Donuts for the world

by Jeff Gelski
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While donuts have become a fairly mature market in U.S. outlets such as supermarkets, growth areas may exist in international food service. Both Krispy Kreme Doughnuts, Inc., Winston-Salem, N.C., and Dunkin’ Brands, Inc., Canton, Mass., hope sales of their treats increase in Asian markets in 2009.

"We continue to expand in international markets and bring the Krispy Kreme experience to millions of new customers around the world," said Jim Morgan, president and chief executive officer of Krispy Kreme, in a Dec. 11, 2008, earnings conference call. "Since June of this year (2008), we have signed international franchise development agreements for the Republic of Turkey, Malaysia and Shanghai, Beijing and Tianjin, China. The Krispy Kreme Hot Light can now be found in 15 countries, and we’ve opened over 90 new stores in international markets thus far this fiscal year.

"We are focused on digesting our recent expansion over this coming year as we continue to grow the brand internationally through a disciplined process driven by careful, well-thought-out planning that creates value for international franchisees and for us as a franchiser."

Krispy Kreme had two hits and a miss in international markets in the second half of calendar year 2008. The company on Aug. 8 entered into a franchise agreement with Berjaya Krispy Kreme Doughnuts Sdn Bhd in Malaysia to develop about 20 retail shops over five years.

"Krispy Kreme is very popular in Japan, South Korea and the Philippines, and we expect Krispy Kreme to do well in Malaysia as well," said Tan Sri Dato’ Seri Vincent Tan, chairman and c.e.o. of BCorporation, the parent company of Berjaya.

On Oct. 8, Krispy Kreme announced it had entered an agreement with KKD Lotte Holdings Co. Ltd. to develop about 35 Krispy Kreme retail locations over the next four to five years in the Chinese metropolitan areas of Shanghai, Beijing and Tianjin.

"Lotte has been an outstanding partner to Krispy Kreme for many years in establishing and developing our brand in both Korea and the Kanto region of Japan," said Jeff Welch, president of Krispy Kreme International Store Operations. "We are confident in their ability to successfully introduce Krispy Kreme to the China market."

Krispy Kreme, however, suffered a setback in Hong Kong on Oct. 27 when its franchisee there decided to enter into receivership. It operated nine Krispy Kreme locations.

By Nov. 2, 2008, or the end of Krispy Kreme’s third quarter for the fiscal year, the company operated 509 stores. More than half of them were outside the United States.

Dunkin’ Brands in November had nearly 1,800 Dunkin’ Donuts shops in the Asia-Pacific Region, including more than 550 in South Korea, 600 in The Philippines and 260 in Indonesia. The first Dunkin’ Donuts shop in Shanghai opened Nov. 20. Mercuries & Associates, Dunkin’ Donuts franchise partner in both Shanghai and Taiwan, plans to open 100 shops in Shanghai over the next 10 years.

Dunkin’ Brands also has reached an agreement with Shaanxi Stellerich Food & Restaurant Co., Ltd., a company based in Xian, the People’s Republic of China, to open 50 Dunkin’ Donuts shops in Guangdong, China, within the next 10 years.

Domestically, Krispy Kreme has struggled in the off-premises segment. Krispy Kreme donut sales at U.S. supermarkets, drug stores and mass merchandisers, excluding Wal-Mart Stores, Inc., were $104,758,300 for the 52 weeks ended Nov. 30, 2008, which marked more than a 19% decrease from the previous 52-week period, according to Information Resources, Inc., Chicago.

"We remain committed to improving the off-premises segment of our business and working toward our long-term goal of increasing profitability in this off-premises distribution channel," Mr. Morgan said in the Dec. 11 earnings conference call. "We’re currently working toward a more efficient delivery system, innovative consumer friendly packaging and longer shelf life products."

The donut category overall reached U.S. sales of $669,390,200 for the 52 weeks ended Nov. 30, down about 0.2% from the previous 52-week period, according to I.R.I. George Weston, Ltd., Toronto, led the category overall with sales of $172,221,500, up 5%.

George Weston sells donuts under the Entenmann’s brand, but that soon may change. Dunedin Holdings S.a.r.l., a George Weston subsidiary, has agreed to sell its fresh bread and baked goods business in the United States to Mexico City-based Grupo Bimbo, S.A.B. de C.V. The deal includes the Entenmann’s brand.

This article can also be found in the digital edition of Milling and Baking News, January 13, 2008, starting on Page 28. Click here to search that archive.

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