Three-year Strategic Plan for Krispy Kreme Doughnuts-2008
Introduction
Krispy Kreme Doughnuts (KKD) is a United States doughnut manufacturing company with country-wide and international presence. The company also offers a beverage program that is yet to be rolled out fully. The company has experienced a continuous downward trend in its revenue as well as store numbers for subsequent years. This has caused great losses to the company.
There are various factors that contribute to the losses that the company incurs. These include the decrease in percentage of the store operating hours due to closure of various company-owned and franchise stores. This is attributed to an increase in the number of store closures prompted by poor performing stores. The lack of an updated Uniform Franchise Offering Circular hinders the company from offering franchises to new franchisees who may opt to open stores in new potential markets. The high operating costs from poor performing stores also contribute to the losses the KKD experiences. The company’s competitors include Dunkin doughnuts and Starbucks. The company’s international presence is low and it is not well known in its local market despite its long presence in the industry.
Abstract
In order for the company to improve its revenue, there has to be a new developed strategy that will help eliminate the failures and improve on the company’s performance. The company has two options: to expand its activities locally or internationally in order to achieve its goal. In my analytical view I will suggest and draft a three year plan for the company’s local expansion.
The preference of local expansion over international expansion
The focus on local expansion is preferable because international expansion may tend to be slow because of difficulties in penetrating new markets. According to the American management association the taste, preference and cultural differences in foreign markets may also not favour the development of the brand in foreign markets (AMA, 1956). Additionally, most major prospective foreign markets are already occupied by other competitors such as Dunkin doughnuts. Therefore, going into an already occupied market niche where the company has not made its presence felt may not work well for the company.
Another reason for local expansion is based on the fact that much of the present revenue amounts are generated locally. The international market generates a smaller percentage of the revenue compared to the local generation. This may be contributed by the fact that the international market does not acquire its supplies from the Krispy Kreme Doughnuts’ network of supply.
The plan for the first year
The first strategy for the company should be the acquisition of an updated Uniform Franchise Offering Circular. This will enable the company to offer franchises to new franchisees that will be willing to open up business units in new potential markets. The current state of having no Uniform Franchise Offering Circular hampers the local expansion of the company. This is because it is left with only one option: which is to open company-owned stores.
However, we note that the company owned stores are disadvantageous for Krispy Kreme Doughnuts. This is because they increase the company’s operating costs and increase the chances of incurring losses if the stores perform poorly. Additionally, the company owned stores pay no royalties and franchise fees to Krispy Kreme Doughnuts. Therefore, the acquisition of the Uniform Franchise Offering Circular and new franchisees should be coupled with closure of poorly performing stores. This will cut the company’s operating costs that result from under-performing stores.
New established stores should also be given a characteristic design that will be associated with the brand of Krispy Kreme Doughnuts. This characteristic identity will serve to market the brand locally. Secondly, along a similar line of action; the company should reduce its current percentage of payment for royalties under the area developer program and the associate program. This action will serve to stimulate the local expansion by attracting franchisees that will enjoy higher proceeds due to the reduced payment of royalties and franchise fees.
The plan for the second year
The second year plan should involve an introduction of complementary products such as coffee and soft drinks. This will offer more variety to the customers and increase the volumes of sales. This program should also include a full roll-out of the complementary products throughout all the stores in the company’s network. The new products are will increase sales and revenue that will further prompt expansion.
In addition to the complimentary products, the company should introduce more varieties of doughnuts. This will give the customers a wide array of choice that will keep them loyal to the company because it offers them a change. The company should also introduce healthier varieties of products because the population is getting conscious each day on issues that pertain to fast food effects on health. This should include the development of low calorie doughnuts.
Smaller satellite stores should be designed for under-performing stores in order to cut operational costs incurred from larger, poor performing Krispy Kreme stores. A similar design should be used for new ventures in areas with a limited market capacity. The smaller satellite stores will have less expenditure on capital and will run on a low operational cost. This can favour further inexpensive expansion.
The plan for the third year
The plan for the third year should include an increase in the local marketing campaign. This will serve to increase awareness about the company to the general public. The campaign plan should be more active than the normal marketing of the brand. In order for the company to achieve this goal it will have to increase the rates of contributions from its network of stores. Thus, developers and associates should contribute more than the usual 1% and 0.25 % contribution that they make to the advertising agency in charge of marketing.
The company should also increase its non-traditional package sales to grocery stores, convenience stores and mass merchants. This can be realized via a strong marketing campaign that will target this section of the supply chain. This will be especially useful for places that the company may find store establishment highly expensive or poor performing. This should also incorporate private labelling and unlabelled sales to grocery and convenience stores. Krispy Kreme Doughnuts should also consider introducing supply chains for overseas networks of branches in order to maximize revenue gains that accrue from its supplies delivered to the international branches of stores.
Krispy Kreme Doughnuts should also try to limit the number of franchise stores so that they should not be more than the company’s own stores. This is because they may hamper its expansion due to uncontrolled closures. Therefore, the company should consolidate much of its production to the company stores. This is clearly depicted by the closure ratio of domestic stores (among the 71 local store closures 60 of them were from the franchises whereas; closed company stores were only 11). The company could also source more capital in the third year to further its expansion. Considering the fact that Krispy Kreme is a corporate company this should be done by a rights issue to be offered to the public.
In order to finance the corporation’s expansion the company should cut down the number of its employees in the top management. This can be made possible combining duties carried out by the many presidents and vice presidents that the company has in its organizational structure.
References
American Management Association (1956).Launching a company expansion program: with papers on the general economic outlook and Latin American opportunities. University Microfilms Publishers.
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