Krispy Kremes Analysis

CASE STUDY

INDUSTRY ANALYSIS

In 2003, the U.S. doughnut industry was a $5 - $6 billion market. American households consumed an estimated 10 -12 billion doughnuts annually; this translates into over three dozen doughnuts per capita. In 2002, doughnut industry sales rose by about 13%. Sales from doughnut outlets rose by about 9%, to approximately $3.6 billion, whereas packaged doughnut sales at supermarkets, convenience stores and other retail outlets staggered in the past five years. A study by Technomic confirmed the growth of doughnut shops and identified this segment as the fastest-growing dining category in the country. Further analysis provided by the following figure shows attractiveness and profitability characteristics of the doughnut industry.

Five Forces Model of Competition

Players in the doughnut industry are: Dunkin’ Donuts, Krispy Kreme, Tim Hortons, Winchell’s Donut House and LaMar’s Donuts. As shown on the pie chart, there is a significant difference in the market share of these competing sellers, with Dunkin’ Donuts dominating with a 2002 worldwide sales of $2.7 billion, followed by Krispy Kreme and Tim Hortons, each with over $620 million in total sales. (2002 Sales for Winchell’s Donut House and LaMar’s not provided.)

KRISPY KREME’S BROAD DIFFERENTIATION STRATEGY

Krispy Kreme Doughnuts (KKD) projects an image as “the Stradivarius of doughnuts,” creating a unique enriching experience that increasingly gains customer enthusiasm and loyalty. Krispy Kreme’s melt-in-your-mouth, hot, sugar-glazed doughnuts, the “doughnut theater,” and the “HOT DOUGHNUTS NOW” feature are clearly a few of the differentiating factors it attempts to make itself identified with. Fortunately, this appeals to a broad base of buyers; demographically, buyers come from all walks of life: all genders and ages, from skilled to blue-collar, high-income to low-income workers.

KKD’s business model provides the company three sources of revenue: (1) Sales at company-owned stores; (2) Royalties from franchised stores and franchise fees from new stores; and (3) Sales of doughnut mixes, customized doughnut-making equipment, and coffees to franchised