Kripy Krme Study Essay

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Krispy Kreme’s Business Model Krispy Kreme Corporation has four principal sources of revenue. First is their on-premise sales in their doughnuts shops, which are unique in the way that they allow customers to view the factory process of doughnut making from start to finish as well as being able to purchase donuts and coffee. Secondly are the off-premise sales where they distribute products to a variety of convenient and grocery stores. Thirdly, there is the manufacturing and distribution division that provides doughnut ingredients and equipment to franchisee owned stores. This model of vertical integration helps Krispy Kreme to control quality of product at all franchises. Lastly, Krispy Kreme receives revenue in the form of startup fees and dues from franchise branches. These dues provide the branches with help for their advertising, marketing operation and accounting. Krispy Kreme’s plan was to open numerous stores quickly to collect franchisee start-up, equipment, and product mix fees. Key Issues Utilizing the income statements and balance sheets provided, we were able to find issues that adversely affect the health of the business. These financial statements were used to locate problem areas regarding margins, increasing expenses, and decreasing sales in 2004. There are two main issues with Krispy Kreme’s business model as discovered from analyzing their financial statements and case data. The first issue is the unsustainable growth coupled with the relationship between the franchisees and the corporation. The second issue was the accounting practices of Krispy Kreme that caused an informal investigation by the SEC. Unsustainable Growth Growth is the focus of most companies and can be measured and defined differently by each. For many, growth is measured though profit and revenue while others may measure growth by market capitalization or market

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