KRISPY KREME Marketing Problem/Executive Summary This presentation will analyze the current market situation, identify possible opportunities and threats and recommend strategic actions for Krispy Kreme Australia. Methods of analysis include SWOT analysis, product life cycle curve, porters five forces and environmental, competitor and consumer analysis. For these we have used information from text books, websites and online news websites.
From our analysis we have found Krispy Kreme Australia to be in a late maturity/ declining stage of product life cycle with the company going into Voluntary administration in 2010 due to declining sales and profits. We have concluded that these declining sales and profits are effects of Krispy Kreme Australia’s attempts to expand too rapidly and a failure to understand, define and communicate to an appropriate target market. Krispy Kreme will need to reevaluate their marketing strategy in order to combat changing trends and current threats. The recommendations we made for Krispy Kreme are as follows: Increase in advertising and promotions ?Product development and diversification into healthier options ? Focus on a low cost strategy ?Focus and on build more profitable locations in Australia INTRODUCTION/ BACKGROUND Krispy Kreme is an American company that provides customers with freshly cooked doughnuts, baked goods and a selection of beverages. Vernon Rudolph founded Krispy Kreme in Winston – Salem, North Carolina in 1937. Australia became the first destination outside of North America to produce the iconic Original Glazed doughnuts with Krispy Kreme expanding onto Australian shores in June 2003.
The First Store was opened in Penrith, Sydney to great success and today there are 50 retail stores across the country. Krispy Kreme’s product range consists of their signature Original Glazed Doughnut, an assortment of flavoured and filled doughnuts, hot and cold beverages such as coffee and milkshakes as well as 9 flavours of ice cream and a variety of baked goods. Despite the initial success, in 2010 Krispy Kreme Australia went into Voluntary Administration, as there was a concern regarding the company’s ability to meet its financial obligations.
John McGuigan, the CEO of Krispy Kreme Australia has stated that “several factors, including location, sales declines, high rents and high distribution costs, have meant that a number of stores are losing money” (Zappone, 2010). Krispy Kreme is now in the “late maturity/decline’ stage with as little as 23 stores remaining open. Krispy Kreme now faces the challenge creating and implementing new strategies in order to explore new growth opportunities. Strategies the organisation follows
Krispy Kreme wants to establish themselves as a reputable brand capitalising on brand conscious consumer’s demand for a consistent, high quality specialty food product. They see themselves as a marketing company, and although have no formal advertising budget, they promote its brand very effectively through its two main strategies of its product/product sampling and innovative publicity. Their main focus is their product rather than promotion. Innovative Publicity Krispy Kreme’s lack of formal advertising did not hamper the growth of Krispy Kreme’s brand popularity.
Rather, it seemed to make the brand more popular. The company has unique ways of ensuring that its products get media coverage. The doughnut itself gets plenty of free publicity from newspapers in whatever market is rumoured to be next on its list. They rely on word-of mouth spread with existing customers bring in new customers. A key to this marketing strategy was fundraising with local community groups and charities to raise the profile of the brand and create an “emotional connection” with the product. Product/Product Sampling The company adopted a unique way of generating impulse purchases in the market.
All the Krispy Kreme stores, which make and sell doughnuts, have a sign that reads “Hot Now”. This sign is a very effective marketing tool as you can literally watch your doughnuts being made and eat them hot. This was their main focus, especially in the new markets where people might not understand that when the light is on, it’s actually signalling something and not just a decoration. Not only this but they also focused on sampling, whereby many giveaways were done through their stores where customers could ‘try before they buy’ which proved a success.
Product Portfolio Krispy Kreme’s product portfolio consists of a range of doughnuts including the original glazed doughnuts to chocolate doughnuts to filled doughnuts to cinnamon doughnuts. They also have a range of cold and hot drinks with milkshakes, hot chocolate and coffee to name a few. Not only this but they have also expanded into ice cream and baked goods, with 9 flavours of ice cream varying from vanilla to choc honey nougat, and baked goods consisting of pastries like croissants, gourmet rolls, and egg and bacon rolls. Marketing Mix Product
Krispy Kreme’s marketing mix focuses on their product more than any of the other 4P’s. Australia was the first country outside of America to produce the iconic Original Glazed doughnuts. All Krispy Kreme doughnuts are made fresh daily at the factories in each state. When making the doughnuts in these stores, the “Hot Now” neon light is lit up so customers know that they will get fresh doughnuts that have just been made. Krispy Kreme also offer a range of quality treats including 15 signature doughnut varieties, fresh espresso coffee, premium Ice Kreme, milkshakes and spiders, and fruit smoothies.
