ASSIGNMENT MODULE NO 1

Krispy Kreme Doughnuts, Inc.

Team members:

Denisa SindarovaLucie BolartovaDavid Borcuti

Claudia DragosIoana Cimpan

Class: CLsem-v14e

Team no: 2

Date: 19. 2. 2015

Number of characters: 23 977

Table of Content1. Introduction....................................................................................................................................2

Description of the Krispy Kreme chain...........................................................................................2

Competitive Advantage..................................................................................................................2

Key Success Factors........................................................................................................................2

2. Metodology....................................................................................................................................3

Pest Analysis of Denmark´s market....................................................................................................3

Political Factors..............................................................................................................................3

Economic Factors...........................................................................................................................3

Social/Cultural Factors....................................................................................................................3

Technological Factors.....................................................................................................................4

Krispy Kreme Value Chain...................................................................................................................4

3. Which audience should Krispy Kreme target?....................................................................................5

Target group.......................................................................................................................................5

Audience............................................................................................................................................6

4. Location and Distribution..................................................................................................................6

Location..........................................................................................................................................6

Distribution:....................................................................................................................................6

5. What strategies should the restaurant chain pursue?........................................................................8

Marketing strategy.........................................................................................................................8

Core of brand strategy........................................................................................................................9

Marketing...........................................................................................................................................9

SWOT ANALYSIS...............................................................................................................................10

6. Brand development..........................................................................................................................10

7. Set of Krispy Kreme prices................................................................................................................11

Prices................................................................................................................................................11

8. Conclusion........................................................................................................................................12

9) Appendix..........................................................................................................................................13

Krispy Kreme Menu..........................................................................................................................13

Survey...............................................................................................................................................15

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1. Introduction

Description of the Krispy Kreme chainKrispy Kreme is retailer and wholesaler of high quality doughnuts, it belongs to the group of quick service restaurants all over the world. The brand was established in 1937, in United States. This is franchise of stores, which are selling many kinds of doughnuts and other additional range of products as beverages, cakes, sandwiches and so on. Company consists of four segments: Company Stores, Domestic Franchise, International Franchise and KK Supply Chain. Krispy Kreme is considered as the restaurant determined for customers, who are looking for the great dining experience and value for lower price than the casual dining segment can offer. The brand and uniqueness are built on more than eighty years old tradition, as well as on the secret receipt for the doughnut dough, where are used only the best quality ingredients. The most famous product is “Hot Krispy Kreme Original Glazed Now”.1

Competitive AdvantageAs the first biggest competitive advantage, is fact, that there haven´t been established any doughnut chain in Denmark yet. We are aware of, that Danes adopted the healthy life style in last years, but we can convince customers by the best quality ingredients. Additional competitive advantage for Krispy Kreme is the “Doughnut Theatre”, it means that customers have an opportunity to see with one´s own eyes, how the process of production is going on. And more than eighty years old tradition can attract more people to come for unique experience, great value and best customer service.

Other advantage is the international environment of Denmark. Well-know brand and the idea of American lifestyle could attract not only international but also domestic customers, who are looking for the chain that is already known to them. Krispy Kreme can compete by the making fundraising events for support of charity organizations as well. 2

Key Success FactorsAs the main KSF we can consider high quality product for reasonable price. Historical platform of the product and experience, which can customer get during the dining. There are many variations of the products, which are enhanced by the seasonal offers, so customers can combine their favorite kind of doughnut with coffee or other beverages. Selling locations never look like same. 3

2. Metodology

1 Krispy Kreme. (2014). The Joy of Krispy Kreme, Annual Report 2014.Available: file:///C:/Users/Denisa/Downloads/Krispy_Kreme_ANNUAL%20(4).pdf. Last accessed 19th Jan 2015.2 Euromonitor. (2013). Consumer Foodservice in Denmark. Available: http://www.portal.euromonitor.com/portal/analysis/tab . Last accessed 19th Jan 2015.3Krispy Kreme. (2014). The Joy of Krispy Kreme, Annual Report 2014.Available: file:///C:/Users/Denisa/Downloads/Krispy_Kreme_ANNUAL%20(4).pdf. Last accessed 19th Jan 2015.

