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Business analysis report on krispy kreme

Krispy Kreme, an international ring concatenation operating in the fast nutrient industry, was founded in 1937 by Vernon Rudolph in the USA.. Krispy Kreme ‘s signature point is a glassy ring, traditionally served warm.

Since the beginning of the twenty-first century Krispy Kreme has been actively spread outing throughout the universe. Krispy Kreme itself actively owns shops in the USA and Canada and has franchise-owned shops globally for illustration in Turkey, Kuwait, Thailand, and Puerto Rico.

This study will concentrate on Krispy Kreme in Hong Kong, where franchises liquidated, shuting 7 out of 9 shops. The possible and apparent grounds will be explored farther thoughout the study.

General Information on Hong Kong

As being historically influenced by the Western civilization – Hong Kong was a settlement of Great Britain for about 150 old ages and uniting this with the local civilization, Hong Kong culinary art is characterized by the merger of East and West. ( Boland ) As a consequence of this, rings are seen by the clients in Hong Kong as a bite pick, one that is accompanied by tea or java. In support of this, one of the laminitiss of Krispy Kreme franchise in Hong Kong – the Parfitt brothers has expressed, aˆzWe know it is non a merchandise you should eat every twenty-four hours, it is a dainty that you should honor yourself with. It is non a meal replacing. ” ( Standart )

If we take a expression at the history of the Fast Food industry in the East, one could see that the two most preferable fast nutrient ironss have been McDonalds and KFC for a savory repast, followed by Dunkin Donuts for bites. These companies have been really successful in their concern in Asia. The first McDonald ‘s store in Hong Kong was opened in 1975 in Paterson Street in Causeway Bay, Hong Kong Islands – one of the most expensive countries in the state. ( Walker, 2009 ) Four old ages before, in 1970 KFC opened their first shop in Hong Kong. By the 1994, in China entirely, they have 1243 mercantile establishments. ( Chawla, 2005 ) Dunkin Donuts opened foremost in 1983 in Taiwan, have entered about all Asiatic markets except Hong Kong – they ne’er even entered the market. ( Dunkin, 2008 )

Other current rivals of Krispy Kreme included Pizza Hut, who have done really successfuly in seeking to fit consumer penchants. They introduced new somewhat different pizzas and succeeded. The local fast nutrient ironss such as Cafe de Coral, Fairwood and Maxim`s Express besides competed with Krispy Kreme. Probably, the biggest competition though came from the local aˆzstreet nutrient ” – little stores offering something on the spell, functioning assorted local Chinese dishes and selling on much lower monetary values. ( Lan, 1995 )

3.0 Company analysis: industry and investing

3.1 Krispy Kreme

Krispy Kreme Doughnut Inc opened in Hong Kong, taging its introduction on Chinese dirt and its 2nd merely raid in East Asia – with nine stores already in South Korea. There are marks of the concatenation ‘s aggressive enlargement in this part, nevertheless, China ‘s possible 1.3 billion consumers seems most attractive. Krispy Kreme ‘s enlargement into Hong Kong proved unsuccessful after merely two old ages of its launch.

3.1.1 Entering New Markets

There are several grounds for Krispy Kreme ‘s launch in Hong Kong, nevertheless, by and large the concatenation faced no other pick but come ining new markets due to indigestion in America: as Americans tardily became cognizant to the wellness impacts linked with rings, ring gross revenues went down ; alleged trans-fats contained in rings which we said to transcend wellness and safety ordinances become a subject of contention for Krispy Kreme. Furthermore, new markets were sought as a agency of reconstructing and re-establishing the trade name after allegations of accounting injudiciousness, diverse corporate problems and assorted probes into the company ‘s histories. Therefore, the company was incurring great losingss ( see below ) . What was officially expressed as a scheme that “ depends on opening new Krispy Kreme shops internationally ” can be translated into the concatenation being unable to sell franchises domestically pending the unbending out of its accounting ( one-year study 200? ) .

The graph below illustrates Krispy Kreme ‘s net income ( loss ) from 2006 until 2010. Overall, one can see that the company has n’t performed really good during this clip, with net incomes declining peculiarly in 2008, as the United States was in the thick of the fiscal crisis. On the positive side, however, this graph besides shows that the losingss made are diminishing.

Krispy Kreme ‘s overall public presentation: Net income 2006-2010

3.1.2 Hong Kong as a finish

Hong Kong ‘s market is both turning and attractive with possible consumers willing to pass excess on dainties. It is besides a hub for international gustatory sensation, particularly due to its openness for Western nutrient. For this ground Krispy Kreme – upon make up one’s minding to spread out into Asia – chose to open its franchises in Hong Kong, finally trusting to perforate the Chinese market from thereon.

