Krispy Kreme

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Krispy Kreme

• Dave Divelbliss
• Chris Houser
• Jim Wilson
• Courtney Janczak
• Sal Bauccio

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Table of Contents

• History-Dave
• What is Economics?-Dave
• Factors of Production-Jim
• Supply-Jim
• Demand-Chris
• Substitutes-Chris
• Costs-Courtney
• Profit Maximization-Courtney

• Technology-Sal
• Summary-Sal

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History

• Founded on July 13, 1937 in Winston-Salem, North
  Carolina by Vernon Rudolph.
• Initially only sold to grocery stores, but his
  customers demanded a hot doughnut.
• Because of this, the Hot Original Glazed
  Doughnuts were developed and sold directly to
  customers.

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History

• 1940s-Chain of stores had opened across the
  South, owned and operated by Rudolphs family.
• 1950s-Perfected the art of a consistent doughnut
  mix and state-of-the art equipment for all the
  franchises.
• 1960s-Franchise design became consistent with
  their hallmark green tile roofs and their
  heritage road signs.
• 1973-Vernon Rudolph dies and companys growth
  begins to dwindle.

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History

• 1976-Re-organized and sold to Beatrice Foods
  Company because of decreased expansion.
• 1982-Early franchise associates re-purchased
  Krispy Kreme and decided on an increased priority
  for a hot doughnut.
• 1996-Expansion begins with a new franchise in New
  York City.
• 1997-Donation of company artifacts to Smithsonian
  Museum of American History because of its place
  as a 20th Century American Icon.

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History

• 1999-First franchise opens in California on the
  West Coast.
• 2000-First initial offering of common stock on
  NASDAQ.
• 2001-First international store opened in Toronto,
  Canada.
• 2002-Expansion continues in United States and
  around the world.
• 2003-Krispy Kreme franchise opens in Washington,
  PA.

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What is Economics?
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Economics is the study of how individuals and
societies deal with scarcity and the development
of methodologies for analyzing such problems.
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Economics deals with.

• Choices
• Scarce Resources
• Wants and Desires
• Individuals

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Factors of Production

• Land
• Labor
• Capital
• Entrepreneurial Activity

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Land

• Land is the physical space where production takes
  place and the natural resources found under or on
  it.
• There are 278 Krispy Kreme franchises located in
  shopping centers and metropolitan areas around
  the world.

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Labor

• Labor is the time human beings spend producing
  goods and services.
• Up to 50 doughnuts can be produced within 10
  minutes.

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Labor

• The average work day for a Krispy Kreme employee
  lasts 8 hours.
• The most important shift in a Krispy Kreme
  franchise is the opening shift, which lasts 6
  am-2 pm, because it is the busiest.

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Capital

• Capital is long lasting tools people use to
  produce goods and services, including physical
  capital and human capital.
• Physical capital includes buildings, equipment,
  and machinery.
• Human capital includes the skills and training
  that the workers possess.
• Krispy Kreme employs more than 3,200 workers and
  has 278 locations and supply warehouses.

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Capital

• Krispy Kremes headquarters is located in
  Winston-Salem, North Carolina.
• Krispy Kreme employees are specially trained in
  the art of customer satisfaction and the
  production of coffee and donuts.

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Supply

• Supply shows the different amounts of doughnuts
  that Krispy Kreme is willing and able to produce
  at different possible prices during a given
  period of time.
• There is a direct relationship between price and
  quantity supplied.

