Krispy Kreme Doughnuts: Global Doughnuts’ Retailer

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Table of Contents

Internal Audit
External Audit
Three-year Strategy
Strategy Rationale
Conclusion

Krispy Kreme Doughnuts (KKD) is one of the global doughnuts’ retailers with subsidiaries in more than 50 countries worldwide. As all U.S. based companies, KKD heavily relies on the U.S. and Canadian markets to distribute and expand its retail network. The company holds the leading position among doughnuts’ manufacturers due to the small-factory shops and brand marketing based on the delivery of fresh and just-prepared doughnuts. The company management suggests that it needs expansion and should shift from the retail shops to the new markets and distribution models.

Internal Audit

The internal audit shows that KKD puts emphasis on customer-driven functional operations, where customers’ satisfaction rates, collaborations, and impact on the brand are more important than the revenue streams or business model in general. Nonetheless, the company has focused only on the limited distribution channel, which offers the small-factory shops to execute the retailing model. While such an approach satisfies consumers and increases their loyalty, KKD reports inflexibility of such a model. As a result, the business faces a bilateral impact of the internal decisions in both marketing strategy and supply chain management.

The issue is that the small-factory shops have a limited range of distribution capacities, making it impossible to store doughnuts and re-sell them. Such a situation is due to organization’s mission and vision, where consumers should get fresh, hot, and just-prepared products. In return, such a brand value harms operational capabilities. What is more, the supply chain management is also suffering losses and inefficiency. KKD reports that there is only one supplier for raw materials and ingredients. Such a constraint means that the company is highly dependent on the suppliers’ bargaining power. As a result, the expansion of domestic and international markets triggers additional costs and structural problems, as the brand should create a favourable environment for both stores and the supplier.

External Audit

The external environment also creates pressure on the company. The company suggests to change the business and retail model; however, the primary competitors have more diversified structure and networks, which are challenging to overcome. Foremost, the rivalry has successfully integrated diversified supply chain management. KKD’s competitors do not need to offer additional packages for suppliers as they search and contact local companies. KKD’s model is not prepared for such a rivalry due to the unified system with one supplier.

Another disadvantage is that the company uses small-factory shops and retailing spots. On the contrary, such brands, like Starbucks, rely on the wholesale strategy, where beverages and snacks are delivered fresh and hot on demand rather than each time the consumer makes an order. In this instance, the market competition places price limits and costs reductions, which can be adverse for KKD’s strategy and financial performance.

KKD holds the leading position among doughnuts’ manufacturers, which may support further growth. Such a scenario can happen if the company reorganizes some of its divisions and operations so that small-factories shops become a full-scale cafe or restaurant. In return, the company can preserve values and mission; however, gain a competitive advantage on the market to outmatch rivalries and industry leaders.

Three-year Strategy

The ongoing three-year strategy for KKD will encompass two significant changes for the entire business model. The company should resolve issues related to supply chain management and create more flexible channels for international expansion. It is recommended to focus on the franchises and search for local suppliers in countries, where KKD’s subsidiaries are open. This will reduce costs on the supply chain network, manufacturing expenses, and distribution channels.

The company may utilize the franchise to attract manufacturers, who have access to the required ingredients, raw materials, and retail networks for creating cheap and fully-equipped factory-shops. The idea is to generate united but operationally independent subsidiaries, which will support themselves without significant intervention and investments from KKD.

The second issue is based on the limited offers provided by KKD. While doughnuts are primary sales products, the company should invest in the diversification of the product line. The access to international markets offers cultural and social differentiation so that doughnuts can be combined with local beverages and preferences to create one menu for each country. In this case, the company will earn a competitive advantage over its rivalries, which are focused on American culture and American-like style of services.

From this perspective, the three-year strategy should be as following:

0-6 months: Search for international suppliers, which have identical ingredients and raw materials for doughnuts production;
0-6 months: Extension of franchise responsibilities and offers by including several categories, like the full franchise, where owners establish KKD subsidiary alone, or semi-franchise, when KKD supports owners by using available local suppliers;
6-18 months: R&D regarding menus and localized offers for different countries to generate more attention from a broader audience to doughnuts. Creation of a new product image, where doughnuts can be associated with any culture rather than unified America-like style.
18-24 months: Utilization of the expanded suppliers’ network to distribute supplemental products, like beverages across the world to support subsidiaries and franchises with the updated menus and offers;
24-36 months: The success of the prior two-year changes can be applied for the expansions planned in 2020 and further years.

Strategy Rationale

The regional-geographical approach is to spread the activity of the service enterprise in different regions, geographical territories, countries with different economic conditions. Geographic diversification, as a method of reducing business risk, is available mainly to large service companies, which can create an extensive network of branches and branches over a vast territory, which helps them to minimize the negative impact of external marketing factors. Small service companies use the method of geographical diversification, mostly in the process of forming their vertical marketing systems.

Focusing on a limited geographical region will allow the service company, which cannot win a large share of total industry sales, to try to dominate the local geographic area. Concentrating the efforts of a servicing enterprise in a specific area can optimize the logistics chains of the enterprise, use communication tools, reduce the multilevel of sales channels, which will contribute to the protection of the brand and a positive image of the service enterprise. In this context, it is essential to determine the impact of the optimal territorial location of service centres on the efficiency of the logistics of servicing enterprises, in particular, on the formation of a stock system.

Conclusion

The proposed strategy indicates the importance of the more wholesales’ diversification in the currently selected small-factory retail model. While the company is not obliged to change the business model dramatically, it is vital to merge both approaches for more flexible supply chain management and distribution approaches. In return, the focus on consumers’ geographic preferences and local markets’ beverages and doughnuts demands should support the ongoing expansion of the KKD brand.

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Krispy Kreme Doughnuts: Global Doughnuts’ Retailer

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