In August 1974, Rosemary and Jim penned the first Donuts Stop in Amarillo, Texas with an Initial Investment of $2,500 and no formal business plan. Shortly after that, a second shop opened and donuts were made in one location and transported to the other. In 1979, they bought a donuts mix recipe and began doing their own blending. They bought local ingredients from I OFF Chapters S corporation, and later formed two companies, the Donuts Stop and a separate property business. The company grew to as many as eleven stores in the Amarillo area, averaging approximately ninety employees at all locations combined.

Owning and operating a business has provided Rosemary and Jim an excellent applied business education. They learned many important things over the course of thirty years in the donuts business. Since the beginning, they were very customer- oriented and hired people with a similar philosophy. Their aim is to think like a customer. For instance, since most customers prefer hot fresh donuts when they come to the shop, the Donuts Stop cooks donuts fresh as needed. This means they can use fewer preservatives. Their process of hand-cutting donuts allows them to make twists, fritters, and other unique specialty items.

As an active participant in day-to- day operations, Rosemary has always known all the employees and many of the customers by name. She goes to the various locations and pitches in and does whatever is needed from 85 Journal of Business Case Studies – July/August 2009 mopping the floors to making a bank run for change. Several Donuts Stop employees have been with the company since the beginning. Customers and employees are fiercely loyal. In addition, the Donuts Stop is very kid-friendly, since children are important customers in the donuts business. Business is better on days when children are out of school.

Donuts are all about location. Rosemary and Jim learned from experience that to be successful, a store must be on the going-to-work side of the road. Furthermore, donuts are inexpensive and as such are not dependent on sales to higher-level socioeconomic groups located in upscale neighborhoods. COMPETITION CONCERN FOR THE DONUTS STOP In 2001, the Donuts Stop owners heard rumors that Crispy Creme was considering Amarillo. Rosemary was concerned even though they had survived competition from Dunking’ Donuts in the early years. That seemed like friendly competition whereas Crispy Creme seemed more threatening.

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Crispy Creme had become a pop culture phenomenon. It had a reputation of coming into a new town amid a huge amount of hype. In fact, the buzz started long before Crispy Creme ever came to Amarillo. Crispy Creme publicized its involvement with charitable groups in the form of sales to church groups for fundraisers. A favorite fundraiser for many youth groups in Amarillo was to send a parent on an extended evening trip to Dallas (approximately a 12 hour round trip) to pick up numerous boxes of the famous donuts and bring them back in time to sell at makeshift stands in parking lots as church let out on Sunday morning.

There was already that mystique and desire for meeting hard to get. In addition, Crispy Creme is known for its donuts theaters or glassed area for watching the automated donuts-making process. When it became official that Crispy Creme was opening a franchise in Amarillo, Jim went all over the was extremely concerned, Jim was confident the Donuts Stop would survive. He learned that Crispy Creme Doughnuts are formed from dough extruded by air pressure to form a perfect donuts shape.

That means that there are no donuts holes at Crispy Creme. The Donuts Stop hand-cuts their donuts, which means they do have donuts holes, a favorite among the younger set. Handouts are required for special items such as twists, cinnamon rolls, fritters and clusters. In addition, the Crispy Creme stores are franchises, which must use only Crispy Creme ingredients, recipes, and equipment. They are limited in their ability to introduce cherry frosting, red and green holiday donuts, or other specialty items.

Before the Crispy Creme announcement of entering the Amarillo market, the Donuts Stop already owned property at Interstate-40 and Bell where they planned to open a megastars with automatic donuts making machine, a donuts theater, a kitchen for hand-cut donuts, and a specialty coffee shop. Their architect son designed a unique cheating art deco building with huge windows and big circular booths inside. They hoped to have it open before Crispy Creme arrived. In addition, they had plans in the works to remodel several other existing stores.

As they approached their thirtieth year in business, Rosemary and Jim face a serious threat to the Donuts Stop. Rosemary has a legitimate reason to be concerned since the nationally known Crispy Creme was opening at a time when there was already pressure on donuts sales due to increasing interest in low carbohydrate diets and healthy low fat and low sugar diets. The owners of the Donuts Stop must consider how to maintain their market share in a changing competitive environment. CRISPY CREME BACKGROUND The history of Crispy Creme Doughnuts is the story of one man: Vernon Rudolph.

After graduating from high school, Vernon started working for his uncle, Shame Armstrong, who had bought a donuts shop in Paddock, Kentucky, along with a secret recipe for yeast-raised donuts. In 1933 Rudolph started selling the yeast donuts door to door for the Crispy Creme Donuts Shop. Not only did Rudolph sell donuts, he took part in making them, which gave him an all around experience in the donuts equines. Vernon Rudolph, however, wanted to open his own Crispy Creme store. So, in the summer of 1937, he left Nashville with two friends. They had stopped in Peoria, Illinois, but found rents too high in that part of the country.

The story goes that he took a pack of Camel cigarettes from his pocket and noticed that they were manufactured in 86 Winston-Salem, North Carolina. He thought that this might be the best place for his donuts shop since the town had a nationally advertised tobacco product. With only $25 left, they rented space in a building on South Main Street in Winston-Salem, North Carolina. They were able to get the ingredients and some equipment on credit Crispy Creme started out primarily as a wholesale business. Using trucks to deliver the donuts, Rudolph was able to sell the product throughout the area.