3.1.3 Why they went, how they went, when they went

In early 2006 Krispy Kreme announced that it would run a franchise in Hong Kong together with the successful Parfitt brothers, Brian and Wayne. Being Australian, they got attracted to Krispy Kreme through American investors who wanted to put up a eating house franchise in Asia. ( The Standard )

In order to acquire a better penetration to Krispy Kreme`s enlargement scheme, it must be said that they entirely operate under franchises, particularly outside their place market, the US.

3.1.4 But the inquiry remains, why do houses franchise in the first topographic point?

Firms sell the rights to the trade name in return for a fee to franchisees who besides have to pay a monthly per centum of the gross revenues to the central offices, so money supports coming in. No major investing has to be made by the house as franchisees have to pay for equipment, rent and everything else out of their ain pocket. Furthermore, it is a much preferred scheme in the cordial reception sector.

Krispy Kreme really has a keeping company named KKD lotte keeping company with which they work together in footings of franchising and they have been awarded the rights for mainland China for the approaching old ages.

In this peculiar instance, Krispy Kreme really sold all its rights to supervising the shop as good intending they had no say in future operations, holding restricted entree. Some would reason this is a ground they failed in Hong Kong because every bit mentioned above it would be no more than a trial market for Krispy Kreme I argue that the proprietors would still hold an involvement in being profitable as they are apt for both success and the failure of the shops. ( The Standard )

This enlargement is regarded as a market seeking FDI investing which is further emphatic due to the close propinquity to China, a market with a figure close to 1.3 billion people where large potency prevarications.

In footings of Krispy Kreme, this can be regarded as a “ trial market ” to so measure a possible enlargement towards Chinese mainland.

Even with aggresive ordinances in footings of franchise understandings which requires an gap of at least 10 shops in a limited figure of clip paired with problems Krispy Kreme was confronting at place such as disposal upset, accounting injudiciousnesss, tribunal charges and falling national trade, the brothers still believed that the merchandise was the key to success.

Surprisingly the figure of franchise shops has about doubled in the old ages of 2006 between 2009 making from 269 shops to 430 shops severally. The chief ground being the focal point of international enlargement which as stated antecedently run entirely under franchises. ( one-year study 2006/09 )

Knowing that Chinese people prefer the savory instead than the Sweet and holding been given advices by 3rd parties that this move may good be a hazardous one to take, they still felt confident that people would handle themselves with such a delicates every now and once more. ( The Standard )

So on August 8th in 2006, the first Krispy Kreme shop was inaugurated in Causeway Bay, the finest country in Hong Kong and merely 2nd to 5th Avenue in New York in footings of rent monetary values ( The Standard ) , which is non something to be proud of every bit will be seen subsequently.

3.2 Nature of Investing

3.2.1 Sums invested

Krispy Kreme opened in Hong Kong in signifier of franchises. Its central offices presented interested franchisees, such as the Parfitt brothers, with certain standards that had to be fulfilled in order to open up a franchise ; these are as follows:

aˆ? US $ 25,000 fee for each store they open

aˆ? Thousands of dollars worth of baking equipment and ring mix

aˆ? Development fee for the franchise itself

aˆ? 6 % of gross revenues paid to company as royalties ( 1/3 above what domestic franchises pay )

aˆ? A minimal net worth of $ 1,000,000 for each shop

In add-on to this, franchisees had to plight to give their best attempts to vouch the success of the company as a whole and uphold Krispy Kreme ‘s repute.

3.2.2 Hazard involved

Of the chief hazards involved in the investing, two stand out: on the one manus, neglecting in Hong Kong would farther damage Krispy Kreme ‘s repute ; on the other manus, the deficiency of appetency for rings in Hong Kong. In malice of the first proving true, new stores continue to open in the Asiatic part. The latter concerned the Chinese penchant of savory instead than sweet nutrient and the impression that rings are oily and heavy. However, the Parfitts saw no job in this, recommending that this is simply an hyperbole. Above all else the Parfitts seemed positive that Krispy Kreme would be successful because it suited the Asiatic manner of sharing nutrient every bit good as the readying of nutrient in forepart of clients through its “ Hot Doughnuts Now ” doctrine.

The graph below contrasts Krispy Kreme ‘s overall grosss to the entire grosss of all franchises. On the one manus this shows how small the gross of franchises contributes to Krispy Kreme ‘s overall gross. On the other manus, and possibly more significantly, the graph accentuates the public presentation of franchises by demoing the worsened public presentation of the company overall.

Comparison between Krispy Kreme and Franchises sing gross ; 2005-2009.

The graph demonstrates the entire sum of gross generated by franchises in the old ages of 2006 – 2009. The 4th column shows the mean gross per shop, calculated by taking the entire annual grosss of franchises and spliting them by the entire figure of shops. Whilst the deliberate norm can non be multiplied to demo the net gross of the franchises in Hong Kong, it can be used as an effort to bespeak shop grosss.


