Krispy Kreme Case Analysis

Krispy Kreme Case Analysis

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TO:
FROM:
DATE: November 12, 2006
SUBJECT: "Krispy Kreme Doughnuts Going Global?"

This memo contains the answers to Questions 1 through 4 from the International Marketing assignment titled, "Krispy Kreme Doughnuts Going Global?" The questions are offset in the shaded area and the answers are provided below each question.
(1) Where should Krispy Kreme go next? List the next ten countries they should enter in order of most viable. Describe the criteria you used to develop your list.

I identified, evaluated and ranked the countries in which I think Krispy Kreme should enter next. The results of the analysis are summarized below. The criteria, presented in order of their importance and followed by a narrative description are:

1. Political / Legal
2. Economic
3. Cultural

Political / Legal
Political and legal considerations were given first priority in this analysis with primary emphasis given to whether a country's legal or political system prohibits or impedes foreign investment. If a country's political or legal system discouraged or prevented foreign investment, that country was disqualified from further consideration. Factors considered when assessing the political and legal environment:

1. Ease of doing business
2. Transparency International's Corruption Ranking
3. Relative political stability
4. Enforcement of ownership rights
5. Degree to which foreign investment is encouraged

Economic Environment
A country's economic environment plays a significant role in the success of businesses operating within that country. Countries with struggling or shrinking economies were not included in the top ten ranking. Economic indicators and trends selected for this analysis:

1. Gross Domestic Product (GDP)
2. Gross National Income (GNI)
3. Market size (population and population density)

Cultural Environment
Assuming a country had a favorable political, legal and economic environment; its cultural environment was evaluated. Culture impacts demand and the marketing mix; therefore, if a country's culture was deemed unfavorable, it was not included in the top ten ranking. Similarly, if a country's culture seemed especially favorable, that aspect is denoted later in the analysis. Cultural factors considered in this analysis:

1. Hofstede's Cultural Typology
2. Structural eating habits and trends
3. Acceptance of prepared and take-out food
4. Dietary considerations (to assess product adaptation requirements)
5. Perceptions of doughnuts as a breakfast food or a snack food
6. Preference for freshly prepared foods
7. Language and how "Krispy Kreme" translates

The aforementioned criteria were used to determine the ten most viable countries/regions for Krispy Kreme's international expansion. The list of countries/regions, presented in descending order, with especially attractive characteristics denoted adjacent to the apposite country, is presented in Table 1 on the following page.


Table 1

Rank Country Attractive Cultural Characteristics
1 Hong Kong Densely populated, open to Western ideas with positive U.

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S. country of origin effects, prefers freshly prepared foods, e.g. sushi, doughnuts are snacks (assumes product adaptation) implying all day consumption, brand and product recognition, speaks Chinese and English (business people); Collectivist culture promotes sharing (office heroes)
2 Japan Densely populated, prefers freshly prepared foods, e.g. sushi, doughnuts are snacks (assumes product adaptation) implying all day consumption, brand and product recognition, speaks Japanese and English (6 years of written English is part of formal education system); Collectivist culture promotes sharing (office heroes)
3 Singapore Densely populated, open to Western ideas with positive U.S. country of origin effects, prefers freshly prepared foods, doughnuts are snacks (assumes product adaptation) implying all day consumption, brand and product recognition, speaks Chinese and English (business people); Collectivist culture promotes sharing (office heroes)
4 South Korea Densely populated, open to Western ideas with positive U.S. country of origin effects, prefers freshly prepared foods, e.g. sushi, doughnuts are snacks (assumes product adaptation) implying all day consumption, brand and product recognition, speaks Korean and English (business people); Collectivist culture promotes sharing (office heroes)
5 Taiwan Highly and densely populated; very young population; speaks Chinese and English; open to Western ideas with positive U.S. country of origin effects, prefers freshly prepared foods, e.g. sushi, doughnuts are snacks (assumes product adaptation) implying all day consumption, brand and product recognition; Collectivist culture promotes sharing (office heroes)
6 Mainland China (Beijing) Highly and densely populated, open to Western ideas with positive U.S. country of origin effects, prefers freshly prepared foods, e.g. sushi, doughnuts are snacks (assumes product adaptation) implying all day consumption, brand and product recognition, speaks Chinese and English (business people); Collectivist culture promotes sharing (office heroes)
7 Thailand Relatively densely populated, open to Western ideas with positive U.S. country of origin effects, doughnuts are snacks (assumes product adaptation) implying all day consumption, brand and product recognition, speaks Chinese and English (business people);
8 Australia Psychic proximity; English language; huge country but population concentrated in urban centers; brand and product recognition
9 Mexico Physical and psychic proximity; familiar with English language; large population, 20 million in Mexico City, highly concentrated population in major cities, product will not require adaptation due to preference for sweet taste; brand and product recognition
10 United Kingdom Psychic proximity; English language; relative physical proximity; population concentrated in urban centers; brand and product recognition; would have to adapt to preference for savory versus sweet taste, offer smaller quantities in order for consumers to carry them comfortably in the Tube; drive-up or drive-throughs will not work; offer tea instead of coffee as complement

