Running Head: JUSTIFICATION REPORT Increase Profit Margin for Krispy Kreme Lawrence A. Mayo, JR Strayer University Online English 315 Professor Kelly Gordon November 1 1, 2013 Mr. James H. Morgan, CEO Krispy Kreme Doughnut Corporation P. o BOX 83 Winston-salem, NC 27102 Dear Mr. Morgan: Enclosed is a copy of my Justification report for restructuring your business model and vision for Krispy Kreme. The research indicates where your company could increase its profit margin and expand its brand to re-establish your place in the baked goods market.
The report will provide some solutions to the problems that the company is facing ith quarterly profit, consumer relations, business goals, internal structure, and company vision. It offers suggestions on what the company should do with its image and ways to maximize profit. Reminding the company of what has made it a success and what consumers want from them went through examination. If you have any questions or concerns regarding the information enclosed, please do not hesitate to contact me at the email address or the phone number provided. I look forward to hearing from you, and let me know if you need any assistance in anyway.
Sincerely, Enclosure: Final Report Table of Contents 3 Executive Summary 4 Problem Statement 5 Method Used 5 Findings 6 Analysis 7 Conclusion 7 References 9 This report provides an analysis and evaluation of the current and potential growth of Krispy Kreme Doughnut Corporation’s quarterly profit margin, financial mistakes, and company vision. It discusses critical decisions that they made and suggests some ideas that could solve the problem. The problem that I analyzed has a history of how it came to be and the actions that the company made to create the problem went through evaluation.
Looking at nconsistencies of the business model, the change in company image, and the way consumers reacted are what I have studied to analyze the problem. The methods used for analyzes include industry trends, consumer feedback on message boards, financial data gathered from fiscal reports showing profit income and profit loss, and articles written by analysts who studied the financial postings of Krispy Kreme. Results of data analyzed showed that Krispy Kreme ignored their financial advisors leading to the loss of profit, which lead to closing franchise locations and altering their business model.
The quarterly postings show that there is a downward trend of low profit for each quarter. The report finds that Krispy Kreme is not in good financial standing with its own profit margin, investors, stockholders, and consumers. The major areas of weakness require further thought to brainstorm viable solutions that will work long term. There are some limitations with the report such as how difficult it would be for Krispy Kreme to re-establish franchise locations and compete with stronger brands for market share in the baked goods industry.
Marketing strategies may not be as ffective as the company would like and not result in attracting consumers. Introduction Running a business is not easy. Companies face many challenges to earn a net profit consistently for each quarter. There is pressure from investors, stockholders and competition to re-evaluate the business model and to try new solutions. Krispy Kreme has seen a low return in profit over the years posting only one high profit margin back in 2012. Some decisions that the company made have resulted in the mistakes transpired and improving on what they do best will help Krispy Kreme mprove their profit margin.
Problem Statement Krispy Kreme has seen a disappointing profit this year, sinking down to 15% as investors begin to bail. The company’s outlook was no better as it told investors about its financial forecast. However, Krispy Kreme blamed the loss on derivatives; though there have been reports of the company straying away from its business model, which had previously made them very successful. An issue with earning profit has derived from how Krispy Kreme planned to grow their revenue and increase their profit. This plan only benefitted them at the parent- ompany level, while their outlets have been struggling.
They made all of their franchises buy equipment and ingredients at marked-up prices from the headquarters. This may be common, but most of the time this hurts franchises, as is the case with Krispy Kreme. The decision to close down franchises and instead ship none fresh doughnuts to places such as; grocery stores, gas stations, kiosks, and places like Walmart has resulted in them sharing profit with those businesses. This has made the brand less visible and taken away the appeal of why Krispy Kreme had been successful.
Consumers do not want to buy stale doughnuts; they want the fresh gooey treats that they are accustomed to having. Method Used The research that I conducted by looking at the financial reports of Krispy Kreme showing their net loss or gains for each quarter of their fiscal year and looking at the charts showings their profit margin. In addition, the price of stock share and investor outlook was uses. Looking at the financial history of the company was done to examine where the problem begin and to show inconsistencies of profit margin.
Reading consumer opinion about what they want from the company on articles or message boards aided research to get consumer feedback on how they feel about the company. Research entitled what the company changed to get in this position or needs to do to fix their problems. The financial information gathered from reports and articles on the company’s net profit for its fiscal year is the key to forming an understanding of the problem. Findings 1. Business Model favor of shipping its product to other businesses taking away what made them attractive to customers to begin with.