Place There were originally 54 100% Australian owned and operated retail stores located up and down the east coast of Australia in major cities such as Brisbane, Sydney and Melbourne. (However this is slowly declining and as little as 23 remain as outlets are being closed down due to factors such as location and sales decline). The reason Krispy Kreme focused on the east coast was because that is where the largest of Australia’s population resides and it is also the region with the highest demographic density and urbanization.
Krispy Kreme has also expanded and started to market their doughnuts via Woolworths and various petrol stations and other outlets (such as major event venues). Price Originally Krispy Kreme doughnuts were sweeter, bigger and at a slightly lower price than most of its competitors. However these days with fluctuating exchange and inflation rates, prices have increased to accommodate potential markets and make profits for the company. With the move into petrol stations and other outlets, prices have increased to pay a premium and to offset distribution costs.
For example a dozen of original glazed doughnuts from Krispy Kreme will set you back $15. 95, however at ANZ Stadium a pack of four doughnuts costs $10. Therefore prices remaining lower at the original stores and online. Price also decreases when purchasing by the dozen as opposed to per individual doughnut. Promotion Krispy Kreme achieved a high level of brand awareness by adopting a unique publicity program geared towards high media exposure. Promotion was highly done by the word-of-mouth advertising of past customers.
The media also contributed to this type of promotion with store openings and all round general word-of-mouth being shown on multiple news channels. Krispy Kreme spends very little, if anything, on advertising. Krispy Kreme strongly believes that the buzz created from public relations, at a store opening, is enough to bring the customers to its doughnut shops. Krispy Kreme also focuses on sampling and product giveaways. Krispy Kreme gives away a lot of doughnuts through different sampling activities allowing people a chance to try the doughnuts for themselves.
They use this instead of advertising because it is simply much cheaper and more effective to give doughnuts away. And they used the fundraising with local community groups and charities to raise the profile of the brand and create an “emotional connection” with the product as well as goodwill. Krispy Kreme also uses promotion with a lot of exposure. The brand itself has been in a variety of movies and TV shows that promote the brand. These include: How To Lose a Guy in Ten Days, Bruce Almighty, The Sopranos, Will & Grace.
Effectiveness of the Current Marketing Mix Krispy Kreme relied too heavily on word-of-mouth advertising to keep expanding the circuit of customers. They needed to make the transition to a more structured, objective driven marketing program. Not only this, but Krispy Kreme removed their story and experience from its product as it expanded into new markets. Since they’ve started selling in petrol stations and other outlets there is no need to go all the way to a Krispy Kreme store as they are now being sold around the corner at your local retail outlet.
The experience of the “Hot Now” was lost with doughnuts being served cold in petrol stations and were generally made the night before rather than fresh. Not only this but prices are increased when sold in these types of outlets with customers having to pay a premium due to distribution costs. This attempt to penetrate the supermarket and petrol station sector is bringing in a bit of money but surely not enough to keep the company afloat. The sampling and fundraising through charities and local communities proved a success and thus a strength for Krispy Kreme as a lot of brand awareness of goodwill of the company was spread.
The media hype and publicity efforts were great for Kripsy Kreme originally as awareness was raised and there was hype around. However, in the long run, it slowly lost its hype after store’s grand openings and it became old news and needed advertising to keep the brand fresh and new in the public eye. Finally, the rapid expansion of both Krispy Kreme outlets and other retail outlets became a pitfall of Krispy Kreme as store were just opened in high traffic areas, and not much research was done to determine the best locations.
Krispy Kreme has excellent brand recognition and good turnover in its better stores; however several factors including the location and sales decline meant that a lot of stores lost money and had to close down. Therefore, Krispy Kreme’s current marketing mix is generally a weakness that needs to be looked at. There are some positives in there with the product and brand of the company however, other aspects need to be turned into growth opportunities. PRODUCT LIFECYCLE Krispy Kreme is currently in the ‘Late maturity’/‘Decline’ stage of the Product life cycle.
This is the last and critical stage for any company to make decisions. Sales are declining, costs are increasing, market share is low, competition has the competitive advantage of the market and profitability is diminishing. Krispy Kreme is in this stage of the life cycle due to their profits and sales declining, a generalised target market, multiple store locations closing down, and the company itself going into voluntary administration to avoid insolvency. They’ve got in this position because they tried to expand too rapidly and are now paying for it financially.