As denoted in Table 1, I recommend the waterfall approach, first developing a stronghold in Asia, beginning with more developed countries and migrating to less developed countries on the continent. Because of its size and diversity, China cannot be treated as a homogeneous country from a marketing standpoint. I chose to consider regions of China separately instead of looking at the country altogether. A short marketing plan for Hong Kong is outlined in the response to Question 4.

(2) How might Japan be different from the United States when it comes to doughnut demand? How might London Differ from Southern California?

Demand is determined by market size, income, prices and availability of related goods (complements and substitutes) and tastes and preferences. Each determinant is affected by the political, legal, economic and cultural environment in which it exists.
Salient aspects of the environment and its impact on doughnut demand in Japan and the United States are contrasted in Table 2.

Table 2

Determinant Environmental Factor's Impact on Doughnut Demand in Japan
Market Size U.S. population is 2.5 times greater, but only 1/10 as dense. High density population relative to U.S. will increase foot traffic (required for profitability) and demand relative to U.S.

Japan's take-out and prepared food markets projected to grow due to changing demographics, including ageing population, more women working outside the home and increasing number of single person households.
Income Consumer income (measured by Gross National Income) is slightly less in Japan ($38,980) than in the U.S. ($43,470), but slight difference should not have meaningful effect on demand. Both economies are considered to be high income and since doughnuts are normal goods, then demand in Japan will be comparable to demand in the U.S.
Related Goods Both the U.S. and Japan have related goods (complements and substitutes), although there is less direct competition in Japan compared to the U.S. Japan's preference for freshly prepared foods, e.g. sushi, will increase demand for doughnuts relative to the U.S.
Tastes and Preferences In Japan, doughnuts are considered a snack instead of a breakfast food, thereby increasing demand relative to the U.S.

Doughnuts adapted to local tastes (not as sweet) and different varieties (based on availability of local products) will increase demand.

Japan's collectivist culture, which promotes sharing within the group, increases demand.

Demographic changes, such as the increase in single person households, ageing population, women working outside the home increases demand.

Japan's greater acceptance of "foreign" food producers increases demand.
Salient aspects of the environment and its impact on doughnut demand in Southern California and London are contrasted in Table 3.

Table 3

Determinant Environmental Factor's Impact on Doughnut Demand in London
Market Size Southern California's population of approximately 24 million is three times the size of London's population of 7.5 million. However, London's population density is more than double Southern California's population density. Highly concentrated populations imply more foot traffic which would increase doughnut demand in London relative to Southern California. Space is at a premium in London compared to Southern California.
Income Both London and Southern California have relatively high Gross National Income per capita. Since doughnuts are normal goods, then demand in London will be comparable to demand in Southern California.
Related Goods Both London and Southern California have related goods (complements and substitutes), although there is significantly less direct competition in London compared to the U.S. Estimates indicate that there are over 1,300 competitors in Southern California compared to less than 200 in London.
Tastes and Preferences Southern California and London are similar in terms of being focused on healthy eating, which reduces demand for doughnuts. Healthy eating in the U.K. should drive the offering of "savory" versus "sweet" tasting doughnuts.

Doughnuts are considered a snack in London instead of a breakfast food (as in Southern California), which would increase demand relative to Southern California.

Demographic changes, including an increase in single-person households and more women working outside the home will increase demand. However, since Southern California has already seen these demographic changes materialize; demographic changes in London will not have a significant impact on doughnut demand relevant to California.

(3) Critique Krispy Kreme's current growth plans. What changes would you make?

Krispy Kreme's growth plans, as stated in the case are appropriate to the extent that they plan to grow internationally. In addition to their accounting problems which prevent domestic licensing and franchising, the U.S.'s focus on healthy eating will effectively prevent further domestic expansion.

