey 7S Model
1.Hard Elements1) Strategy (Mixed)2) Structure (Own stores & Franchises)3) Systems (Everyone contributes to the
value)
2. Soft Elements1) Shared values (Hot fresh magic
products)2) Skills (Baking skill, recipe)3) Style (Ineffective relationship)4) Staff (Inexperienced, lack of knowledge)
Q4:
On the basis of your assessment above,
what do you think of Krispy Kreme’s growth
prospects? Just how good are they?
GROWTH PROSPECTS
• Historical basic product with variations – KK is known for its doughnuts, let that be the basic product. Other products should be added to the menu based on customer demand.
• Vertical integration principle – at this stage, in order to reduce cost, increase revenues and subsequent profitability
GROWTH PROSPECTS
• Customer experience – make every doughnut a fun and adventurous experience for the customers. Let them feel and be involved
• Diversify the sales locations – open stores in strategic locations, with dense population
GROWTH PROSPECTS
• Franchise – maintain effective communications with franchises, ensure that they uphold the KK brand and quality and monitor them effectively
GROWTH PROSPECTS REALITY
• For KK, the growth prospects as at the end of 2005 seem quite bleak. Though they had optimistic projections for sales, revenues and store growth, the actual results were well below what was expected
GROWTH PROSPECTS REALITY
0
10
20
30
40
50
60
70
80
Q32004
Q42004
Q32005
Q22005
Q32005
$ mi
llio
n company stores
franchi sed storeaveragesystemwi deaverage
Average weekly sales
GROWTH PROSPECTS REALITY
Changes in store sales
-10
-5
0
5
10
15
20
25
30
Q32004
Q42004
Q12005
Q22005
Q32005
fi scal year
%
company stores
systemwi de
i ncrease i nsystemwi de sal es
GROWTH PROSPECTS - OTHER
• Porter’s five forces; though not a traditional model for assessing growth prospects of a company, the five forces can be used to determine the possibility for future growth for KK in this industry
GROWTH PROSPECTS - OTHER
• Competition and rivalry
• Substitutes (and complements)
• Bargaining power of suppliers
• Threat of new entrants
• Bargaining power of buyers
GROWTH PROSPECTS - OTHER
• Ansoff’s growth model
• Market penetration – existing products, existing market
• Market development – existing products, new markets
• Product development – new product, existing market
• diversification
Q5:
What major issues do you think that Krispy
Kreme management needs to address?
Major issues
• Low-carbohydrate diets Adversely impacted several food categories
“this phenomenon has affected us most heavily in our off-premises sales channels. "(Livengood, former CEO)
• Accounting and financial reporting obligations In late July 2004, SEC launched an inquiry into the compa
ny’s accounting practices regarding certain franchise buybacks.
In December 2004, KKD identified accounting errors related to its acquisition of two franchises
Major issues (cont’d)
• Weak senior management teamInappropriate tone at the top of the organization
Unqualified management ( GAAP)
• Too many stores in too little time
144
357
410
0
50
100
150
200
250
300
350
400
450
2000 2004 2006
TOTAL
Q6:
What recommendations would you make to
Krispy Kreme management to improve upon the
strategy or otherwise sustain the company’s
growth and profitability?
RECOMMENDATIONS
• Develop stronger control of franchises recruitment in order to concentrate on succesful actual stores
• Adapt to consumers desires
• Enforce marketing strategies
• Establish regular control of the accounting records and hire qualified personel
• Be more precise in their mission and vision to reposition themselves (better long-term vision)
THANK YOU !!!!!