Harvard Business Case Krispy Kreme Doughnuts (ePub)

Krispy Kreme Doughnut is an American corporation, which started business in
1937 as a small regional company. It developed quite well in the first years but
started it's big push end of the 90ies. Currently the concept is based on
company stores, which produce doughnuts and sell them to supermarkets and
bakeries but also within the production facilities. To realise the growth of the
past Krispy Kreme offered the business concept as a franchise to interested
entrepreneurs within the whole US. The franchise concept has recently
changed to an area developer concept under which entrepreneurs have the
right to open a defined number stores in a designated area. Krispy Kreme is on
one hand equity stakeholder in the franchises to participate in the positive
results and on the other hand they request royalties from the area developer
and franchisees for every store based on the sales figures. For additional
growth the franchise concept will be replaced by the area developer concept in
the future. The third profit area is the sales of equipment to the area developer
stores, which guarantees a constant quality of the products.
Krispy Kreme Doughnuts went public in April 2000 and had a follow-on public
offering in February 2001. Compared with the development of the S&P 500 the
stock of Krispy Kreme performed much better and won 375% whereas the S&P
500 lost about 20% in the same time period.
The company has ambitious growth plans for the years 2003 and 2004. Based
on these plans of the company, on the business concept, on the opportunities
and on the competitive situation two analysts from CIBC World Markets have
forecasted the business performance and financial situation of Krispy Kreme
Doughnuts in 2003 and 2004. They have developed an Income Statement for
these years; the purpose of this paper now is to analyse this forecast statement
and give the management of Krispy Kreme Doughnuts an advise regarding their
desired financial strategy and on the consequences this strategy might have for
the overall strategy of the company.