Krispy Kreme Case Study
| Krispy Kreme Doughnuts Case | Seminar in Finance | | Gregory Steigerwalt | 4/17/2012 |
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Krispy Kreme Case – Discussant
Krispy Kreme’s rapid expansion may have been the reason for its rapid fall. Recently becoming a publicly traded company in April 2000, Krispy Kreme shares had seen amazing growth as they were selling for 62 times earnings. Naturally, this created a buzz around Wall Street, and an “obsession” with Krispy Kreme began as it became one of the hottest stocks on the market. Yet, analysis of the fundamentals of Krispy Kreme needed to by analyzed to see the true threats the company had brought upon itself.
Analysis of Krispy Kreme’s business model and strategy gives a good insight as to how the company had become so successful. Within their revenue generation, Krispy Kreme had four main sources: on-premise sales (27%), off-premise sales (40%), manufacturing and distribution of product mix and machinery (29%), and franchise royalties and fees (4%). Taking a quick snapshot of these percentages, we find that roughly 67% of their revenue comes from selling their finished product with the remainder coming from producers/owners.
The nature of these revenues may be part of the reason for the fall of Krispy Kreme. An analysis of their revenues shows:
At first glance, it may appear that Krispy Kreme’s different income sources may give it a diversified revenue stream. However, with only two thirds of their revenue coming from sales to the end customer, the remainder 33% needs to be analyzed to how it affects the margins of Krispy Kreme. Krispy Kreme requires all of its franchise stores to purchase the proprietary doughnut mixes and doughnut making equipment directly from their Manufacturing and Distribution division which also provided quarterly service to all system units. Yet, these were mostly one time purchases by startup franchises, and in turn, the sales level of the machinery was directly related to growth in the number
|
Krispy Kreme Case – Discussant
Krispy Kreme’s rapid expansion may have been the reason for its rapid fall. Recently becoming a publicly traded company in April 2000, Krispy Kreme shares had seen amazing growth as they were selling for 62 times earnings. Naturally, this created a buzz around Wall Street, and an “obsession” with Krispy Kreme began as it became one of the hottest stocks on the market. Yet, analysis of the fundamentals of Krispy Kreme needed to by analyzed to see the true threats the company had brought upon itself.
Analysis of Krispy Kreme’s business model and strategy gives a good insight as to how the company had become so successful. Within their revenue generation, Krispy Kreme had four main sources: on-premise sales (27%), off-premise sales (40%), manufacturing and distribution of product mix and machinery (29%), and franchise royalties and fees (4%). Taking a quick snapshot of these percentages, we find that roughly 67% of their revenue comes from selling their finished product with the remainder coming from producers/owners.
The nature of these revenues may be part of the reason for the fall of Krispy Kreme. An analysis of their revenues shows:
At first glance, it may appear that Krispy Kreme’s different income sources may give it a diversified revenue stream. However, with only two thirds of their revenue coming from sales to the end customer, the remainder 33% needs to be analyzed to how it affects the margins of Krispy Kreme. Krispy Kreme requires all of its franchise stores to purchase the proprietary doughnut mixes and doughnut making equipment directly from their Manufacturing and Distribution division which also provided quarterly service to all system units. Yet, these were mostly one time purchases by startup franchises, and in turn, the sales level of the machinery was directly related to growth in the number