Executive Report

Dunkin Donuts is best known for its variety of delicious donuts and coffee, but over the years they expanded their product lines to include many different breakfast items and specialty coffee drinks. Over the past five years, the company developed a solid reputation for their coffee, and has managed to gain a loyal customer fan base. Dunkin’s coffee has been highly-regarded for more than 5 years. The company has been in operation since 1948, currently has approximately 6,500 outlets, and a goal to go to 15,000 outlets by the year 2020. The five main goals of Dunkin’ Donuts are as follows: (1) Grow relevant brands; (2) Expand globally; (3) Enhance the guest experience; (4) Continue their sustainability plan; and (5) Intensify domestic and international markets. Great intro.

Mission statement: “Dunkin’ Donuts will strive to be the dominant retailer of high quality donuts, bakery products and beverages in each metropolitan market in which we choose to compete “ (DD IP Holder LLC, 2015).

Krispy Kreme is a company in the industry that offers high quality doughnuts, and packaged sweets, among various kinds of beverages.

The restaurant services industry has high levels of complexity and stiff competition, therefore, a potential acquisition of Krispy Kreme by Dunkin Donuts is identified. These two companies have great levels of potential, but face stiff competition from the other leading competitors previously mentioned. No other competitors were previously mentioned. It would cost both Dunkin Donuts and Krispy Kreme a lot to expand to the levels of some of the competitors. The acquisition will most likely improve the companies’ performance and reduce the competition, thereby giving the two companies an opportunity to achieve their organizational objectives. I know this is just the intro but you’ve stated some conclusions without providing any support for them, i.e. HOW will the acquisition improve the companies’ performance? That’s what I hope to read in this paper and in the coming weeks.

There are some factors that could affect the growth and profitability for the restaurant services industry. The three most prominent risks are healthcare costs, mandatory wage hikes, and taxes. Good job including mandatory wage hikes. Don’t forget about the new paid sick leave law in California that takes effect July 1. I don’t know how many stores are in CA or how many are planned so maybe it’s not material. The new healthcare law, Affordable Care Act, has put significant pressure on the restaurant industry because a vast majority of the franchisees are small businesses. This is because these businesses tend to be labor intensive with a high number of young, part-time employees and are not typically associated with healthcare costs. However, the healthcare law will require these businesses to offer health care to employees

which will drive up the healthcare costs. A second factor that affects the growth and profitability of the restaurant services industry is the mandatory wage hike. This recent federal proposal calls to raise the minimum wage from $7.25 to $10.10 over roughly two years. This is an increase in labor expenses of 40%, which will drive up operating expenses and will affect the ability of companies to have cash available to grow, expand, and hire additional employees. The third major factor that affects the growth of the industry is taxes. Recently, there has been negotiation around the required tax rate for corporations in the restaurant services industry. The higher the tax rate, the more difficult it is for companies to have the needed cash flow to grow, expand and hire new employees.

Krispy Kreme opened its doors in 1937 by selling their donuts to local grocery stores. Today, Krispy Kreme is a leading brand retailer who generates revenues from four different business segments: Company Stores, Domestic Franchise, International Franchise and KK Supply Chain. Krispy Kreme believes they owe their success to brand recognition, and their original glazed doughnuts. Another important factor they believe contributed to their growth is strong community relationships and customer loyalty. Krispy Kreme also contributes much of its success to its extensive training program and support they offer to each and every franchisee. From the beginning, Krispy Kreme was committed to building relationships with guests and in communities; and still support local communities through fundraising programs and sponsorship of charitable events. Krispy Kreme currently has 1,003 outlets in 24 different countries worldwide. Revenues have increased by 9% from 121.6 million to 132.5 million. Their total assets and liabilities is $352,713 as of February 2015 (KKD Corporation, 2015). Net income has increased by 39% for 2014 and has declined by nearly 19% thus far through 2015 (KKD Corporation, 2015). The earnings per share directly correlates with these increases and decreases. Please refer to Table 1 and Table 2 for Krispy Kreme’s detailed Revenue and Income amounts, as well as Earnings per Share amounts for the last three fiscal years. Currently, Krispy Kreme is in the process of implementing numerous strategic initiatives to allow growth and improve profitability. The company is focused on accelerating global growth, leveraging technology, enhancing their menu, and maximizing brand awareness.[footnoteRef:1] [1: Information provided in the Strengths section is taken from Krispy Kreme’s 10-K annual report. KKD Corporation. (2015). Krispy Kreme. (E. online, Editor) Retrieved July 14, 2015, from Financial Information : http://investor.krispykreme.com/phoenix.zhtml?c=120929&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTEwMTkwNjU1JkRTRVE9MCZTRVE9MCZTUURFU0M9U0VDVElPTl9FTlRJUkUmc3Vic2lkPTU3 ]