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Pest Analysis of Denmark´s marketPolitical FactorsEuropean Union and Denmark´s government is regulating food service industry by many rules and restrictions. The main rule, which endured many changes in last years, is labelling. According to regulations from 2014 all fast quick service restaurants have to indicate amount of kilojoules and allergens, which contains the food and beverages selling by them.4 5 Denmark is one of the few countries, which is strictly regulating the content of the Trans fats in the food. The allowed consumption limit is only 2%, it means that people can receive only 1g of Trans fats per day.6 All restaurants in Denmark have to create self-regulations with detailed description of the activities during production and selling. It has include health security rules, rules of storing worth of food, temperatures and critical points during the production and etc. 7

Economic FactorsDenmark´s GDP rate is rather stable, GDP reached above 330 billion USD in 2014. So Danes are keeping their spending on the same level.8 On January 2015 Denmark reached the lowest inflation rate of 0, 30 in last two years. 9 If the inflation will sustain the current level, success will follow. Nowadays Denmark has 4% of unemployment rate, we can expect that there will be increase in standard of living, it means more people willing to spend money for food service.10 Interest rate reached record low percentage of 0.75% on January 2015. It means best opportunity for the new company to expand on Danish market, it means increase in investments and spending. 11

Social/Cultural FactorsCurrently is Denmark adopting the trend of the healthy lifestyle and organic food. On the basis of economic factors there is many people, who are willing to spend more money for the quality. Denmark as international country is demanding foreign brands. In last years there was increasing competition between fast food restaurants and cafés. One of the most purchasing services was takeaway or home deliveries, which pointed the price of eating directly in the restaurant.12 13

Technological FactorsDenmark is 9th most innovative country in the world.14 So there is possibility to implement many interesting features, which can attract other customers. Smartphone applications and purchases, as 4 Food Standards Agency. (2014). Food allergen labelling and information requirements under the EU Food Information for Consumers Regulation No. 1169/2011: Technical Guidance. Available: http://www.food.gov.uk/sites/default/files/food-allergen-labelling-technical-guidance.pdf. Last accessed 19th Jan 2015.5 Food Standards Agency. (2014). Questions and Answers on the EU Food Information for Consumers Regulation allergen provisions. Available: http://www.food.gov.uk/sites/default/files/eu-fic-faq.pdf. Last accessed 19th Jan 2015.6 Unknown. (2011). Trans Fat Regulation. Available: http://www.news-medical.net/health/Trans-Fat-Regulation.aspx . Last accessed 19th Jan 2015.7Ministry of Food, Agriculture and Fisheries. (2009). Self-regulation In stores and restaurants. Available: http://www.foedevarestyrelsen.dk/Publikationer/Alle%20publikationer/2010280.pdf. Last accessed 19th Jan 2015.8 Trading Economics. (2015). Denmark GDP Forecast. Available: http://www.tradingeconomics.com/denmark/gdp/forecast. Last accessed 19th Jan 2015.9 Trading Economics. (2015). Denmark Inflation Rate. Available: http://www.tradingeconomics.com/denmark/inflation-cpi. Last accessed 19th Jan 2015.10 Trading Economics. (2015). Denmark Unemployment Rate. Available: http://www.tradingeconomics.com/denmark/unemployment-rate. Last accessed 19th Jan 2015.11 Trading Economics. (2015). Denmark Interest Rate. Available: http://www.tradingeconomics.com/denmark/interest-rate. Last accessed 19th Jan 2015.12 Euromonitor. (2013). Consumer Foodservice in Denmark. Available: http://www.portal.euromonitor.com/portal/analysis/tab . Last accessed 19th Jan 2015.13 Euromonitor. (2013). Denmark. Available: http://www.portal.euromonitor.com/portal/resultslist/tab. Last accessed 19th Jan 2015.

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well as web marketing and social media. Because of the advantageous economic situation we can thing about the replacement of the technology, which will be more concentrate on the ecological aspects of production and will be more able to be competitive in comparison with domestic restaurants.