Grosss to Franchises to Krispy Kreme

Number of franchises worldwide

Average gross per franchise

Franchises in Hong Kong


$ 18,394,000


$ 68,379



$ 21,075,000


$ 74,734



$ 22,958,000


$ 66,738



$ 25,537,000


$ 59,388


Calculated mean gross per shop ; 2006-2009.

Krispy Kreme`s Initial Public Offering ( IPO ) came in 2000 after seven old ages of rapid enlargement throughout the USA and Canada chiefly. The initial portion monetary value started off at a moderate $ 8.50 and the ballyhoo created over the glassy doughnuts shortly reflected in the portion monetary value when it reached its extremum in 2003 by merchandising merely under $ 50. In fact people were so brainsick about doughnuts, shops ran out and queus of up to two hours formed outside several shops. ( )

But every success narrative has an terminal and Krispy Kreme`s came with the Stock Exchange Comission looking into their fiscal wellbeing and being accused of fly-by-night accounting.

Investors started drawing out and fring confindence therefore making a negative spiral on the stock market for Krispy Kreme.

Furthermore, the expansion programs were excessively forceful and helter-skelter and the individual aim of the board was “ short-run net income ” and what was an inimitable hallmark shortly become mind-numbing and turned into an over-saturated market. ( )

To do affairs worse, people became cognizant of their diets and what they were eating and doughnuts was unimpeachably a merchandise which should non demo on a healthy government.

Scandals have besides contributed to the crumpling image of Krispy Kreme in recent old ages. The most hideous and flooring dirt were the alleged “ trans fats ” , which are basically hydrogenated fats assisting to cut down the procedure of doing them every bit good as doing them last longer. This is a dirt in the sense that Krispy Kreme explicitly raise consciousness to the freshness of their doughnuts, doing several batches a twenty-four hours. ( Top News )

Even though in 2008 they announced a “ nothing trans fat policy ” , it was merely upheld in the US, with international shops still doing usage of it. Not merely does this show a dual criterion for US and other shops but the most distressing portion is that these fats can do coronary bosom diseases and other side effects.

The Hong Kong Consumer Council investigated this farther and found that the doughnuts in the Hong Kong franchises still contained 2.2 gms of trans fats, which is dual the mean criterion recommended by the World Health Organisation. ( Top intelligence )

3.2.3 New shop gaps in China

Krispy Kreme, even though holding failed in Hong Kong, have together with KKD goosefish keeping company agreed on new shop gaps in China. Street nutrient is really popular and Krispy Kreme are be aftering to offer hot doughnuts straight from the oven to their Chinese clients, holding learned that market version is cardinal to last, allow entirely thrive. 35 shops are planned within the following five old ages, the first being opened in Shanghai. ( Krispy Kreme )

The inquiry remains if Chinese people are ready for the one-of-a sort Krispy Kreme experience.

3.3 Government Intervention in Hong Kong

Hong Kong is the universe ‘s 11th largest ( HKTDC, 2011 ) merchandising economic system and is well-known for its individualistic attack. Meaning that concerns are able to run in an environment in which the authorities is entirely responsible for the proviso of basic maps such as keeping jurisprudence and order, supplying substructure and vouching belongings rights. Equally far as consumer goods are concerned there are no limitations on the imports and exports nevertheless, there are some indirect revenue enhancements on certain merchandises such as baccy and intoxicant for illustration.

Did they welcome it?

In Footings of the Government:

As aforementioned Hong Kong is an illustration of a individualistic economic system and hence it does non mind foreign houses runing at that place. However, they do non back up foreign houses nor giving them any inducements to come at that place either.

In Footings of Customers:

It appears that Krispy Kreme was in fact the first ring shop in Hong Kong which aforementioned did bear a batch of hazards. Bing the first meant that there was no specific scheme, antecedently successful in Hong Kong, they could hold followed. There are nevertheless, ring ironss in the Asiatic part, that at the clip of Krispy KReme ‘s come ining into Hong Kong, were running successfully or had failed. Hence, Krispy Kreme could hold looked at these rivals and learnt from their successes or failures ( see… .. ) .

