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Doughnut Wars: Dunkin' Donuts franchisees plan to saturate the local market, Krispy Kreme's home turf
Journal Photo by Traci White
Dunkin' Donuts is planning to open several more stores in Winston-Salem, the hometown of Krispy Kreme doughnuts.
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Published: August 18, 2008
Jeff Menk stopped by the Krispy Kreme store on Stratford Road last week to check up on his investment while on the way to vacation in South Carolina.
He bought five shares of Krispy Kreme stock in November. It was his first stock purchase. Jeff is 14.
When asked what he liked about Krispy Kreme, he had a one-word answer: "Delicious," he said.
There's not a Krispy Kreme retail store in Jeff's hometown of Burbank, Ohio. There, you can get them only at such places as convenience stores.
So Jeff and his mother, Lori Menk, took some pictures of the company's only hometown store while they were here.
The Stratford Road store is one of four in the Triad, along with two locations in Greensboro and one in High Point. But the local doughnut market is about to get more crowded.
Franchisees for Dunkin' Donuts, the nation's largest coffee-and-doughnut franchise, plan to bring at least 13 stores to Forsyth and Davie Counties in the next four years.
"We are going to saturate the market, because we are looking for customer convenience," said franchisee Sunny Patel. "Wherever they go, they can find Dunkin' Donuts."
Patel is planning five stores in the northern Forsyth County market.
Another man, Sundeep Makhani, said he, too, looks at Krispy Kreme's hometown and sees a hole in the doughnut market. He is planning to bring eight more Dunkin' Donuts to the Winston-Salem area over the next four years.
That's a minimum figure, Makhani said. If the market is there, he may try to add more stores.
Brian Little, a spokesman for Krispy Kreme, said that the company doesn't comment on the activities of other companies. He said that the local market could accommodate more doughnut stores. "We believe that there is room out there for everyone," Little said.
Some may look at the Dunkin' expansion into Krispy Kreme territory as a turf war that would have Homer Simpson drooling -- the heavier, cake-like confection going up against the airy, sugar-glazed treat. But Makhani downplays the competition.
He said that coffee drinkers, not doughnut eaters, drive the early-morning market. Dunkin' Donuts has a strong reputation for its coffee. Makhani said he sees McDonald's and Bojangles' as bigger competitors than Krispy Kreme.
Makhani said he doesn't view Winston-Salem as a Krispy Kreme-dominated town despite the presence of its corporate headquarters here.
"If this is a Krispy Kreme hometown, why would they only have one retail store?" he said.
Dunkin's expansion in Winston-Salem probably won't affect Krispy Kreme's corporate strategy, but it may wound the company's corporate pride, said Michael Lord, an associate professor of management at Wake Forest University.
"If anything, it might be a blow to the pride of Krispy to have so many Dunkin's locally," he said. "Maybe it will spur them to action."
"Dunkin's strategy is a better business model," Lord said. "Krispy Kreme's problem continues to be in large part that it doesn't have enough outlets convenient enough to buy doughnuts and coffee. Coffee is an extremely convenience-based business."
Robbie Church of Greensboro agrees. He bought coffee and doughnuts at the North Point Dunkin' location last week, and said he would likely go to other Dunkin' locations if there were more around.
When Krispy Kreme doughnuts are hot, there's nothing better, he said. But when they are not, they're no better than any other doughnuts.
"And Dunkin' has better coffee," he said.
The coffee market is in somewhat of a flux here. Coffee giant Starbucks announced plans last month to close its Harper Hill Commons store to weed out unprofitable locations. The closing was part of a company-wide plan to close 600 company-owned stores.
Krispy Kreme opened a second retail store on Knollwood Street in 2001 but closed it amid financial struggles in 2004.
The company's stock, which had gone public in 2000, reached a peak in August 2003, when it closed at $49.37, adjusted for two splits. In May 2004, the stock began to tumble on reports of a downturn in profits that the company based on a trend toward low-carbohydrate foods.
The company did not report another profit until the first quarter of this year. On Friday, the company's stock was selling for $4.65 in afternoon trading.
Some analysts also said that overexpansion was partly the cause of Krispy Kreme's woes. In May 2004, there were 373 Krispy Kreme stores in the U.S. As of this month, the company was down to about 234 stores nationwide, Little said.
Meanwhile, Dunkin's expansion in Forsyth County is part of a national plan launched in 2006, said Lynette McKee, vice president of franchising for Dunkin' Brands, which is based in Massachusetts. The plan includes expansion into new markets -- particularly out West -- as well as places that already have a store, including Winston-Salem, which has two.
At the end of last year, Dunkin' Donuts had 5,769 stores nationwide.
One of the new Dunkin' Donuts here is expected to anchor a small shopping center on South Stratford Road scheduled to open next year, Makhani said.
Patel said it was too early to discuss the locations of his planned stores because the deals for the properties have not been completed. He expects to open the first of his five new stores here early next year.
■ Paul Garber can be reached at 727-7327 or at pgarber@wsjournal.com.
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