However, the aroma of fresh donuts being made each day caught the attention of passersby, and this led to the beginning of Crispy Seeker’s retail operation. Rudolph wanted to expand his operation, so he opened other stores in the area. However, instead of Rudolph owning all of them outright, he entered into partnerships or into associate (franchise) relationships. These partnership/franchise arrangements gave the operators the use of the Crispy Creme name, the recipe for the donuts, and the ingredients. Rudolph required them to adhere to a philosophy of producing only the highest-quality donuts.

In 1946, Rudolph consolidated all the Crispy Creme resources together under the corporate ownership of Crispy Creme Donuts Company in order to allow the firm to grow and give the shops a sense of uniformity. Then, in 1947 he formed the Crispy Creme Corporation. The donuts company was responsible for the individual store operations while the Crispy Creme Corporation produced the dry mixes used by the shops. Vernon Rudolph served as President and Chairman of the Board. Crispy Creme Corporation has always been very innovative for the donuts industry. They formed three departments, a Mix Department, a Laboratory, and an Equipment Department.

The primary mission of the Mix Department was to mix, in bulk, the key ingredients needed by all the shops to make the donuts products, which included yeast and cake donuts, and new products, such as fried pies and honey buns. By providing uniform mixes, Crispy Creme was able to ensure that all stores produced the same quality of products. The Laboratory was created in 1949. It tested the ingredients and experimented with others to see if they could produce a better product following on Vernon Rudolph belief in having top quality and uniformity.

The Equipment department was formed because the main supplier of yeast donuts machines at the time, the Donuts Corporation of America, decided to produce their own donuts. So starting in 1949 Crispy Creme began to manufacture its own equipment. By the asses, Crispy Creme was well-known throughout the Southeastern United States and began to expand into other areas of the country. Then on August 16, 1973 Vernon Rudolph who had led the company from its beginnings died. This led to some very difficult years for Crispy Creme. In 1976 they merged with Beatrice Foods Company of Chicago.

Beatrice Foods encouraged the firm to make additions to its menu and substitutions of ingredients in order make additional profit for the firm. However, by 1981 Crispy Creme was not as profitable as expected and the company decided to sell the subsidiary. A group of Crispy Creme associates headed by Joseph McAllen, who had worked for the company thirty years and owned shops in Alabama and Mississippi, formed an investment group and bought the company. McAllen steered the company sack to its traditional emphasis on top quality donuts as well as on a family atmosphere for employees within the corporation.

In the asses, Crispy Creme started expansion outside the Southeastern part of the U. S. Today, they have locations in most states and in Canada. On May 6, 2002, Crispy Creme announced that it awarded development rights to five new market areas in the states of Texas, Wyoming, and and Amarillo, Texas. Hal Smith, who was the current Crispy Creme franchisee in Oklahoma City and Tulsa, Oklahoma, was to become managing partner of the new venture with Crispy Creme Donuts Corporation retaining 33% of the venture.

Smith had extensive experience in the restaurant industry and was the former President of Steak & Ale, former President/Chief Operating Officer of Chili’s Inc. and former Chairman, CEO and President of Chi-Chi’s Mexican Restaurants. His company, Hal Smith Restaurant Group, operated twenty-six full service restaurants in six states. 87 CRISPY CREME IN AMARILLO Before Amarillo and Lubbock, Crispy Creme had not previously pursued franchise opportunities in communities with a base population of less than 250,000. Headquartered in Winston-Salem, NC, the company had successfully gone public in 000 and was listed on the NYSE in 2001.

In early 2001, Crispy Creme had 174 stores in the United States with 111 of those being franchised stores and the remainder company owned. They planned to open an additional thirty-six units in 2002 with all of them being franchise operations including the one planned for Amarillo. Total revenue in the fiscal year ending in January, 2002 was $394. MM with a net income of $26. MM. Seventy-one percent of the revenue came from the actual sales of donuts with an additional 3% from franchise fees and approximately 26% from the sale of chicanery and raw materials to the franchise stores.

Amarillo, with a population of approximately 200,000, was the first small market entrance for Crispy Creme. The site chosen for the new Crispy Creme facility was highly visible from Interstate-40 and less than a mile from the Donuts Stop’s planned new flagship store on the corner of Bell Street and Interstate-40. Although the property was on the same side of the major interstate, the Crispy Creme store was inconveniently located on the one-way access road in the middle of the block after the entrance ramp and before the exit ramp.

A formal groundbreaking ceremony, with boxes of free donuts, took place in July 2002. Management announced that the 4,000 square foot Crispy Creme “factory’ in Amarillo was expected to open in fall 2002 and would employ approximately 80-125 people. Newspaper coverage, both before and after the arrival of Crispy Creme, was amazing. Numerous articles were published discussing competition with Donuts Stop, customer loyalty, and the nationwide Crispy Creme craze. Crispy Creme opened in Amarillo on Election Day, November 5, 2002. Based on previous store openings, they were prepared for huge crowds, p


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