For your final project, you will assume the role of a senior vice-president of a consulting company. Your company has recently been asked to advise and assist Krispy Kreme Donuts as they develop their strategic plans. You have been asked to review the Krispy Kreme matrices Preview the documentand information provided, and develop your best recommendations on how the company should proceed. It is suggested that you familiarize yourself with the company history and background. Your planning team has provided you with some current information including vision statements, strategies and objectives.

Once you have reviewed the background information you will need to analyze each of the matrices provided and present your findings. Once you have analyzed each of these matrices you will need to develop a summary statement and a recommendation for further action. Your final report will include:

Introduction (include history and background)
Analysis of CPM
Analysis of EFE
Analysis of IFE
Analysis of SWOT
Analysis of SPACE Matrix
Analysis of BCG
Analysis of Grand Strategy Matrix
Analysis of QSPM
Analysis of Income Statement and Balance Sheet
Summary of analysis (1 – 2 pages in length)
Recommendations (2 – 3 pages in length)

Please remember to cite any sources that you reference. Your report will be going to the president and board of directors of Krispy Kreme and should be free of any grammatical or punctuation errors. You will need to present clear, succinct and direct analysis of the information provided. It is expected that each analysis will be 2 – 4 paragraphs in length, the summary approximately 1 – 2 pages, and your final recommendations 2 – 3 pages. As with any report, an introduction is expected.

 

 

 

 

 

 

 

 

 

Strategic Planning Report for Krispy Kreme Doughnuts Inc.

TABLE OF CONTENTS

Abstract 3

Introduction. 4

Company Overview.. 4

Company Mission, Vision, and Corporate Values. 4

Krispy Kreme Matrices Analysis. 5

Analysis of the Competitive Profile Matrix (CPM). 5

Analysis of the External Factor Evaluation (EFE). 6

Analysis of the Internal Factor Evaluation (IFE). 8

Analysis of the Strengths-Weaknesses-Opportunities-Threats Matrix (SWOT). 9

Analysis of the SPACE Matrix. 10

Analysis of the Boston Consulting Group Matrix (BCG). 11

Analysis of the Grand Strategy Matrix. 12

Analysis of the Quantitative Strategic Planning Matrix (QSPM). 13

Analysis of Income Statement and Balance Sheet. 14

Analysis Summary. 14

Recommendations. 16

References. 19

 

 

 

Abstract

This is the strategic analysis report of Krispy Kreme Donuts developed from the data provided on the company’s matrices and performance. The report presents a comprehensive overview of the organization in terms of its strategic management and planning. Several magazines, online journals, and the company’s website have been used in the development of this report, besides the provided data. The information and data collected have been analyzed using various matrices taught in class and presented in this report. The report concludes with a list of recommendations for the improvement of the company’s strategies to realize strategic objectives and improved organizational performance.

Introduction

Company Overview

Krispy Kreme Donuts is an organization that deals with the retail of high-quality sweet treats. The retailer’s most popular and signature treat is the Original Glazed® doughnut (Krispy Kreme, n.d.). The company is headquartered in Winston-Salem, NC and was founded in 1937 by Vernon Rudolph. Krispy Kreme provided its customers with premium-quality doughnuts and tasty coffee, products that are popular with the American population. Since it was founded, the company has been performing well, realizing organizational growth through expansion into more than 600 locations around the world. The company currently conducts operations in 20 countries including the United States, Bahrain, Australia, Canada, Indonesia, China, Dominican Republic, Japan, Kuwait, Malaysia, Lebanon, Mexico, the Philippines, the Republic of Korea, Puerto Rico, Qatar, Saudi Arabia, Turkey, Thailand, the UAE, and the United Kingdom (Krispy Kreme, n.d.). The products of the company appeal to all demographic groups, regardless of gender, income, and age. This is because the company’s donuts and coffee are affordable, sweet, high-quality, and have excellent taste. The company is part of the restaurant industry, under the quick service or fast-food restaurants category.