The restaurant service industry is just under a $700 billion industry and employs nearly 14 million people. There should be a citation here. It currently does roughly $1.9 billion in sales on a typical day. This industry is segmented into 3 services: commercial restaurant services, noncommercial restaurant services, military restaurant services. The largest by far is the commercial restaurant services category which is grouped into 5 categories: Eating places; bars and taverns; managed services; lodging places; retail, vending, recreation, mobile. Some of the more well-known competitors in the commercial segment of the industry are McDonald’s, Burger King, Pizza Hut, Dunkin’ Donuts, Tim Horton’s, Starbucks, and Krispy Kreme among others.

The restaurant industry has been trending up and is projected to do $709 billion in sales for 2015; which is nearly a 4% increase in sales over 2014. The 2015 projection is the sixth consecutive year of growth in the restaurant sales industry. The industry is also projected to create roughly 1.7 million new restaurant jobs in the next 10 years, with 15.7 million employees by the year 2025. This projection is in line with our goal of increasing our outlets by the year 2020.

Please see Table 3 on the growth of the company since 2012. The profit of the company has increased by 7.8% over the past 2 years, clearly seen in table 4. This leaves the company in a great position to expand if the want is there. “The acquisition of Krispy Kreme by Dunkin Donuts will certainly make sense, since the strengths of the two companies will give the acquirer an edge in the highly competitive industry” (Hubbard, 1999). Some of the benefits that will emanate from the acquisition are as follows: Dunkin Donuts will increase its diversity of product lines offered in the industry, and further improve the quality of the staff through the robust training program of Krispy Kreme. The cost to expand will be reduced and thus enable the companies to effectively compete and capture a larger market share of the restaurant services industry. All excellent points to validate in support of an acquisition. You’ll have to calculate the acquisition offer price and explain how Dunkin’ will finance it. You will evaluate the markets and the customers to project future revenues. You will evaluate the possible risks and threats AND make sure you come up with strategies to deal with them, including the related costs. “The acquisition of Krispy Kreme by Dunkin Donuts will provide additional flexibility necessary for success in the complex and highly competitive restaurant services industry” (Hubbard, 1999). We can begin this process for the 2nd quarter of the next fiscal year.

Table 1: Krispy Crème income

Note: Retrieved from Krispy Kreme form 10-K annual report. Copyright 2015, Edgar online, inc. by Krispy Kreme

Table 2: Krispy Crème EPS

Note: Retrieved from Krispy Kreme form 10-K annual report. Copyright 2015, Edgar online, inc. by Krispy Kreme

Table 3: Dunkin Brand growth

Note. Retrieved from Dunkin’ Brands form 10-K annual report. Copyright 2015, Edgar online, inc. by Dunkin’ Donuts

Table 4: income

Note. Retrieved from Dunkin’ Brands form 10-K annual report. Copyright 2015, Edgar online, inc. by Dunkin’ Donut

