The trouble began with a series of accounting missteps and shortcomings within the corporate
governance structure. When these troubles were combined with market saturation from
overexpansion, changing trends in American diets, and misaligned incentives between
franchisees and corpo- rate headquarters, the company found itself on the edge of bankruptcy
in 2005.4
The company suffered huge losses from 2005 to 2008, but since then, stable leadership has
emerged to implement initiatives that focus on improving operational effectiveness by
streamlining retail operations and expanding and diver- sifying the firm’s product lines.5 These
initiatives have yielded positive results, and the firm has been able to reduce its substantial debt
as a foundation for continu- ously improving its performance. For the first time since 2005, the
company experienced two consecutive years of profitability (2011 and 2012)
This case considers the sudden and very large drop in the market value of equity for Krispy
Kreme Doughnuts, Inc., associated with a series of announcements made in 2004. Those
announcements caused investors to revise their expectations about the future growth of Krispy
Kreme, which had been one of the most rapidly growing American corporations in the new
millennium tense
STRENGTHS
1.
Well-known brand2.
Signature hot donuts3.
Nationwide expansion4.
Reduced labor costs5.
Experienced management6.
Domestic market is large7.
Government provides monetary assistance8.
High profits9.
Skilled workforce
Alternative Courses of Action
Krispy Kreme Doughnuts is one of the leading companies when it comes todoughnuts and
coffee. Other companies consider them as one of the big threats andcompetition,
that’s why
they must be very careful in every step they’ll do because
one small mistake can make the company down.1.
Competition
- Krispy Kreme, as a brand, is so strong that could help themmaintain their position in the
market.2.
System Development
- They should develop their system in order to monitor
what’s happening inside the company.
3.
Sales Promotion
- In order to cover the loss, Krispy Kreme should make anextra effort in selling their products
onclusion and Recommendation
Issues with their financial management systems which have resulted in suspicious and
unauditable financial reports, have dealt a major blow to investor confidence,which only
compounds the financial problems with which the company is dealing. Deficiency of investment
in and innovative approaches to their marketing strategies haveleft the company without good,
solid marketing plans for their recovery and futuredevelopment. Assumptions have continued
to be made about customer desires,without appropriate data to back up those assumptions.
Assumptions also continueto be made about supply chain and other company operating
methods.Of all the action plans suggested, I mostly recommend the competition because
it’s the best way to be on top. They just need to work hard for it and keep their NAME ON TOP.
1. To gradually gain back analysts’, investors’ and lenders’ confidence in the company in the
succeeding months. • To increase sales and profitability in terms of its core business,
which is selling doughnuts. • To increase stock price to the previous levels and thereby
increase shareholder value.
2. 4. Objectives (continued) • To correct inaccurate entries in the financial statements and
to present a clean and unbiased report. • To extend further reach to consumers
strategically to achieve significant growth in the next five years. • To implement
extensive marketing measures for its brand and products and investment strategy for
both on and off premise operations.
3. Causes for concern • Investors are concerned about the future earning capacity of the
firm. • There is evidence of weak management, which led to lack of internal controls. •
CEO’s salary is 20 percent higher than the median of companies of similar size. • The
turnover in senior management.
Krispy Kremes’s financial accounting systems appear to be inadequate for accurately reporting
the financial information that is necessary to makemanagement decisions. This also serves to
erode public confidence andtrust; making them reluctant to invest in the company.In July of
2004, the U.S Securities and Exchange Commission launched aninquiry into the company’s
accounting practices regarding certain franchise buybacks. In December 2004, the company
announced that it had identifiedaccounting errors related to two franchise buybacks that could
reduce netincome for FY2004 by 2.7 percent to 8.6 percent. The company’s outsideauditor
refused to complete reviews of the company’s financial performanceuntil a special committee
of the company’s board of directors had completedits review of the bookkeeping problems. By
late December 2004, Krispy
KRISPY KREME DOUGHNUTS, INC.: A CASE ANALYSIS13Kreme’s stock had fallen from $40 per
share in March 2004, down to @$10-$13 per share
As discovered during the situational analysis, probably the primary, andmost critical, problem in
the operational area is in the lack of a cohesivemarketing structure within or a strategic
marketing plan for the organization.Flawed or absent marketing research has resulted in store
closings and or expansions that were not backed up by market data or evidence that
thisinvestment would be feasible.
Sub-problems
•
Loss of investor confidence
•
Decreasing profitability
•
Decreasing market value of equity
•
Lack of a loyal customer base
•
Issues with financial management causing inaccurate financial statements
•
Dispute with supply chain
RECOMMENDATIONS
The group recommends that the company follow the first and second alternativecourses of
action: (1) create a cohesive strategic marketing plan for the company & (2)follow the generally
accepted accounting principles in financial reporting.Creating a strategic marketing plan ensures
that the company is prepared and wellequipped for future endeavors and challenges.
Implementing strategies such asadvertising through different means of communication (TV,