Company Mission, Vision, and Corporate Values

The mission of the company is “To touch and enhance lives through the joy that is Krispy Kreme”. The vision of the company is “To be the worldwide leader in sharing delicious tastes and creating joyful memories” (Krispy Kreme, n.d.). The company’s values are based on the provision of quality treats and service to customers. The company believes that (Krispy Kreme, n.d.):

• There is no substitute for quality in its service to consumers.
• Consumers are its lifeblood, the center of the donut.
• Impeccable presentation is critical wherever Krispy Kreme is sold.
• It must produce a collaborative team effort that is unexcelled.
• It must never settle for “second best”. It must deliver on its commitments.
• It must cast the best possible image in all that it does.
• It must coach its team to produce even better results.

Krispy Kreme Matrices Analysis

Analysis of the Competitive Profile Matrix (CPM)

The CPM is a matrix that shows a comparison of a company’s key rivals, revealing their relative strengths and weaknesses (Sohel, Rahman, & Uddin, 2014). A CPM provides a deeper understanding of the level of competition and the external environment of an organization within a particular industry. The key competitors of an organization are compared using the critical success factors (CSFs) of the industry to understand the areas that the organization needs to improve or work on (Sohel et al., 2014). The provided CPM shows that the critical success factors in the fast-food restaurant industry are advertising, product diversity, product quality, price competitiveness, management, financial position, customer loyalty, global expansion, market share, and sales distribution. The weight value assigned shows the importance of each critical factor to the success of a company, since all critical factors can never be equally important in the real world. No factor can have a value of more than 0.3 or 0.4 since that would be an overemphasis on a single factor, while the success of a company is the combination of many factors and not a single one. The sum of all assigned weights has to be equal to one.

From the CPM data provided, the key competitors of Krispy Kreme are Dunkin’ Donuts, Starbucks, and Tim Hortons, while the most important CSFs for the companies in the industry are product quality (0.15), global expansion (0.13), and advertising (0.11). The rating in CPM shows how well each company is doing in each CSF. The ratings range from 4 to 1, as follows: 4 – a major strength; 3 – a minor strength; 2 – a minor weakness; and 1 – a major weakness. An analysis of the provided CPM data reveals the following:

1. Dunkin Donuts’ strengths are in advertising (4), customer loyalty (4), product quality (3), price competitiveness (3), management (3), financial position (3), global expansion (3), and market share (3).
2. Starbucks has strengths in the global expansion (4), advertising (3), product quality (3), management (3), customer loyalty (3), market share (3), and sales distribution (3).
3. Tim Horton’s strengths are in price competitiveness (3), financial position (3), and customer loyalty (3).

The score on a CPM shows the result of the weight of each CSF multiplied by the rating for each competitor. Every competitor gets a score on each CSF, after which the scores are summed up to come up with a total score for each company. The company with the highest total is the strongest competitor. In the fast-food restaurant industry, Dunkin Donuts is Krispy Kreme’s strongest competitor (3.08), followed by Starbucks (2.79). Tim Hortons is the weakest of the company’s key competitors (2.05).

Analysis of the External Factor Evaluation (EFE)

The EFE is a tool used in the evaluation of an organization’s external environment to understand the existing strengths and weaknesses (Zulkarnain, Wahyuningtias, & Putranto, 2018). It is a summary of the information obtained from conducting a company’s external environment. The key available opportunities and the existing threats in the external environment of an organization are identified when developing the EFE. All the available opportunities and threats in the external environment must be identified to develop an effective EFE. From the data provided, the key opportunities for Krispy Kreme include the following: families crave convenience because of busy lifestyles; Asians love sweets and are open to trying foreign foods; Starbucks lacks a diversified and distinctive pastry line; Dunkin’ Donuts does not have hot doughnuts to sell; many children love sweet treats; Tim Hortons has yet to expand beyond the U.S. and Canada, and its product line does not appear to be competitive; and South America, Africa, and Southern Asia are markets to conquer.

