Starbucks and Krispy Kreme Term Paper

Pages: 8 (2422 words)  ·  Style: APA  ·  Bibliography Sources: 4  ·  File: .docx  ·  Topic: Business

Starbucks and Krispy Kreme

The companies Starbucks and Krispy Kreme are currently household names in the United States of America. They are well-known for the excellence of their products and customer service. The success of these retailers rests on more than merely human relations and quality. Many of the decisions and ideals behind these decisions have driven the experiences that returning customers are currently enjoying at these companies. Below is a consideration of specific issues faced by Starbucks and Krispy Kreme, strategies to deal with these issues, and the outcome of these strategies towards the great success enjoyed by these companies today.

Starbucks and Krispy Kreme experienced many of the same issues during the years of their growth. Both companies for example experienced a change of leadership well into their lifetimes. For Krispy Kreme it was during the 1990's, and for Starbucks this occurred during the 1980's. The difference is however that Krispy Kreme's new leader, Scott Livengood, arose from the company's employee pool itself. The driver for appointing this leader was falling profits during the beginning of 1991. The need for new leadership and initiative was felt keenly, and the response was Livengood. Livengood was therefore a trusted persons, well-known within the company.

Starbucks' new CEO, Howard Schultz, however, entered the company driven by his own interest. Being affiliated with a kitchen appliance company, Schultz became interested in Starbucks when their purchase of a certain type of coffee drip machine increased. Hence he was a newcomer, and faced more challenges than Livengood in Krispy Kreme.Download full Download Microsoft Word File
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TOPIC: Term Paper on Starbucks and Krispy Kreme Assignment

Similarly to Krispy Kreme, there were company drivers that necessitated taking a new partner into Starbucks. The company's management team had begun to unravel, with one leaving and the other two pursuing specific interests that provided little time for the necessary management duties. Nevertheless, it proved problematic for Schultz to enter a company that had for years been managed by the existing team. The two remaining managers for example tended to adhere to their traditional method of conducting business, with little room for new ideas. Schultz found this particularly frustrating upon his return from Italy, which filled him with ideas for creating a new atmosphere and paradigm for Starbucks via the coffee bar idea. This encountered extreme resistance from the other two managers, and Schultz's hands were tied for the time being.

Another issue is the one of risk. Under Schultz's leadership, Starbucks appears to be more prone to risk-taking the Krispy Kreme. Risk of course involves a certain element of danger. This appears to be a paradigm that helped Starbucks thrive, while Krispy Kreme adhered to small modifications within their tried and trusted strategies. In dealing with their particular challenges in the business world, Starbucks therefore appears to be the more adventurous of the two companies. The basis of this paradigm once again returns to the issue of new leadership, which forms the core of the different strategies formulated by the companies.

2. Strategies

In handling the various challenges they faced, Starbucks and Krispy Kreme developed various strategies in order to repair or indeed enhance their profitability. For Krispy Kreme, this was done by improving and modifying existing strategies. Franchising for example was improved by exercising greater control over the choice of franchisees. Furthermore, franchises were required to follow a specific set of format and recipe rules to ensure consistency in quality and customer service.

Other strategies that Krispy Kreme used under its new management was focused on the customer experience of the company's products. Doughnut sizes were for example increased, and emphasis placed on the culinary experience of the "hot" doughnut to be enjoyed when entering a Krispy Kreme store. The strategy was therefore changed to focus on the individual rather than the wholesale paradigm. A unique edge that Krispy Kreme has on the market is the company's display of its manufacturing process. Customers are allowed to look at the entire process of baking doughnuts through a large display window within the store. Customers can then choose doughnuts as they arrive, hot from the oven.

As mentioned above, the transition of leadership for Starbucks was not as smooth. Schultz's business trip to Italy helped him obtain a unique edge in the coffee selling market, similar to the one that Krispy Kreme has on the doughnut market. He therefore returned filled with enthusiasm for a change of the Starbucks format to a coffee bar atmosphere. In addition to citing reasons of retaining the company's integrity as a coffee retailer, the reason for the other managers' resistance was their planned acquisition of Peet's Coffee & Tea, which meant that they would not have the funds to indulge Schultz's new idea. After a year of negotiation, however, Schultz managed to convince his partners to let him try the coffee bar idea. The huge success of this idea resulted in a precedent for future successful risks. While the coffee bar idea did not meet with similar quick success everywhere, it was not unsuccessful in any location either. Given time and the necessary modifications, this is the edge that drove the company to much higher sales figures and expansion than could be projected before. As such, Schultz was the asset to Starbucks that Livengood was to Krispy Kreme.

Once the issue of management conflict has been resolved, Starbucks was well on their way to become a growing company, rather than merely a small, domestic effort. The company is also involved with several other risks planned in a way that adheres to the company's basic business philosophy.

Considerable losses were for example incurred by Starbucks' refusal to franchise. Both Schultz and his partners insisted on retaining all new stores in company ownership. This ensures full company control of policies and business methods within these stores, regardless of their location. While franchises would have minimized investments and cut costs, Starbucks' adherence to long-term quality, care and viability carried greater weight than short-term profit.

This is in direct opposition to Krispy Kreme's franchising strategy. For the doughnut company, this is one of the very elements that needed modification, as seen above, in order to ensure a return of formerly known profits. Typically franchises mean a loss of control, especially in terms of product quality. Apparently this is what happened with Krispy Kreme's franchising endeavors until they implemented stricter control of franchisee choice.

Not franchising also means the increased time involved in researching the best of local partners for international expansion. Like Krispy Kreme, Starbucks realizes the importance of involving only partners with the same business philosophies inherent in the original company.

As such, a strong background in retail or the restaurant business is required, along with good customers service, talented management, financial strength and brand-building skills.

International expansion also involves considerable risk, especially for a company that began its operations locally, and whose philosophy for the better part of its operations focused on the local customer. Still, as seen above, this was not seen as a reason to implement any franchising strategies. Instead, Starbucks focused on licensing and joint-venture partnerships, with the ultimate control remaining in the hands of Starbucks. In this, it is important to maintain relations that can place the company at the center of requirements for local regulations and other issues related to specific countries.

Another area of monetary loss incurred by the Starbucks company is in the area of employee relations. Employees are treated extremely well not only in terms of human relations, but also in terms of monetary compensation. Indeed, Starbucks pay part-time employees well above minimum wage, with full-time benefits and stock options. The result of this is not only considerable monetary loss, but also an improved worker disposition. Schultz's aim is once again an improved quality of customer service. It is interesting to note the level of risk attached to this strategy: it was implemented while Starbucks particularly needed funds for the operation of new stores. It is interesting to note that, in contrast to Krispy Kreme, Starbucks, and particularly Schultz, went to an extreme of unconventionality in implementing risky strategies for the company.

Furthermore, employees are screened very carefully for the passion and enthusiasm for coffee, and their ability to work accordingly. Recruiting and training the correct employee for example has wide scale effects upon customer relations. Excellent customer relations result in returning customers. Indeed, regular customers to Starbucks stores have experienced the friendly disposition of staff who become familiar with their names and their favorite beverages. To reach this level of excellence, employees are trained thoroughly in coffee history, coffee preparation, customer relations, and other skills. New employees receive at least 24 hours of training in the first two to four weeks of their employment.

Krispy Kreme also has a significant training strategy. Unlike Starbucks, however, this strategy is focused mostly upon managers. The training is however adjusted to meet the needs of new employees and other trainees. This strategy includes the use of multimedia in order to facilitate the adjustment of training material for specific needs. In terms of focus… [END OF PREVIEW] . . . READ MORE

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