This had taken away their number one reason for success and allowed the competition such as Dunkin Doughnuts and Starbucks to take more market share. Doing so makes it difficult to market their specialty and keep the brand visible to consumers. In 2004, they also decided that they would create a sugar-free doughnut as a result to the popularity of low-carb diets, which would alter the recipe of their product and move them away from what their original image was. 2. Financial Officers From 2000 to 2004, Krispy Kreme decided to employee as many as three different
Chief Financial Officers to overlook their financial books. This caused concern and mistrust from both consumers and stockholders. Many believe that Krispy Kreme ignored the findings from the CFOs, which showed the company was not in good financial standing. Ignoring what the numbers show you are not going to help earn a profitable return. Krispy Kreme should have seen the threat were facing and went into brainstorming mode to solve the problem. 3. Quarterly Postings Krispy Kreme stated that its full-year forecast for earnings was between 59 to 63 cents per share.
A contrast to what analysts expected to be at least 64 cents per share. Shares of the Winston-Salem, N. C. – based company have seen a loss. Share has dropped $3. 51 or 15% to close at $19. 72. However, its stock prices a seen an increase tripling over the past year at closing. Figure 1-1 Krispy Kreme Doughnut Profit Margin (Quarterly) Year Percent 2010 2011 2012 2013 100% 2. 65% 4. 71% -2. 8% Analysis First Krispy Kreme has to understand why it is taking a loss in profit. Suggesting that the only reason for the loss is “trendy carb diets” that have become popular is not a realistic way of isolating the problem.
Their accounting practices have come under scrutiny and investigation by the SEC. A number of alternatives exist for Krispy Kreme to solve the problems that the company has had to face. On the issue of them claiming that health awareness was causing the company to lose business, Krispy Kreme could have instead considered doing research in an attempt to diversify its operations so it could accommodate trends when they change. Another option is for Krispy Kreme to add other products to its brand to expand into other markets or possibly other niches that may already exist within its market.
Proper management must be in place though, because this could end up backfiring on the company. Proper research on what consumer wants are and what may actually work for Krispy Kreme would need to take place. Previously Krispy Kreme attempted to be concerned with every type of demographic. They did not limit their demographics to any particular group. Instead of worrying about an entire demographic, Krispy Kreme should have identified its specific customer base so that the company could design its products directly to the needs of its customers that are the target. Conclusion
The problems that Krispy Kreme is facing are not Just the only reason for their company, the vision, and the financial earnings all should be addressed and improved. Being able to compete against direct competitors is also a challenge. Krispy Kreme should start from their internal structure before they can focus on the brand image and external structure. Ignoring CFOs is never a good thing when a company wants to succeed and meet their financial goals for the fiscal year. Other options have to go through discussion about marketing the brand so that it is once again visible to consumers.
Going away from the company’s original vision was never a good idea as it confuses not only their customers, but their investors, stockholders and employees as well. The core values of the company have to be consistent with everyone involved on the same page. Carter, M. (2013). Krispy Kreme Needs to Wake up and Smell the Coffee. Retrieved November 29, 2013 from: http://beta. fool. com/mikecartl 12013/06/06/krispy-kreme- needs-to-wake-up-and-smell-the-coffee/36107/ Fox, C. (2013). Expanding Globally by Changing the Product. Retrieved November 30, 2013 from: http://smu. edu/ecenter/ iscourse/courtneyfox2. tm Oursler, A. (2013). Krispy Kreme’s Frosting Melts Off. Retrieved November 30, 2013 from: http://investorplace. com/2013/08/krispy-kreme- one-of-the-years-hottest-stocks-get-a-haircut/#. UppS9uKQN95 Planes, A. (2013). Is Krispy Kreme Destined for Greatness? Retrieved November 30, 2013 from: http:// www. fool. com/investing/general/2013/06/25/is- krispy- kreme-destined-for- greatness. aspx Swanson, A. (2003-2013). Krispy Kreme: Coulda, Woulda, Shoulda. Retrieved on November 30, 2013 from: http://www. qualitylogoproducts. com/blog/ krispy-kreme-coulda-woulda-shoulda/