The key threats that the company faces include: Dunkin’ Donuts presently dominates the doughnut market, particularly in the northeastern U.S.; people are becoming more health-conscious, which does not bode well for high-sugar, high-fat treats; Starbucks has approximately 25 times the number of stores worldwide that Krispy Kreme Donut has; restricted cash flow from banks and massive layoffs have stifled the world economy, decreasing discretionary income; Europeans prefer their local brands of doughnuts; Britons tend not to have cars, which inhibits drive-thru customers, and their eating habits and office etiquette differ from Americans; and shareholders may sell Krispy Kreme Donut stock for lack of returns and dividends compared to other similar firms in the industry. In the EFE, each opportunity or threat is assigned a weight, ranging from 0.0, to indicate low importance, to 1.0, indicating high importance (Zulkarnain et al., 2018). From the data provided the most important opportunity for the company is that Starbucks, one of its key competitors, does not have a diversified and distinctive pastry line (0.10), while the most significant threat is that Dunkin’ Donuts, its strongest competitor, presently dominates the doughnut market (0.12).

In the EFE, the ratings show how effectively an organization’s current strategy responds to an opportunity or a threat. The ratings range from 4 to 1 with a decreasing ability to respond to an opportunity or threat. From the data provided, Krispy Kreme’s current strategy poorly responds to the opportunity of South America, Africa, and Southern Asia being available for conquering (1), the threat of Dunkin’ Donuts presently dominating the doughnut market, particularly in northeastern U.S. (1), the threat of Starbucks having approximately 25 times the number of stores worldwide that Krispy Kreme Donut has (1), and the threat that its shareholders may sell stock for lack of returns and dividends (1). The weighted score is a multiplication of the weight and the rating for each factor. The total weighted score is a sum of all the weighted scores. From the data provided, Krispy Kreme has a total EFE weighted score of 1.94, which means that the organization’s strategies are not properly designed to take advantage of existing opportunities and respond to threats.

Analysis of the Internal Factor Evaluation (IFE)

The IFE is a tool that is used to analyze a company’s internal environmental factors, showing its strengths and weaknesses. Each of the factors identified is assigned a weight value, which ranges from 0.0, showing low importance, to 1.0 to show high importance (Zulkarnain et al., 2018). The IFE data provided shows the company’s strengths include: affordable, high-quality doughnuts with strong visual appeal and “one-of-a-kind” taste; Neon “Hot Doughnuts Now” sign encourages people outside the store to make an impulse purchase; market research shows appeal extends to all major demographic groups including age and income; “Hot shop” stores save money while keeping Krispy Kreme Donuts customer experience intact; vertical integration helps ensure high-quality product; consistent expansion, now in 16 countries; and product sold at thousands of supermarkets, convenience stores, and retail outlets through the U.S.

The weaknesses of the company include: return on equity, assets, and investments all negative in the trailing twelve months; shareholders have not received dividends recently, and are not expected to in near future – stock price in state of flux; closing stores when stores should be opening globally at steady rate to keep up with competitors’ growth; management states in recent 10-K that it is struggling with how to make stores profitable; product line slow to expand with nothing outside “sweet treats” to draw in health-conscious customers; advertising not aggressive enough to appeal to areas outside southeast of U.S. where most stores are; revenues down, net losses in each of past three years; and per 10-K, continued disputes with franchisees could hurt future business.

Each of the strengths and weaknesses in the internal environment of the company is given a rating to show how strong or weak it is: 4 – major strength; 3 -minor strength; 2 – minor weakness; and 1 – major weakness. Krispy Kreme’s major weaknesses include the return on equity, assets, and investments being negative, the shareholders not having received dividends, net losses over the past three years, and the management struggling to make the stores profitable. The score assigned for each factor is totaled to provide a total score that shows the strength of the company compared to competitors. With a total score of below 2.5, Krispy Kreme is weak against its competitors.

Analysis of the Strengths-Weaknesses-Opportunities-Threats Matrix (SWOT)

A SWOT analysis matrix is based on the thorough analysis of an organization’s operations, products, customers, competition, and strategies to identify internal strengths and weaknesses, as well as the external threats and opportunities. SWOT analysis of Krispy Kreme reveals the strengths, weaknesses, opportunities, and threats that have been discussed above (in the EFE and IFE analysis). The outcome of a SWOT analysis is used to develop strategies that the company under analysis can use to take advantage of its strengths to improve on its weaknesses, and to take advantage of the existing opportunities while defending against the existing threats. Using the strategies developed, an organization can achieve better market performance and improve productivity and the efficiency of its operations.

