CASE 14: KRISPY KREME DOUGHNUTS, INC.
The current strategy of Krispy Kreme at a general level focuses on building brand value. The business model applied by the company to implement this strategy includes the following elements:
Sales directly to consumers through company-owned stores
Royalties derived from the operations of franchised Krispy Kreme stores
Sales of doughnut mixes and specialized equipment to the franchisors of Krispy Kreme stores
Krispy Kreme management assesses the effectiveness of the company's operations within the context of specific performance objectives established for the company. These performance objectives are as follows:
15 percent (approximately) same store annual sales growth
Over the period from 1997 through 2001, the company failed to meet the 20 percent revenue growth objective in the first three years (although they came close in 1998 with 19.7 percent revenue growth. In both 2000 and 2001, however, revenue growth was well above the objective. Revenue growth over the five-year period was 153.5 percent. Thus, there is evidence (not incontrovertible) to indicate that the company's strategy is working in relation to revenue growth. Same store sales performance followed the same general pattern of revenue growth as that of the company overall.
With respect to earnings growth, the company also had a spotty record in the first three years of the five-year period of analysis, and even recorded a net loss in 1999. In both 2000 and 2001, however, the company posted enormous growth in net earnings. Again, there is evidence (certainly not incontrovertible) that the company's strategy is working. The caveat is that the strategy worked well in 2000 and 2001. In may have taken time for the strategy to begin to pay off, in which case the company is on the right track. Should 2000 and 2001 performance turn out to be anomalies, however, the company's strategy may be in trouble.
The...