Many stores have closed down due to profit loss and a decrease in sales. However they are staying afloat with their more profitable stores. A strategy that has failed for Krispy Kreme is its target market. Krispy Kreme targeted all demographics, including age and income, which proved, to be a significant weakness, as they did not know specifically who its customers were and what they wanted. The company as a whole is looking to move into the ‘Renewal’ stage with the company’s core business remaining strong with a seven-year history. ENVIRONMENTAL ANALYSIS
The external analysis of Krispy Kreme and the industry in which it operates, consists of evaluation of the general environment through the use of the PESTELD model and an assessment of the industry’s attractiveness through the Porter’s Five Forces model. In addition a competitor and consumer analysis will form the external analysis section of this report. The model, PESTELD can be used to analyse the general external environment in which Krispy Kreme operates. Political trends include any government regulations imposed with regard to food standards and food safety.
This may include hygiene standards of staff and storage facilities as well as routines that must be followed. In addition as healthy food is becoming of increasing concern for the government and laws may be put in place to ensure companies such as Krispy Kreme, provide a healthy alternatives for their consumers. These political factors have a significant impact on Krispy Kreme as they must comply with any relevant laws that are imposed by the government. Economic trends can have both a direct and indirect impact on businesses such as Krispy Kreme.
Trends in economic growth, employment and unemployment as well as consumer confidence impacts the demand that consumers have for Krispy Kreme’s products. Furthermore, fluctuations in interest rates and the consumer price index, directly impacts the business directly. Socio-cultural changes within the external environment include a increase in interest in nutrition and fitness, which has lead to businesses, such as Krispy Kreme, expanding on their product range to include healthy alternatives and refreshing their advertising campaigns to promote the healthy side of the business.
In addition increasing societal concern in relation to the environment has a significant impact on Krispy Kreme, as they must adopt a positive environmental stance to remain competitive. Constant innovation in the technological field is an important external factor as Krispy Kreme must ensure that it is continually update to date with new technology. This will enable maximum efficiency across all levels of Krispy Kreme’s value chain. Environmental factors and awareness is of increasing concern with society and business.
As a result of this and corporate social responsibility, Krispy Kreme must ensure they are environmentally aware and conscious to remain competitive. With regards to legal issues, Krispy Kreme but ensure they comply with all relevant rules and laws to avoid any kind of legal action. Demographics including age, affluence and changes to ethnic composition are important for Krispy Kreme to understand as they impact their customer base.
As a result Krispy Kreme must ensure they are targeting the correct customer base with their products and advertising and if there is a large range of demographics within this customer base that they are able to attempt to cater for everyone, for example through coffees and milkshakes, something for both the adults and the children. PORTER’S FIVE FORCES Porter’s Five Competitive Forces is a tool used to determine an industries attractiveness and it is an imperative section of the external analysis stage for firms. This model focuses on five forces that shape competition within an industry” (Hill et al, 2004, p. 64) allowing firms to determine if the industry is an attractive one in which to compete. The current competition within the food and beverage industry is high as there are many small firms operating that sell similar products and more specifically in the cafe industry there is little differentiation between products. For example, both Donut King and Krispy Kreme offer doughnuts, coffee, milkshakes and ice creams, products that are difficult to differentiate as they are made using the same ingredients.
This means that consumers are able to switch from Krispy Kreme to Donut King and vice versa quite easily without feeling many substantial impacts. The threat of new firms entering this industry is significant as a result of the limited capital outlay and start up costs necessary to enter the cafe or food and beverage industry in which Krispy Kreme exists. There is some initial costs and skills necessary to begin such a business which limits the number of new entrants however in comparison with other industries this barrier to entry is relatively low.
In addition the nature of the industry with relation to competition contributes to the low barriers to entry as there are many little firms competing rather than one dominant firm as in a monopoly market. Buyer bargaining power is low in this industry as there are many small buyers, rather than a single dominant buyer, as a result they have limited bargaining power over the firms selling food and beverage products. Supplier bargaining power is also low as a result of the common nature of the products that Krispy Kreme offer.
For example coffee, milk, flour and ice cream are not in short supply and switching costs a low as a result of the availability of ingredients and substitutes. The threat of substitute products in this industry is high as doughnuts can be replaced with cake or pie and coffee can be replaced with soft drinks. As a result businesses such as Krispy Kreme must attempt to differentiate their products where ever possible to preserve their customer base and remain competitive. COMPETITOR ANALYSIS A competitor analysis is important in understanding and industry and how any single firm such as Krispy Kreme should compete.
