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America Runs on Donuts

Dunkin Donuts, Krispy Kreme Set Expansion Plans for Coming Years, (Just Don't Call Them Donut Shops)
March 20, 2013
Two of the nation’s leading donut shop franchisors are cooking up new expansion plans that will see thousands of new quick service restaurants opening up in the coming years.

Dunkin: California Dreamin'

Dunkin’ Donuts has been strategically expanding in contiguous markets across the country with a long-term goal of having more than 15,000 Dunkin’ Donuts restaurants in the United States alone - that would double its current size.

Dunkin’ Donuts opened 291 net new locations in the United States last year, a net new unit growth rate of 4%. In 2013, the company says it plans to open 330 to 360 net new restaurants in the United States with growth coming from both new and existing markets, representing an increase of 4.5% to 5%.

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This year, it announced it is expanding into Southern California. Specifically, the Canton, MA-based company is recruiting multi-unit franchisees for Los Angeles, Riverside, San Diego, San Bernardino, Ventura and Orange counties and expects restaurants in these markets will begin to open in 2015.

“In addition to California, we believe we have incredible domestic growth opportunities for Dunkin’ Donuts, both east and west of the Mississippi,” said Nigel Travis, CEO of Dunkin’ Brands Group.

In 2012, Dunkin’ Donuts signed multi-store agreements in 32 U.S. markets, including Green Bay and Milwaukee, WI; Birmingham, AL; Denver; Austin, Houston and Dallas / Fort Worth. In addition, in 2012 more than 600 Dunkin’ Donuts restaurants were remodeled across the country.

In its year-end earnings conference call, Paul C. Carbone, CFO and senior vice president, said the company doesn’t consider itself a donut shop.

“We are a beverage company,” Carbone said. “America runs on Dunkin. You see our advertising focused on beverages.”

For that reason, the company is focusing on locations with drive-thru capabilities.

“70% of the new stores that we opened last year were drive-thrus,” Travis said, “and I would expect a similar number this year.”

Krispy Kreme: Ramping Up Franchise Growth

Krispy Kreme Doughnuts’ management estimates that each the company and its domestic franchisees will open 10 Krispy Kreme shops this year but will be looking to do more in future years.

Earlier this year, the Winston-Salem, NC-based chain hired Patricia Perry as its new vice president of U.S. franchise development. Perry will coordinate completion of the company's domestic franchising plans and lead its domestic franchise recruiting efforts.

"We have expressed our intention to re-focus on domestic franchise growth at the appropriate time, and we are now ready to begin executing a focused strategy of franchise expansion in the United States," said Cindy Bay, senior vice president, U.S. operations and franchising.

Domestically, Krispy Kreme has set a goal of having more than 400 shops by January 2017 compared to about 240 currently of which about 142 are franchised locations.

“Whether in our core, Southeast markets or outside of them, our company store development model is predicated, in the short term, on building small freestanding factory shops that have the full doughnut making capability of our traditional stores, which are substantially smaller than the traditional doughnut factory,” James H. Morgan, chairman, CEO and president of Krispy Kreme, said in the company’s year-end earnings conference call. “These small factories will serve retail consumers only and will not participate in wholesale distribution to grocers, mass merchants or convenience stores. This singular focus makes them a lot simpler to operate and less costly to build, and therefore, should generate a higher sales to investment ratio than our current base of stores.”

Krispy Kreme built its first of such 2,300-square-foot stores last year. Krispy Kreme said it currently has the real estate secured for six of its company-owned stores it wants to open this year. Substantially all of them are expected to be the new small-format retail-only factory shops.

“Outside of the Southeast, to perhaps a few special situation markets, we plan to grow, opening up the vast portion of the United States that has yet to be franchised,” Morgan said. “We're completing our Domestic Franchise development plans and have put in place the resources to execute those plans… In addition to signing new franchisees, it is important to note that we expect many of our existing franchisees will continue to build new shops in their territories.”

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