From the identified strengths, weaknesses, opportunities, and threats the following strategies can be developed for Krispy Kreme:

1. Using TV, internet, and print media advertising to promote sales.
2. Opening stores in highly-populated cities such as Sao Paulo, Brazil, and Johannesburg, South Africa.
3. Increasing the donut varieties that the company currently produces.
4. Opening small but profitable shops in South America, Africa, and Southeast Asia to expand globally.

Analysis of the SPACE Matrix

SPACE analysis is a technique that is used in strategic planning and management. It involves the analysis of an organization’s strategic position and action evaluation (Gürbüz, 2019). In a SPACE analysis, the external and internal environments are analyzed in terms of the environmental stability factors (ES), industry attractiveness factors (IA), competitive advantage factors (CA), and financial strength factors (FS). Each of the sub-factors in these categories is assigned a value ranging from 0 to 6 (for IA and FS) and 0 to -6 for CA and ES (Gürbüz, 2019). The value for each category is expressed as the mean of the sub-factors. The values obtained for each category are input in the axes as shown in the provided diagram. An analysis of the resulting diagram provides insight into alternative business behavior or available strategic alternatives.

From the data provided, the SPACE matrix of Krispy Kreme is as follows (compared against competitors Dunkin’ Donuts, Starbucks, and Tim Hortons):

1. Financial strength (FS) factors include: Profit (+1); Sales Growth (+2); and Cash Flow (+2): 1 + 2 + 2 = 5; 5/3 = 1.67.
2. Competitive advantage (CA) factors include: Customer loyalty (-2); Product quality (-1); and Market share (-5): -2 + -1 + -5 = -8; -8/3 = -2.67.
3. Environmental Stability (ES) factors include: Barriers to entry into market (-4); Risk involved in business (-3); and Ease of exit from market (-4): -4 + -3 + -4 = -11/3 = – 3.67
4. Industry Strength (IS) factors include: Profit potential (+2); Financial stability (+1); and Technological know-how (+4): 2 + 1 + 4 = 7/3 = 2.33

Analysis of the Boston Consulting Group Matrix (BCG)

A BCG matrix is a strategic planning tool that is used in the evaluation of a company’s brand portfolio on a quadrant along the relative market share axis (x-axis) and the speed of market growth (y-axis). The brand portfolio is classified into four categories based on industry attractiveness and competitive position, which form the quadrants along which the brand portfolio is analyzed (Madsen, 2017). Dogs have a low market share in comparison with competitors. They generate low or negative cash returns when invested in. Cash cows indicate the most profitable brands. Cash obtained from cash cows should be invested in stars to enable them to grow (Madsen, 2017).

Stars are cash producers and cash users. They operate in industries that have a high rate of growth and maintain a high share of the market. They are expected to become cash cows and produce positive cash flows, so the company needs to invest in stars. Question marks are the various brands that need deeper consideration to decide whether investing in them is worthwhile. They have the potential to gain market share and become stars. They may, however, not succeed and become dogs. According to the data provided, Krispy Kreme has three business segments: company stores with 3% of the market share and a growth rate of -13%, Krispy Kreme supply chain with 3% market share and a growth rate of -7%, and franchise with 3% market share and a growth rate of 10%. This means that Krispy Kreme supply chain and company stores are dogs, while the franchise is a question mark that requires consideration on whether to invest further in it.

Analysis of the Grand Strategy Matrix

Grand Strategy matrix is a tool for the development of different and alternative strategies for a firm. It contains four quadrants and is based on competitive position and market growth. Quadrant I shows firms with a strong competitive position and rapid market growth. Such firms are in a great strategic position. Quadrant II shows firms in a weak competitive position but with rapid market growth. Such firms have to analyze the current approach to the market and focus on improving their competitive position. Quadrant III shows firms in a weak competitive position and with slow market growth. There is a need for such firms to make drastic changes to avoid possible liquidation and demise. Quadrant IV shows firms with a strong competitive position but with slow market growth. Such firms need to come up with ways to improve the marketing of products and services and launch products in more promising growth areas to improve the rate of market growth.