P
supply
Q
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Ceteris Paribus Factors for Supply
S2

• Input prices
• Number of Sellers
• Expectations of Sellers
• Prices of Alternative goods
• Technology

P
S
S1
Q
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Demand

• Law of Demand As the price of a good increases,
  the quantity demanded decreases
• There is an inverse relationship between price
  and quantity demanded

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Demand
Causes of a Rightward Shift
Causes of a Leftward Shift

• Increase in Income
• Increase in Wealth
• Increase in Price of Substitutes
• Increase in Population
• Increase in Expected Price
• Decrease in Price of Complements
• Shift of Tastes Toward the Good

• Decrease in Income
• Decrease in Wealth
• Decrease in Price of Substitutes
• Decrease in Population
• Decrease in Expected Price
• Increase in Price of Complements
• Shift of Tastes Away from the Good

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DemandEffects of Price
D1
P
As the price changes, the quantity demanded will
either increase or decrease.
D
D2
Q
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SubstitutesGoods that can be used in place of
other goods that fulfill the same purpose
Substitutes for Krispy Kreme, within the
industry, around the area include
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Substitutes
If the price of a substitute increases, then
the demand for the current good will increase
and vice versa. For example, if the price of
Dunkin Donuts increased the demand for Krispy
Kreme donuts would increase.
Price
D2
D1
Quantity
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Complements help a company to increase its profits
Krispy Kreme produces their own Coffee
Frozen blends Novelties
Coffee Blends
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Costs

• Two Types of Costs
• Fixed Costs-remain constant regardless of output,
  i.e. Office Rent, Factory Lease
• Variable Costs-vary according to the output, i.e.
  Labor, Employee Wages

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Costs

• Why would Krispy Kreme be interested in incurring
  all these costs?
• TO MAKE A PROFIT

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Opportunity Costs

• The opportunity cost of something is the next
  best alternative that is given up when taking
  action or making a choice.

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Opportunity Costs

• Krispy Kreme could focus more capital in the
  production of specialty donuts rather than glazed
  donuts.
• Krispy Kreme could produce more donuts at lower
  quality if the focus was on quantity, rather than
  quality.
• Krispy Kreme could open new locations, but the
  costs of production would increase dramatically.

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Opportunity Costs

• Cost of preparing donuts at home 10 in
  supplies and 2 hours time.
• Cost of traveling to Dunkin Donuts and
  purchasing 1 dozen donuts 6.99.
• Cost of buying 1 dozen Krispy Kreme Hot Glazed
  Donuts 5.99.
• As is clearly illustrated, buying the donuts from
  Krispy Kreme will save time and moneyit is truly
  the better deal.

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Opportunity CostsProduction Possibilities
Frontier (PPF)
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Profit Maximization

• When Marginal RevenueMarginal Costs

Krispy Kreme had 394.35 million in net sales in
2002
However, their costs were 316.95 million in 2002
P
ATC
AVC
Goal Cover variable costs and make a
contribution to fixed costs.
MC
Q
www.krispykreme.com
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Technology

• A set of methods that a firm can use to turn
  inputs into outputs.
• A firms production technology tells us not only
  what the firm can do, but it also tells us what
  it cannot do.
• Cost-saving technological advances increase the
  supply of a good, shifting the supply curve to
  the right.

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Technology

• In 1937, when Krispy Kreme initially opened its
  doors, business was slow.
• It took hours to produce a single batch of
  doughnuts.
• But now with the Hot Doughnut Machine
  Technology, up to 50 doughnuts can be made
  within minutes.
• This increase in productivity has allowed for
  Krispy Kreme to become the most profitable
  doughnut chain in the United States.

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Technology

• Technology has allowed Krispy Kreme to produce 5
  million donuts per day and 2 billion donuts per
  year.
• It has also allowed for the specialization of
  Krispy Kremes Hot Coffee, as well as other
  complements to its full line of glazed and
  specialty donuts.
• Krispy Kreme is now able to sell their donuts at
  their franchises, convenience stores, and grocery
  stores across the United States.

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Summary

• Krispy Kreme is now a worldwide phenomenon with
  stores in six continents.
• Their name and logo are known and recognized
  everywhere.
• They have also been steadily increasing profit
  since going public in April of 2000.
• Net sales in the U.S. have gone from 220 million
  in 2000 to 395 million in 2002.
• One can only expect bigger and better things from
  Krispy Kreme in the future.

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ANY QUESTIONS??
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MMMmm DOUGHNUTS!