Within this analysis, “the behavior of individual competitors is analysed with the ultimate goal of predicting the competitors’ actions and reactions. ” (Wilden, 2011, p. 136) The results of this analysis will assist Krispy Kreme and the overall determination of their current position and the strategic decisions they should make in the future. Krispy Kreme has a variety of competitors as a result of the popular nature of their business venture along with the large range of products that they offer. Donut King is a direct competitor as they specialise in a large range of doughnuts that are similar to Krispy Kreme.
They both have similar diversification models as they are traditionally known for their gourmet doughnuts, with the adoption of other food types including baked goods for Krispy Kreme and hot dogs for Donut King as well as ice cream for both. Both companies also have also developed their product range into hot and cold beverages including coffees, milkshakes and fruit smoothies. In addition, Donut King has three hundred and twenty stores in Australia where as Krispy Kreme only has twenty three, however on the international front Krispy Kreme has emerged in twelve additional countries with Donut King only just become known in China.
As a result of Donut King’s high profile in the Australian market it is a consequential competitor for Krispy Kreme although Krispy Kreme does have some advantages, particularly in international markets. Donut King’s focus with marketing is to develop a “playful and energetic” (http://www. donutking. com. au/index. php? option=comcontent=article=64=14) brand personality that is expressed through the iconic and vibrant pink colour used in both the company logo and featured in their retail stores. This brand concept and personality have assisted in Donut King’s popularity in the Australian market.
Dreamy Doughnuts is another Australian company who specialise in doughnuts and operate in both Australia and New Zealand. In comparison with Donut King this competition is not as significant as they are smaller in size and have a limited international capacity with only fifteen stores in Australia and two in New Zealand. The products that they offer are similar and consist of gourmet style doughnuts as well as hot and cold beverages. There expansion of the company is based on franchising and and marketing initiatives are based around launches of new products for example their “Fruity and Creamy Ice Dreams. In addition to this they focus marketing attention around celebrating milestones including “Dreamy Doughnuts turns 5” and the launch of their facebook page to tap the social media savvy market. Mc Cafe forms part of the indirect competition faced by Krispy Kreme as they are a cafe with a wide variety of hot and cold beverages as well as snacks and sweets including doughnuts. Mc Cafe are part of the diversification strategy of McDonald’s and are a threat to Krispy Kreme as they are conveniently located all over the country and capitalise on the strong brand brand name that exists within society.
Mc Cafe although indirect competitor to Krispy Kreme, poses a threat as consumers may choose to go to Mc Cafe rather than a Krispy Kreme outlet. Chains such as Gloria Jeans Coffees and Star bucks are indirect competitors as they are large cafe chains that ensure consistency and provide a wide variety of cafe style foods including doughnuts along with hot and cold beverages. The similarity in the products means that to remain competitive Krispy Kreme must ensure its doughnuts are accessible and of better quality than the products of these chains offer otherwise consumers may choose a Gloria Jeans or Starbucks over Krispy Kreme.
In addition these chains are franchised however capitalise on the overall brand name and personality, making them a threat to Krispy Kreme. In conclusion it is clear that there is a variety of both direct and indirect competition within this market and Krispy Kreme must become efficient and develop a strong marketing strategy to overcome this. CONSUMER ANALYSIS Customer analysis is an integral part of the external analysis phase as a target market is essential to the success of the business. This is significant as “the creation of customer value should be a company’s central focus” (Wilden, 2011, p. 02) as without customers and the initiation of customer value, the company can not generate sales and thus profits. The target market for the core Krispy Kreme products, doughnuts, is targeted at children with a sweet tooth however Krispy Kreme have increased the variety of their doughnuts to cater for their parents as well making the overall target market families. This is enhanced by the introduction of beverages to the Krispy Kreme menu with, hot coffee’s for the adults and milkshakes for the children of the family, making the trip to Krispy Kreme a family affair.
