WSJ -- KKD has chosen Australia for its first overseas operation.
March 6, 2003
Krispy Kreme Doughnuts Plans Australian Treat In June
By AMBEREEN CHOUDHURY
Of DOW JONES NEWSWIRES
SYDNEY -- Krispy Kreme Doughnuts Inc. (KKD) is seeking to fill a hole in the Australian doughnut market.
But it will face stiff competition from some domestic players like Donut King, which is convinced that the market is more challenging than overseas companies might think.
Krispy Kreme has chosen Australia for its first overseas operation after examining international opportunities for more than 12 months. A store on the western outskirts of Sydney opens in June, with a target of 30 sites over five years that will likely be used as a staging post for expansion into Japan, China and South Korea.
The North Carolina-based company, which is famous at home for its "Hot Original Glazed" doughnuts, has also said it is planning to open outlets in the U.K. market.
Apart from Donut King, the Krispy Kreme venture in Australia will face competition from Starbucks Corp. (SBUX), which has been rolling out stores throughout the country in the past few years.
But weak sales has recently forced one rival, Dunkin' Donuts Australia, into voluntary administration.
Krispy Kreme, which operates 275 stores in North America, has a 35% stake in Krispy Kreme Australia. Former Starbucks chief operating officer Lawrence Maltz and Australian businessman John McGuigan own the rest.
"We don't think the market is at all crowded. The Australian market should be very profitable," McGuigan told Dow Jones Newswires.
McGuigan declined to elaborate on the financial investment Krispy Kreme has made in Australia but said it is a "committed shareholder". It operates company-owned and franchised stores, listing on the New York Stock Exchange in May 2001.
Starbucks also thinks there is enough room for another entrant. "There is plenty of space for specialty stores here," said Starbucks' Australian marketing manager Ian McKenzie, with plans to expand the chain of 37 stores.
But Donut King, one of the major companies in the market with about 210 outlets, believes moving brands and products to an overseas market can be a difficult undertaking.
"The differences between these two markets are highlighted time after time and the same challenges face Australian companies when they enter the U.S. market," said Peter May, marketing manager at Donut King.
"Certainly as a company, Donut King has seen many competitors come and go in the market throughout our 21 years of business," said May.
"History would indicate that the Australian market for retail food has proven to be more challenging and complex than many international chains have anticipated," he added. Donut King is controlled by the privately held Australian-based Retail Food Group.
Dunkin' Donuts Australia collapsed because its "turnover didn't meet expectations," said voluntary administrator Bradley Hellen of Australian accounting firm Calabro Partners.
Calabro is now in talks with Allied Domecq PLC (AED), the main licenser of Dunkin' Donuts over the Australian franchise rights that are held by privately-owned company Gordon Group.
The accounting firm is in negotiating with a number of parties over Dunkin' Donuts local assets, said Hellen. A spokesman for Allied Domecq wasn't available for comment.
-By Ambereen Choudhury, Dow Jones Newswires;
61-2-8235-2965; ambereen.choudhury@dowjones.com
-Edited by Ian Pemberton
Updated March 6, 2003 10:59 p.m. EST
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