References CIT Group. (Restaurant Trends, 2014). 2014. Retrieved July 13, 2015, from Commercial Financing Trends http://www.cit.com/perspectives/executive-insights/commercial-financing-trends/index.htm. DD IP Holder LLC. (2015). Dunkin Donuts. Retrieved July 13, 2015, from Company Snap Shot: http://www.dunkindonuts.com/dunkindonuts/en/company.html Hubbard, N. (1999). Acquisition Strategy and implementation. West Lafayette: Ind:Ichor Business Books. Retrieved July 14, 2015 kimes, S. E., & Macmillan, P. (2010, December 18). The Future of Distribution Management in the Restaurant Industry. Retrieved July 13, 2015, from http://www.palgrave-journals.com/rpm/journal/v10/n2/full/rpm20111a.html KKD Corporation. (2015). Krispy Kreme. (E. online, Editor) Retrieved July 14, 2015, from Financial Information : http://investor.krispykreme.com/phoenix.zhtml?c=120929&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTEwMTkwNjU1JkRTRVE9MCZTRVE9MCZTUURFU0M9U0VDVElPTl9FTlRJUkUmc3Vic2lkPTU3 Maze, J. (2013, September 10). Restauant Industry Gets More Competitive. Retrieved July 13, 2015, from Restaurant Finance Monitor: http://www.restfinance.com/Restaurant-Finance-Across-America/September-2013/Restaurant-Sales-Still-Stuck-In-The-Mud/ Maze, J. (2015, January 2015). NRA: 2015 Restaurant Sales to Grow 3.8%. Retrieved July 14, 2015, from Nation's Restaurant News : http://nrn.com/finance/nra-2015-restaurant-sales-grow-38 National Restaurant Association. (2012-2015). Industry Facts at a Glance. Retrieved July 13, 2015, from National Restaurant Association: http://www.restaurant.org/News-Research/Research/Facts-at-a-Glance National Restaurant Association. (2012-2015). The Front Burner. Retrieved July 2013, 2015, from National Restaurant Association: http://www.restaurant.org/advocacynal Restaurant Association; Retrieved on 7/13/2015 National Restaurant Association. (2014, January 16). 2014 Restaurant Industry Forecast Reveals Economic. Retrieved July 14, 2015, from Workforce and Consumer Food and Technology Trends: http://www.restaurantnewsresource.com/article75901National_Restaurant_Association_s______Restaurant_Industry_Forecast_Reveals_Economic__Workforce_and_Consumer_Food_and_Technology_Trends.html National Restaurant Association. (2015). Forecast Summary. Retrieved July 13, 2015, from National Restaurant Association: http://www.restaurant.org/Downloads/PDFs/News-Research/research/ForecastExecSummary2015-FINAL.pdf National Restaurant Association. (2015). Pocket Fact Book. Retrieved July 14, 2015, from National Restaurant Association: http://www.restaurant.org/Downloads/PDFs/News-Research/research/Factbook2015_LetterSize-FINAL.pdf Nations Restaurant News. (2013, May 16). Issues Keeping Industry Leasers Up At Night. Retrieved July 14, 2015, from Regulation Nation: http://nrn.com/government/regulation-nation-issues-keeping-industry-leaders-night New York Times. (2002, September 23). New York Times. Retrieved July 13, 2015, from William Rosenberg, 86, Founder of Dunkin Donuts: http://www.nytimes.com/2002/09/23/business/william-rosenberg-86-founder-of-dunkin-donuts.html The Boston Globe. (2014, September 17). The Boston Globe. Retrieved July 13, 2015, from The Secret World of the Dunkin Donuts Franchise Kings: http://www.bostonglobe.com/magazine/2014/09/17/the-secret-world-dunkin-donuts-franchise-kings/pb2UmxauJrZv08wcBig6CO/story.html# Watrous, M. (2015, June 26). Five Things to Know About the State of the Restaurant Industry. Retrieved July 14, 2015, from Food Business News: http://www.foodbusinessnews.net/articles/news_home/Food-Service-Retail/2015/06/Five_things_to_know_about_the.aspx?ID=%7B26FB1E23-DAFC-4C35-A20A-7AC0B58835EF%7D