The Marketing Strategy

wdftvbweoften newspapers and other media provided free publicity for the events.

This strategy seems to still work well for new store openings, but would not

be sufficient to generate continuing business. As a result, Krispy Kreme

acquired a company in 2003 that by the end of fiscal year 2004, had lost $2

million dollars. While Krispy Kreme later divested itself of the Montana

Mills operation, this entailed a write-off of $34 million initially; with further

write-offs of $2-$4 million in subsequent quarters. This bad investment, in

addition to slumping sales resulting from the trend toward low carbohydrate DOUGHNUTS, INC.: A CASE ANALYSIS8

However, they failed to invest in product development beyond the "let's try

that" stage. By all appearances, strategies do not appear to be capable of

maintaining a competitive advantage for very long, as their products were

easy to replicate sufficiently for most customers. As a matter of fact, many

of their competitors considered it an advantage when Krispy Kreme came to

town, as it brought attention to donuts, which resulted in increasing their

own sales! In July of 2004, the company announced that the SEC was

"launching an inquiry into the company's accounting practices. Later that

year, in December of 2004, they announced still more "accounting errors"

that could reduce the net income for FY 2004 anywhere from 2.7% to 8.6%.

By then, their stock had fallen from $40 a share in March of 2004 down to

$10-13 in December.

D. The Marketing Strategy

It is difficult to determine where the marketing department resides within

the organization, as very little evidence of market research exists. Krispy

Kreme's marketing plan seems simple on the surface; they don't appear to

have put much effort into marketing their product. The company spent very

little on advertising, depending largely on word of mouth, and local

publicity. Store openings were popular events in the communities, so often

newspapers