Furthermore, it needs to be recognised the “ doughnut civilization ne’er penetrated the Hong Kong eating civilization ” ( The East west cordial reception Scribe ) . First, all of Krispy Kreme ‘s merchandises are far excessively sweet for the Hong Kong consumer who prefers savory nutrients and when he does devour sweet merchandises they are less sweet than American or Korean merchandises. Second, within Kong Hong there is a strong civilization of local bakeshops that sell what is known as “ Gaimeibao ” or Cocktail Bun which is a soft roll which is either filled or has a topping ; flavours including “ sausage, dried porc, read bean, custard and coconut in carnal fat ” ( The E west cordial reception Scribe ) .These cocktail buttockss are sold everyplace in Hong Kong including Stationss and street corners. Peoples consume these cocktail buttocks in the forenoons or afternoon as their breakfast or tiffin severally whereas rings are chiefly merely seen as a bite. Furthermore, the cocktail roll is far cheaper with 4-6 HKD ( 32 – 48 pence ) than Krispy Kreme who sold their rings for 15HKD ( 119 pence ) .

Therefore, overall the Hong Kong clients were non really welcoming towards Krispy Kreme.


In the domestic market the chief competition to krispy kreme were the so called cocktail buttockss which were sold by local shops. These were far cheaper and therefore, posed a large menace to KK which they failed to turn to ; particularly since doughnuts were non really popluar in HK and were sold as an add-on to traditional merchandises in bakeshops.

However, Krispy Kreme could hold looked at the ring rivals in the Asiatic part to see how they succeeded or failed.

Dunkin ‘ Dounts in Japan

Dunkin ‘ Dounts had been runing for 30 old ages in Japan until they failed in 1998. The ground for this can be explained as follows. The Nipponese consumer is ever looking for something “ new ” and is ever willing to seek new things hence, if a company wants to keep successful they need to be able to come up with new merchandises. Furthermore, it is really of import for competition to be comparatively low so that consumers can non exchange their provider easy.

In the 1990s the “ European European-style bakeshop and cafe roar that hit Japan ” ( Japan Marketing News ) which were able to offer a broader assortment of merchandises and non all merely rings and java hence, it was a topographic point where consumers could hold breakfast for illustration. Furthermore, the European-style bakeshop and cafes were able to offer a more sophisticated dining country which of class was really appealing to the consumer. Therefore, by the late 1990s the Nipponese consumers were faced with a big option of different bar type sweets and hence, merely one ring concatenation was able to last ; this turned out to be Mister Donut.

Mister Donut

Mister Donut, who really merged with Dunkin ‘ Donuts in the US in 1990, managed to last and boom in Japan. Their ability to make so can be lead back to its original Nipponese franchisee who had bought regional rights in 1983 i.e. claiming certain countries for themselves. Furthermore, they besides adapted to the consumers tast by presenting spirits like green tea, seaweed or mochi, for illustration. Ever since, they have been able to spread out to Thailand, the Philippines, Shanghai and Taiwan.



Reasons for failure

Krispy Kreme ‘s failure can be traced back to low gross revenues. Whilst the company held the planetary fiscal crisis responsible for it ‘s unsuccessfulness in Hong Kong, this thought can be denounced – because matter-of-factly Hong Kong was non as severely affected by the crisis as others. Therefore, one has to look at other, more plausible, grounds for Krispy Kreme ‘s death. Due to miss of market research, Krispy Kreme failed to to the full place its flavour offering to vie successfully with local bakeshops, which every bit mentioned above, sold sweet buttockss for less than half the monetary value of a ring. Furthermore, rings were to sweet for the chief Hong Kong bakery consumer as concerns about trans-fats were raised. In add-on, franchises were opened in excessively close a propinquity with really small advertisement around the merchandise so that there was barely a “ ballyhoo ” as there is around other Krispy Kreme shops. Finally, at the nucleus of its failure lay the fact that the doughnut civilization ne’er truly penetrated the Hong Kong eating civilization.

4.0 Decision

Analyzing the instance of Krispy Kreme runing in Hong Kong, we came up with the undermentioned consequences:

Failure of KK in HG was straight connected with a deficiency of market research, particularly in footings of specific gustatory sensations preferred by Asiatic clients, eg savory against Sweet ;

High lease costs in HK and high monetary values on the equipment provided by Krispy Kreme HQ based in the USA ;

Health and safety issues raised in the USA and so transferred to other states where KK franchises were runing, eg trans-fats dirt ;

American investors have mostly shunned the company the past two old ages because of direction convulsion, accounting abnormalities, securities probes, legion cases and slouching domestic gross revenues ;

KK was excessively profit-oriented concentrating on the short-run profitableness and aggressive growing programs such as opening 10 shops within HK where the population is merely approximately 8 million people ;

Besides the fact that all franchises were closed in HK except those in the airdrome, many have been opened in other Asiatic states ;

HOWEVER, one of the most salivating chances for any transnational concern is China ‘s 1.3 billion possible clients, and East-meets-West Hong Kong, already a hub for both Chinese and Western gourmet culinary art, may be an ideal testing land. Thus hopefully in the hereafter KK will non reiterate its errors and they will win in the Asiatic market!

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