Krispy Kreme seems to be a firm in Quadrant IV of the Grand Strategy Matrix. From the analysis of the internal and external environment of the company, the company has several strengths and many opportunities that it can take advantage of to improve its market growth and performance. From the analysis of its competitors (CPM), the company is at a good competitive position, with Dunkin’ Donuts and Starbucks being the only strong key competitors that the company faces. The Krispy Kreme brand is popular with the population, and the company should use strategies such as related diversification, unrelated diversification, and entering joint ventures to further promote its brand and realize market growth.

Analysis of the Quantitative Strategic Planning Matrix (QSPM)

QSPM is a strategic management tool that is applied in the analysis of the strategic options that are available for an organization. The tool is used to weigh the attractiveness of each strategic option to determine which option is feasible (Zulkarnain et al., 2018). The tool consists of three stages. The first stage is the determination of the key strategic options. After the determination of options, a SWOT analysis is conducted to weigh the pros and the cons of each option numerically. The third stage is the analysis of the information obtained from the analysis of the SWOT analysis report, after which a decision on the most feasible strategic option to pursue is arrived at. The left column of the QSPM consists of the key internal and external factors identified in the IFE and EFE analysis. The top row consists of the alternative strategies available for the company derived from the SPACE, Grand Strategy, and BCG matrices. Weights are then assigned to each factor, after which scores are calculated to determine the most feasible strategic option.

In the QSPM matrix of Krispy Kreme, the key strategic options available for the company are two: the company discontinuing its Company Store segment to concentrate on building and improving the Franchise segment through the “hot shop” business model, and the company continuing the slow but steady growth of the Company Stores and Franchise segments using its traditional business model. An analysis of these two strategic options reveals that the first option, discontinuing the company store segment and concentrating solely on the improvement of the franchise business segment, scores better compared to the other strategic option. The company has better chances at success if it discontinues the company stores segment and focuses on the franchise segment.

Analysis of Income Statement and Balance Sheet

The income statement of an organization shows the performance of the organization in terms of its revenues and expenses, for a certain period. The provided income statement shows the financial performance of Krispy Kreme for the year ended February 1^st, 2015. The company’s revenues totaled $383,984. The various operating expenses are also listed, after which the net profit or loss is calculated. From the provided income statement, it is clear that the company made a net loss of $4,061 for the year ending February 1^st, 2015. This means that the company has more expenses than its revenues and that it should focus on ways to increase sales and its other revenue sources.

The balance sheet of an organization shows the assets and liabilities of the organization in terms of their values. It lists the various assets and liability categories that an organization holds, calculating whether the company can pay off its liabilities using its assets. The provided balance sheet lists the assets and liabilities of Krispy Kreme, with the company’s total assets being equal to the total liabilities and shareholders’ equity ($194, 926). This means that the company can pay its liabilities using its assets.

Analysis Summary

An analysis of Krispy Kreme’s matrices reveals various aspects and factors of the company. First, the key competitors of the company are Dunkin’ Donuts, Starbucks, and Tim Hortons. The most important CSFs for the company are product quality, global expansion, and advertising. Dunkin Donuts has strengths in advertising, customer loyalty, product quality, price competitiveness, management, financial position, global expansion, and market share, making it the company’s strongest competitor. Starbucks has strengths in global expansion, advertising, product quality, management, customer loyalty, market share, and sales distribution, making it the second strongest competitor. Tim Horton’s strengths are in price competitiveness, financial position, and customer loyalty.

From the analysis of the external and internal environment of the company, the most important opportunity for the company is that Starbucks, a key competitor, does not have a diversified and distinctive pastry line. The most significant threat is that Dunkin’ Donuts, its strongest competitor, presently dominates the doughnut market. Krispy Kreme’s current strategy poorly responds to the opportunity of South America, Africa, and Southern Asia being available for conquering, the threat of Dunkin’ Donuts presently dominating the doughnut market, particularly in the northeastern U.S., the threat of Starbucks having approximately 25 times the number of stores worldwide that Krispy Kreme Donut has, and the threat that its shareholders may sell stock for lack of returns and dividends. The company’s major weaknesses include the return on equity, assets, and investments being negative, the shareholders not having received dividends, net losses over the past three years, and the management struggling to make the stores profitable. The company has three business segments: company stores with 3% of the market share and a growth rate of -13%, Krispy Kreme supply chain with 3% market share and a growth rate of -7%, and franchise with 3% market share and a growth rate of 10%.