Krispy Kreme has covered a wide variety of age and demographics in their target market. This is a difficult task to market to as there is no clear market segmentation or market targeting. The customer of the Krispy Kreme Doughnut is both the purchaser and the consumer. This means that the person purchasing generally consumers the product however there are some exceptions. In relation to these exceptions, as parents are purchasing for their children, they are the purchaser but the consumer is the child. SWOT ANALYSIS
A SWOT analysis is critical in determining a businesses internal strengths and weaknesses as well as the external opportunities and threats. “A SWOT analysis defines strategic marketing options based on combinations of internal and external issues. ” (Wilden, 2011, p. 154) The SWOT makes up part of a companies situational analysis and is important for Krispy Kreme to understand where their strengths lie and what opportunities can be capitalised on, in order to ensure efficiency and success within the business. Strengths:
Krispy Kreme’s strengths lie in their strong brand equity and recognition, an internationally established brand name and a large geographical presence. Furthermore Krispy Kreme’s strengths lie in their products, particularly the strong nature of their doughnuts, but also their diversification into new products including beverages and baked goods. These strengths have allowed Krispy Kreme to gain profits and market share with in and international food industry. Weaknesses: On the other hand Krispy Kreme needs to identify and address its weaknesses that are impacting on their current market position.
These include, the lack of major advertising and above the line campaigns, where Krispy Kreme is reliant on their current reputation in the market as well as word of mouth. Krispy Kreme began its business venture with a single product focus, and its lack of advertising is restricting awareness of its new and developed products thus negatively impacting its overall market share. Additionally the business internationally is weak in comparison to the success in the United States resulting in many Australian stores closing down with sales falling by 16. % in 2005. Opportunities: In regards to the external environment opportunities Krispy Kreme should consider include further development of its franchises in Australian and other foreign markets, meaning that Australian stores would be 100% privately owned by Australians. They may also consider offering a new and innovative menu, with improved coffee and beverage products. This expansion would contribute to an overall increase in sales, along with awareness generated from an increase in marketing to continue to build the company reputation and brand name.
In addition research and development of a new healthy choice menu is an opportunity for Krispy Kreme as it will increase their overall customer base, with an alternative for those who are health and nutrition conscious. Threats: Krispy Kreme’s external threats include major competitors who offer a broader range of products and have the potential to expand. These include doughnut chains for example Donut King or Dreamy Doughnuts and large cafe chains including Mc Cafe, Gloria Jeans and Starbucks.
In addition there is a threat of new entrants in the industry as a result of its competitive nature and low barriers to entry. Furthermore the increased awareness in society with relation to nutrition and exercise is a major threat for Krispy Kreme as their products are conventionally unhealthy, this is something that must be considered to ensure they remain competitive. Thus a SWOT analysis contributes to a fundamental planning stage for the organisation allowing it to understand the situation in which the company currently operates.
STRATEGY RECOMMENDATIONS The strategy recommendations for Krispy Kreme include increasing their advertising and promotions, product development and diversification and further development in locations within the domestic markets. Krispy Kreme should increase their spending on advertising and promotions to increase the awareness about their products and any promotions within the market. This will effectively increase Krispy Kreme’s sales and therefore revenue, having a positive impact on the overall profits and growth of the company.
Other positive affects for Krispy Kreme include increased consumer base as a result of the increased visibility of the brand and products along with strong consumer loyalty as consumer are constantly reminded of the brand. Product development and diversification is another important strategical move for Krispy Kreme as a fresh and innovative menu will reinvigorate consumer interest in the brand. Krispy Kreme should look to enliven their core product of doughnuts through the introduction of themed doughnuts for holidays and doughnuts specifically for special events such as weddings or birthdays.
In addition Krispy Kreme should look to continue to expand its product base, including the introduction of new beverages to compliment existing ones, to ensure they can compete with the large cafe chains. Furthermore in the redevelopment of their product range Krispy Kreme must introduce a healthy range of products to keep up with the growing concern for nutrition and health within society. This may include a healthy range of doughnuts or low fat ice-creams. By changing the menu Krispy Kreme is able to attract new customers into their stores and existing customers will continue to purchase.
In addition the healthier menu selections will attract a market in which Krispy Kreme hasn’t previously appealed to, those who are health and nutrition conscious. In relation to price, Krispy Kreme should focus on a low cost strategy to remain competitive in the market. This will allow Krispy Kreme to increase their sales as their prices are lower than competitive but still provide a quality food product to their consumer. Furthermore Krispy Kreme should aim to build a strong number of profitable stores within the Australian market.
This can be achieved through the closing down of any long term unsuccessful stores with market research to be conducted in potentially successful areas. Following this research it is suggested that Krispy Kreme open stores in areas that will have a successful impact on overall profits in the long term. In conclusion it is recommended that Krispy Kreme adopt a low cost strategy with focus on expand in the Australian market. In addition it is clear that through the use of a new menu and increased spending on advertising to build brand and product awareness, Krispy Kreme can increase its profitability and success in the Australian market.