Krispy Kreme should focus their international expansion in Asia, which offers:

1. Extended demand beyond breakfast (assuming that Krispy Kreme is willing to adapt their product;
2. Expanding markets
3. Increased willingness to accept "foreign" products;
4. Highly concentrated populations;
5. Preference for freshly prepared foods; and
6. Product, if not brand, recognition
7. Increasing wealth

Due to Krispy Kreme's current cash constraints, they should focus on franchising and licensing internationally instead of domestically, using the waterfall approach, so that they do not have to invest any of their own cash.

(4) Using the #1 country on your list, come up with a short marketing plan for Krispy Kreme looking at:
a. Target Market: Characteristics of the group you are targeting in the country that makes them attractive.
b. Product: What product modifications would you make for the country and the target market?
c. Price: What pricing structure would you use? Any type of promotional discounts or other programs?
d. Place: Where and how would you distribute the product for the country and target market.
e. Promotion: How would you promote Krispy Kreme?
f. For all of the above, make sure you highlight changes made due to cultural differences.

A brief marketing plan for Krispy Kreme's entry into Hong Kong is summarized in Table 4 on the following page.


Table 4

Marketing Plan
Component Description Hong Kong's Cultural Influence
Target Market Business people and others who are affluent and familiar with or interested in American products

Younger population who is more apt to try new, trendy western products Collectivist culture supports sharing food, e.g. office heroes;

Multilingual – English is common second language;
Component Plan Hong Kong's Cultural Influence
Product Decrease sweetness

Adapt products to local tastes and manufacture with local products to the extent possible

Add tea to menu

Market less than one dozen or change packaging so that it can be carried more easily Chinese people prefer savory taste to sweet taste.

Chinese people drink more tea than coffee, a common complement to doughnuts in the U.S.

Most Chinese people, especially those in densely populated cities, use public transportation
Price Adapt market-based price; Position so that it is premium priced relative to other products

Buy one dozen; get one dozen free as promotional pricing Increasing wealth and affluence will allow a premium, market-based price

Leverages collectivist culture; encourages sharing; promotes product
Place Establish shops with seating in densely populated areas, especially near train stations

Locate shops in large cities High context culture will enjoy the experience in a Krispy Kreme shop;

Most Asians do not entertain business acquaintances at home and frequently meet others in restaurants

Exclusivity will support premium pricing and trendiness of western culture
Promotion Emphasize the "experience" of watching freshly prepared doughnuts come off the conveyor by organizing trips and tours to the new shops; host open houses; give-aways in front of shops;

Host tea ceremonies

Distribute free doughnuts to offices and factories; buy one dozen; get one dozen free to promote brand Leverage preference for freshly prepared foods; exclusive shops to support perception of quality and premijm pricing

Tea culture

Collectivist culture

WORKS CITED

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Doing Business, Explore Economies (2006). Retrieved November 5, 2006 from
http://www.doingbusiness.org/ExploreEconomies/?economyid=98

Doughnut, Wikipedia. Retrieved November 4, 2006 from http://www.wikipedia.org/

Doughnut Invasion: Krispy Kreme Takes on the Asian Market. Retrieved November 5, 2006 from http://www.asiasentinel.com/index.php?option=com_content&task=view&id=93&Itemid=32

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Japan's Take-out Food Industry – Possibilities for Foreign Countries to Enter an Expanding Market. Invest Japan No. 6. Retrieved November 5, 2006 from http://www.jetro.go.jp/en/invest/newsroom/newsletter/pdf/ij_06.pdf

Krispy Kreme, Company Overview (2006). Retrieved November 4, 2006 from http://www.krispykreme.com.

Krispy Kreme Seeks Asia Sweet Spot. August 8, 2006. CNN.com. Retrieved November 4, 2006 from http://www.CNN.com - Krispy Kreme seeks Asia sweet spot - Aug 8, 2006.htm
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One U.S. Chain's Unlikely Goal: Pitching Chinese Food in China. The Wall Street Journal Online. Retrieved October 20, 2006 from http://online.wsj.com/article_print/SB116127912953397916.html

Population Density by Country. Statistical Handbook of Japan. Statistics Bureau and Statistical Research and Training Institute. Retrieved November 5, 2006 from http://www.stat.go.jp/English/data/handbook/c02cont.htm

Statistical Handbook of Japan. Retrieved November 4, 2006 from http://www.stat.go.jp/English/data/handbook/c02cont.htm
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World Travel Guide. 2006. Retrieved November 5, 2006 from http://www.worldtravelguide.net/index.ehtml
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