Krispy Kreme Value Chain15 16

Supporting Activities

Human Resources Management

Technology Development Procurement

Recruiting Sales point hardware Doughnut mixes, Doughnut mix concentrates, Icings and

fillingsTraining of employees Reducing of waste JuicesAnnual performance, development reviews

Efficiency of production, reducing of ingredients costs

Signage, display cases, uniforms

Primary Activities

Inbound Logistics

Operations Outbound Logistics

Marketing and Sales

Service

Contract with franchise

Specifications of the products

Control of selling products

Shop experiences Delivery of doughnuts and

beveragesContract with

suppliersPackaging Storage Relationship

marketing, advertising, web page

Gift cards, e-ordering, e-club

Control of the quality

Cleaning and Fixtures

Web page Fundraising, local events,

sponsorship of charity

Occasions

Assessment of HACCP

Keep the conditions of the

franchise

Order processing Doughnut theatre

3. Which audience should Krispy Kreme target?Target groupWhy Denmark?

14Bloomberg Rankings . (2013). 50 Most Innovative Countries. Available: http://www.bloomberg.com/slideshow/2013-02-01/50-most-innovative-countries.html#slide43. Last accessed 19th Jan 2015.15Krispy Kreme. (2014). The Joy of Krispy Kreme, Annual Report 2014.Available: file:///C:/Users/Denisa/Downloads/Krispy_Kreme_ANNUAL%20(4).pdf. Last accessed 19th Jan 2015.16 Krispy Kreme. (2015). Our Pride and Joy. Available: http://www.krispykreme.com/Menu/Doughnuts. Last accessed 19th Jan 2015.

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The strong welfare state ensures economic equality in society and the virtual non-existence of corruption, while polls repeatedly show that the Danes are among the happiest people in the world. Furthermore, because of his beautiful places that Denmark has, each year Denmark have 4.4 mil visitors.17

Denmark is consisted of total 5 627 235 people in 2014 and there is a possibility of reaching 6 212 544 people until 2050. Which means that there is an increase of 9,4% from 2014 until 2050.18

People

5627235

6212544

Demography

Income

The average hours that a person is working per week which means 5 days, Monday until Friday, is 37 hours. Their average wage per month is 24350 DKK which means 3163€ with the exchange rate of 0.1343 to €19. Above this, Denmark has 4% unemployment rate recorded in 2015 which is very good than other countries20. As a result, 73% of people aged between 15 and 63 have a paid job. 21

Audience

Students

In these days, more and more students are choosing Denmark to have a further education and most likely after that they choose to settle down in Denmark. After a long day in school, most of the students are going to have a break in public areas such as cafes, fast-food, restaurant and libraries. Students are striving for a place where you can have a pleasant atmosphere to socialize and to have a good service encounter.

Employees

17 http://www.oecdbetterlifeindex.org/countries/denmark/ last accessed on 19.02.201518 http://dst.dk/en/Statistik/emner/befolkning-og-befolkningsfremskrivning/befolkningsfremskrivning.aspx last accessed on 19.02.201519 http://en.wikipedia.org/wiki/List_of_European_countries_by_average_wage last accessed on 19.02.201520Unknown. (2015). Denmark Unemployment Rate. Available: Unknown. (2015). Donut Shop. Available: http://thedonutshop.dk/. Last accessed 17th Feb 2015. Last accessed 17th Feb 201521 Unknown. (2015). How’s Life? Available: http://www.oecdbetterlifeindex.org/countries/denmark/. Last accessed 17th Feb 2015.

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Danes start working early in the morning. Most of the companies require employees to finish their tasks between 06:00 and 18:00. Although, most of them respect the habit to have the lunch break which last 30 minutes.22

4. Location and DistributionLocation We`ve decided that the most recommendable location for Krispy Kreme would be first of all Copenhagen and we found out some statistics which support our choice. Actually Danes from Copenhagen and around this area spent the most money in restaurants and cafés. According to Horesta residents of capital spent almost twice compared to other geographical areas in Denmark.

