Krispy Kreme Doughnuts

1002 Words5 Pages
Statement Problem When the “Hot Doughnut Now” sign is on, this notifies customers that fresh hot original glazed donut are available. It’s practically irresistible and has a cult like following. In the early part of this decade, the stock was very irresistible, too. The company went public in April 2000 during the growth years of Wall Street. Investors were flocking to buy into a business they thought was the next Starbuck’s. Krispy Kreme Doughnuts is an old-fashioned franchise based in Winston-Salem, North Carolina. The company boosted solid fundamentals, rapidly adding stores and showing a steady increase in sales and earnings. What went wrong? How could a company in business for 70 years, with a famous product, loyal fan base fall from grace so quickly? The story of Kripsy Kreme Doughnuts still troubles most investors to this day. Were the revelations about the company’s franchise accounting practices sufficient to drive that much value out of stock? Are there deeper issues at Krispy Kreme that deserve scrutiny? Analysis of the Problem 1. Aggressive Growth: Once Krispy Kreme went public, there was enormous pressure for public companies to grow and sustain growth quarter after quarter. KKD was growing 20% year and went from 144 stores to 427 stores in 45 states and four foreign countries, from 2000-2004. Krispy Kreme focused on growing revenues and profits at the parent level, while it outlets struggled. This was evident in their business model/ revenue breakdown. The sales breakdown is as follows: 27% on-premise sales factory stores, 40% from off-premise sales which is categorized as sales to grocery and convenience stores, 29% of sales are from manufacturing and distribution of product mix and machinery and 4% are from franchise royalties and fees. As a result of their aggressive growth, adding new stores year after year, while some stores

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