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Krispy Kreme: Case Study & Financial Analysis

2477 words - 10 pages

Krispy Kreme was a successful manufacturer of Doughnuts that was established in 1937 by a young entrepreneur named Vernon Rudolph. Rudolph was an industrious man who found clever ways to market and sell his unique confections to the American public. By the 1950’s Rudolph’s business had expanded to twenty-nine shops within twelve different states. Each shop featured pick-up windows (early versions of drive thrus) and possessed the capability of producing 500 dozen doughnuts per hour. In 1954, Mike Harding joined Rudolph as business partner in order to facilitate the expansion of the company. Both men realized that the quality of their products stemmed from having control over each aspect of ...view middle of the document...

Instead of spending large quantities of money on marketing and advertising, Krispy Kreme capitalized on the enthusiasm and loyalty of American consumers. The interactive quality of seeing the doughnuts baked at all store locations also added to the novelty of the product which in turn also created faithful customers. Over a four year span, from 2000 to 2004, the company expanded the number of shops from 144 to 357. Sales of doughnuts were also boosted from an average of 3 million a day to an average of 7.5 million a day. In April of 2000, the company went public on the NASDAQ with the ticker abbreviation KREM. The demand was so high for Krispy Kreme’s hot doughnuts during the early 2000’s that local shops and drive thrus had to be controlled by local law enforcement in order to control the overwhelming crowds. Krispy Kreme’s doughnuts, which come in a variety of 50 different flavors appealed to all ages and all racial demographics. Sales were increased at company owned shops and large sums of royalties from franchised stores and fees from newly opened franchises also helped to boost revenue. The company started selling wholesale pre-packaged doughnuts to grocery retailers as a way to increase numbers as well. By 2002, Krispy Kreme had caught on to the coffee fad and acquired Digital Java Inc. in order to boost their coffee sales. This acquisition enabled the company to become a coffee destination for consumers who were in need of a doughnut and a caffeine boost. Krispy Kreme also expanded internationally by opening up stores in a number of different locations which included Australia, Canada, Mexico and the United Kingdom. In fiscal 2003, the company reported sales that averaged $2.82 million between the 276 store locations throughout the country. Krispy Kreme met with such success during this time period that they were even ranked number one in Restaurants and Institutions’ Choice in Chain’s category over Starbucks which was ranked at number two.
Though an image of a successful business has been painted of Krispy Kreme thus far, the company ran into financial turmoil in the year 2004. During the first quarter of fiscal 2005, Krispy Kreme reported a decrease in shares from .26 cents per share down to .23 cents per share. Sales slumped at stores and only grew by 4 percent at newly opened locations as opposed to the 9 percent of the previous quarter. The company blamed the weakened numbers on the rise of consumer interests in low-carbohydrate diets. Chief Executive Officer Scott Livengood accused the low-carb fad of weakening Krispy Kreme sales of pre-packaged doughnuts to off-premises locations such as grocery stores and supermarkets. Another key problem that the company encountered was their acquisition of the Montana Mills chain in 2003. Montana Mills was a commercial bakery that offered fine quality breads and confections to consumers in a quaint setting. The acquisition proved to be unsuccessful however, since the company generated less...

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