Also the statistics from 2013 present a considerable increasing of tourism-related turnover to more than DKK 429 million according to Global Connected. We`ve establish that first location for Krispy Kreme would be center of Copenhagen because this area is one of the most attractive for tourists and for residents too. According to the research, in 2013 number of visitors of attractions was increasing and the number of cards for attraction was estimated almost 500.000.23This means that Copenhagen maintains its position in the top being a good location for a new business because is a European capital with a large variety of customers and the center has a high level of visibility.

The second choice for location is related with the malls because clients usually want to eat after or during the shopping and Krispy Kreme could be a perfect place for family with children because donuts are more preferred by them.24 Taking into the consideration the results of the survey the youth is an important target for Krispy Kreme so other possible location could be related with the location of the schools and university, in our case university CBS would be first choice.

Distribution: We`ve find out that home delivery/take away system is one of the most profitable choice in foodservice industry, especially in Denmark. According to Euromonitor, home delivery and take away were the two systems which recorded in 2013 the highest current value growth.25 If we are talking about home delivery we`ve decided to apply B2B plan, making a collaboration between Krispy Kreme and Just Eat. Just Eat is an online service; it is in fact a web based connection between takeaway food outlets and clients.26 This service is really used in Denmark and a lot of other companies made a contract. They gain 10% from sales for each food outlet but they assure the transport and the promotion of companies and it seems to be a really profitable alternative taking into consideration the costs for own distribution.27 With Just Eat the menu of Krispy Kreme the news and prices are visible for a lot of customers which access the site. Also we considerate that Krispy Kreme site should be kept in Denmark also because it will offer more relevant details for clients.

22 Unknown. (2014). Working Condition. Available: https://www.justlanded.com/english/Denmark/Denmark-Guide/Jobs/Working-conditions. Last accessed 17th Feb 201523 Wonderful Copenhagen. (2013). Wonderful Copenhagen Annual Report 2013. Available: http://wonderfulcopenhagenannual.dk/uk.html. Last accessed 18.02.15.24 Ronald Kimmons. (2014). Things to Consider Before Opening a Fast Food Restaurant. Available: http://smallbusiness.chron.com/things-consider-before-opening-fast-food-restaurant-17437.html. Last accessed 17.02.15.25 Cphbusiness Lyngby –Lybrary – Euromonitor International- “Consumer Foodservice in Denmark”26 Wikipedia. (2014). Just Eat. Available: http://en.wikipedia.org/wiki/Just_Eat. Last accessed 18.02.15.27 Sean Martin. (2014). Just Eat's Greedy Commissions Should be Taken Away, Say UK Restaurants. Available: http://www.ibtimes.co.uk/takeaway-just-eats-greedy-commissions-say-uk-restaurants-1452806. Last accessed 18.02.15.

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Krispy Kreme will get their own direct connection with the customers in each shop in this way it will develop B2C distribution and good relations with clients. Also Krispy Kreme will offer a drive-in and bike-in system for their customers who prefer to buy and take away.

If their first investment will be profitable we think that Krispy Kreme can continue with expanding of activity. They have already own factory in other countries so in Denmark they can develop an indirect distribution, with retailers.

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5. What strategies should the restaurant chain pursue?

Marketing strategyMarketing strategy is based on casual advertising such as word of mouth, which is focus on and attract to your five senses as sigh, hearing, taste, touch and mainly smells during visit where you see whole process of making donuts from dough, baking, frying, glazing to final selecting right ones. Here you can click link https://www.youtube.com/watch?v=0UV8E7vWxhU 28, where you can see process of making donuts. Other part of marketing strategy is built on event marketing, where the products are promoted on local events such sport events , exhibitions, charitable events etc. In our case we can promote Krispy Kreme on the events in Copenhagen. There are couple of possibilities to promote them in CPH:29 Roskilde Festival, Copenhagen Fashion Festival, Copenhagen Marathon, Copenhagen Jazz Festival, CPH: PIX International Film Festival, Copenhagen Half Marathon, Copenhagen Pride, Copenhagen Cooking, Copenhagen Opera Festival etc. And also provide huge discount in case that donuts are sold by local communities for fundraising purposes. Off – premises sales could be in our case Netto, Bilka, Rema, Fotex etc.

