Krispy Kreme to expand presence in London

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WINSTON-SALEM, N.C. — The sugary rivalry between Krispy Kreme Doughnuts and Dunkin’ Donuts is set to heat up in the United Kingdom with Dunkin’s plans to open 50 stores in the London area by 2018.

Krispy Kreme entered the United Kingdom in 2003 – a year after Dunkin’ exited the market amid slow sales. It was Krispy Kreme’s second global expansion market and featured Dick Clark as a franchisee partner.

In October 2011, Krispy Kreme announced franchisee Krispy Kreme UK Ltd. was expanding its presence from 45 to 80 shops by 2017.

Lafeea Watson, Krispy Kreme’s media manager, said Friday that the company had 55 U.K. stores as of Aug. 4. The franchisee also has a sizable kiosk presence in most of the U.K.

The 35 additional stores are part of Krispy Kreme’s aggressive growth plans, both in the United States and globally. In an investor presentation Wednesday, the company said it has 790 shops in 22 counties, counting the United States: 547 international franchise shops, 150 domestic franchise shops and 93 company-owned.

Krispy Kreme has set a goal of 900 international stores and more than 400 domestic shops by the end of fiscal 2017.

Dunkin’ said Thursday it has signed agreements with two franchise groups for the London-area restaurants. The east London franchisee is Court Group, led by U.K. businessman David Sheepshanks, while the north London franchisee is DDMG Ltd., a partnership formed by three experienced Dunkin’ franchisees from the Baltimore and Philadelphia area and two U.K. operators.

Dunkin’ said it is in advanced discussions with other franchise groups to potentially open another 100 stores by 2018.

“We feel there is significant opportunity for Dunkin’ Donuts in the U.K.,” said Giorgio Minardi, president of Dunkin’ Brands International.

Bloomberg News reported in August that Dunkin’ is opening more locations in Europe as it sees the region bouncing back from recession, according to chief executive Nigel Travis.

Dunkin’ also will face established competition in the U.K. from Starbucks Ltd., which has about 750 locations in the region. For many consumers, Dunkin’ is more known for its coffee than its doughnuts.

Dunkin’ has more than 10,500 restaurants in 31 countries, including more than 100 locations across Europe in Bulgaria , Germany , Russia and Spain. Its sister brand, Baskin-Robbins, has 100 shops in the U.K.

By comparison, Krispy Kreme only has shops in Europe in the UK and Russia, of which the first shop opened Thursday in Moscow. The company announced plans in April 2012 to open 40 shops over five years in Russia.

The main concern expressed by analysts since Krispy Kreme’s return to profitability in 2011 has been whether current management can avoid previous management’s mistake of expanding beyond its ability to handle growth.

Jim Morgan, the company’s chairman and chief executive, has said he is convinced the company will post consistent growth through increased international sales, including at sites with lots of pedestrians, such as train stations and airports.

Joseph Solitro, a contributing analyst with The Motley Fool, said the success of Baskin-Robbins likely is giving Dunkin’ officials comfort in returning to the U.K in terms of customer insight.

Solitro said Krispy Kreme’s success also likely prompted Dunkin’ to re-enter with a revamped menu that includes bagels and sandwiches.

“This will help draw in additional customers who are looking to pair their coffee with something other than a doughnut,” Solitro said. “The new offerings also provide protection against the issues the company faced in its last stay, when consumers did not flock to the sugary treats. I believe the company now has the recipe for success.

“Dunkin’ Donuts’ return to the U.K. will be a catalyst for earnings growth. If Krispy Kreme’s success is the slightest sign of things to come, Dunkin’ will experience incredible growth as soon as its first stores open.”

John Sweeney, an advertising professor at UNC Chapel Hill, said the entrance of Dunkin’ could “overwhelm the market” in the U.K.

“It could force a reduction in profits through excessive price cutting,” Sweeney said. “On the other hand, maybe there is room to grow for everyone?”

Credit: The Winston-Salem Journal