Lastly, the key strategic options available for the company are two: the company discontinuing its Company Store segment to concentrate on building and improving the Franchise segment through the “hot shop” business model, and the company continuing the slow but steady growth of the Company Stores and Franchise segments using its traditional business model. An analysis of these two strategic options reveals that the first option, discontinuing the company store segment and concentrating solely on the improvement of the franchise business segment, scores better compared to the other strategic option. The company, therefore, has better chances at success if it discontinues the company stores segment and focuses on the franchise segment.

Recommendations

From the analysis conducted on the matrices of Krispy Kreme, the following recommendation are proposed for the improvement of the company’s performance and competitive position:

1. To improve its competitive position, Krispy Kreme needs to focus on the improvement of the CSFs in the fast-food restaurant industry. These are product quality, global expansion, and advertising. The key competitors of the company have varying strengths in these areas. The company has to increase investment in advertising and global expansion, as the product quality is one of its key strengths.
2. The company should develop strategies that will take advantage of the existing opportunities in the external environment. The company should utilize product diversification and develop a pastry line that will be distinctive in the market. The present strategy that the company uses fails to effectively take advantage of the opportunity to expand into Africa, South America, and Southern Asia, which are viable markets for Krispy Kreme. It is only through global expansion and diversification that the company can beat its competitors and improve its market performance to increase returns and be able to pay dividends to its shareholders.
3. A key weakness of the company is that it has negative returns and has been making net losses for a long time. To overcome this weakness, the company should rely on its strengths to improve performance and sales. The company produces affordable, high-quality doughnuts with strong visual appeal and “one-of-a-kind” taste. The customers are familiar with its products and the quality and consistency of taste result in customer loyalty in the local market. Krispy Kreme should now focus on diversification as it already enjoys a strong brand.
4. Banking on a strong brand, the company should develop advertisements that appeal to potential customers. For instance, the company can develop TV, radio, and print ads demonstrating the various varieties of doughnuts. It could also continue opening up stores in cities that are densely populated, such as Sao Paulo, Brazil, and Johannesburg, South Africa. Internet advertising should also be used to match the adverts of its competitors that are already online.
5. The company should open small but profitable “hot shops” in South America, Africa, and Southeast Asia to expand globally.
6. The company should use strategies such as related diversification, unrelated diversification, and entering joint ventures to further promote its brand and realize market growth.
7. Krispy Kreme should discontinue the Company Store business segment and concentrate solely and fully on the improvement of its Franchise business segment, which scores better in the QSPM matrix compared to the strategic option of continuing the slow but steady growth of the Company Stores and Franchise segments using its traditional business model. By focusing on the Franchise segment of the company, the company will have better chances of success.
8. The company should seek to cut down operational expenses by closing non-profitable shops and opening small and profitable shops in large cities. This way, the company will improve its financial performance and realize profits in the coming years.

References

Gürbüz, T. (2019). STRATEGY FORMULATION USING A HYBRID MCDM APPROACH FOR STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX METHOD. Journal of Aeronautics and Space Technologies, 12(1), 1-17.

Krispy Kreme. (n.d.). Retrieved February 25, 2020, from http://krispykreme.com/

Madsen, D. O. (2017). Not dead yet: the rise, fall and persistence of the BCG Matrix. Problems and Perspectives in Management, 15(1), 19-34.

Sohel, S. M., Rahman, A. M. A., & Uddin, M. A. (2014). Competitive profile matrix (CPM) as a competitors’ analysis tool: A theoretical perspective. International Journal of Human Potential Development, 3(1), 40-47.

Zulkarnain, A., Wahyuningtias, D., & Putranto, T. S. (2018, March). Analysis of IFE, EFE and QSPM matrix on business development strategy. In IOP Conference Series: Earth and Environmental Science (Vol. 126, No. 1, p. 012062). IOP Publishing.