Core of brand strategy

28 Destination America. (2012 ). Krispy Kreme Glazed Donuts .Available: https://www.youtube.com/watch?v=0UV8E7vWxhU. Last accessed 17th Feb 2015.29 Unknown. (2015). Top events. Available: http://www.visitdenmark.com/top-events-denmark-2015. Last accessed 17th Feb 2015.

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One of a kind taste

Doughnuts are made on a secret recipe which was invented in 1937. During preparation as a blending are used premium ingredients, keep operating steps of procedures to create unique product.

Doughnuts Theater

During designing new factory stores is always set up with “Doughnut Theater” which is target to our human senses. It makes unique, unforgettable customer experience. It provides to customers an entertainment experience and show them quality and freshness during making doughnuts.

Hot Krispy Kreme Original Glazed

In front of each factory store there is a neon sign which signal customers going around that hot fresh Original Glazed doughnuts are being made several timers per day.

Community relations

Passion to be in active relationships with local community which has been supported by fundraising program and sponsorship, which makes a lot of customers memories during selling doughnuts to raise money for charities.

Marketing To build position on the Danish market and expanse our sales we are going to use following marketing activities:

Store multi-senses experience

In our shop is going to be set window behind that, the customer can see our doughnuts being made. This process is very unique, which is core of whole company, after that a lot of customers are surprised and spread a word to their friends.

Relationship marketing

Every company try to build nice relationship with customers but in your franchise company will have some specific:

- Sponsorship of local events – sport, charity and other non-profit organization- Friends of Krispy Kreme database where customers receive newsletter with new products- To help local charitable organization to raise money for their non-profit and helpful purpose - Social media such as Facebook and Twitter to communicate product and promotional activity

and promote action “with this QR code get free coffee to your dozens of donuts”

Public Relations

We utilize media relation and event marketing in order to increase brand awareness between potentials customers. Our core of messages are:

1) Krispy Kreme is favorite doughnut of choice nationwide2) Krispy Kreme is trusted company with history and own story 3) Krispy Kreme provide unique taste, innovative product, delivering quality product 4) Krispy Kreme support returning customers with program called “Friends of Krispy Kreme”

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Although our marketing strategy is based on brand awareness with occasionally ads in newspaper, radio, televisions etc. In our survey we found out awareness about Krispy Kreme Company is low, over 59% of respondents claimed that they’ve never heard about Krispy Kreme, which means that we need to invest money to opening advertisement, but on the other hand 35% respondent claimed that “Love them” other 59% respondents claimed “Like eating them sometimes” which means for us huge gap for accepting our doughnuts even in new market environment.

SWOT ANALYSISStrengths:

high- quality doughnuts with unique and “on-of-a-kind” taste

multi-sense theater neon sign in front of store “ hot

doughnuts are ready market research and survey show grow

demand expansion to other countries based on

franchise mode sell in store factories, supermarket,

retails stores sponsorship effort support sport events, charity etc.

Weaknesses: return on equity, huge investments, shareholders have not received

dividends recently struggling with how to make stores

profitable revenues went down in last four years fight with health-conscious customers advertising are not enough aggressive

Opportunities: develop the social program to promote

donuts develop marketing and strategic policy

during entering to new country Danish people love sweets and are

focused on – American culture

Threats: competition – Starbucks awareness about healthy lifestyle expansion of organic markets Starbucks is more worldwide than Krispy

Kreme Donut Europeans prefer local brands

6. Brand development

DINING EXPERIENCE starts to be even more important than before.

We think the most important product of Krispy Kreme is the Original Glazed doughnut, which is the signature of the company. We would like first of all to focus on this product and develop a strong image in Denmark, as it is in other countries. We are aware that it’s not classified as a healthy product, but we would be honest about that and speak about the taste, as this is one of the quality of the product.

Every culture has people with different needs and habits. Danes likes different flavors for doughnuts in their everyday life. As tradition as well is very important, one of the first steps will be to integrate the doughnuts in their culture. December is one of the month of the year when people are more sensitive. We would use their sense of emotion which is related to develop a new taste for doughnuts. In Denmark is a tradition on New-year’s Eve, and special occasion to serve Kransekage. Is a cake made with almond, which recording to tradition means good luck? We would try to develop a doughnut with these characteristics.

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Denmark is one of the top ten biggest consumers of the coffee30, which can offer to Krispy Kreme really strong purchasing power. We would like to make a new doughnut that can be serve together with one of the coffee brands that Starbucks offers. Having the same backgrounds, but different approaches to customers, could be develop a good partnership. As Starbucks is more known in Denmark then Krispy Kreme, can be an advantage. This also gives a plus advertise to the new product, but also the possibility to gain new customers. Starbucks is a brand that takes care of her image, and can have a good influence on Krispy Kreme.

7. Set of Krispy Kreme pricesPrices As a table shows we reached the conclusion that 8 DKK per one donut is the most suitable price to approach low marginal profit. These numbers are related to Krispy Kreme factory store. We couldn’t compare and follow price policy in U.S. with Danish market that is why we did comparison with competitors which are supermarkets and four-branches The Donuts shop 31in CPH. We found that prices in supermarkets are usually 10DKK we would like to follow them.

Selling price Quantity per month Turnover Marginal Revenue Total Costs Fixed Costs Variable costs Marginal costs Profit Marginal Profitin DKK

10 60,000 600,000 438,300 400,000 400,000 161,700 7 200,000 310 70,000 665,000 420,000 645,000 400,000 245,000 25 20,000 -18

9 80,000 720,000 440,000 680,000 400,000 280,000 4 40,000 29 90,000 765,000 450,000 715,000 400,000 315,000 4 50,000 18 100,000 800,000 450,000 750,000 400,000 350,000 4 50,000 08 110,000 825,000 440,000 785,000 400,000 385,000 4 40,000 -17 120,000 840,000 420,000 820,000 400,000 420,000 4 20,000 -27 130,000 845,000 390,000 855,000 400,000 455,000 4 -10,000 -36 140,000 840,000 350,000 890,000 400,000 490,000 4 -50,000 -4

8. Conclusion

The food retail industry has been threatened by organic trend which contents healthier eating customs. Krispy Kreme has been established on the trend by positioning doughnuts as donuts on the go. Future possible growth is expand by franchises as well as entering to new

30 Euromonitor. (2013). Consumer Foodservice in Denmark. Available: http://www.portal.euromonitor.com/portal/analysis/tab . Last accessed 19th Jan 2015.31 Unknown. (2015). Donut Shop. Available: http://thedonutshop.dk/. Last accessed 17th Feb 2015.

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distributions channels, which is going to require new marketing strategy in cold format. Recommendation which we can do are: increase efficiency, smaller workforce per store, minimalize inventory, use system just in time in order to keep fresh good and items, innovate new equipment such as freezers, oven, glazer, improve communication between colleague, and corporate and franchise, regular staff training, carry on with neon sign – hot donuts are ready to eat. Now it is best timing to enter to Danish market, because of positive economic situation, for example more than fifty years is Danish economic in low deflation on January 2015 which could decrease penetrating costs to established new brand in Copenhagen. There is a plenty young people in purpose to study in CPH, and in your survey over 90% respondent answered that “love donuts “or “like eating donuts sometimes” so we see broad opportunity of our target group.

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9) Appendix Krispy Kreme Menu

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Survey

1) Have you ever heard about Krispy Kreme?

Yes 12 32%

No 22 59%

I don´t remember 3 8%

2) Do you like Doughnuts?

I love it 13 35%I like to eat it sometimes 22 59%I don´t like it 2 5%

3)3) What type of doughnuts do you like?

Original 7 19%

Chocolate 21 57%

Glazed 5 14%

Others 4 11%

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4) Are you willing to buy doughnut with flavour similar to Kransekage?

Yes 21 57%

No 16 43%

5) Would you like to use home delivery system for doughnuts?

Yes, of course 9 24%No, I don´t need it 21 57%I don´t know 7 19%

6) What is your age?

0 - 20 19 51%21 - 30 14 38%31 - 40 3 8%41 -50 1 3%51 - more 0 0%

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7) What is your nationality?

Danish 6 16%Other European 28 76%Others 3 8%

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