Richard Craver
Krispy Kreme Doughnuts Inc. has filled in another piece of its Asian franchisee puzzle by entering into a five-year agreement in Singapore.
The company said Thursday that Star360 Group will develop 15 Krispy Kreme shops there. The franchisee operates other retail outlets there and in Hong Kong, Indonesia, Japan, Malaysia, the Philippines, Taiwan and Thailand.
“Their unique understanding of the Singapore consumer, coupled with their sound business experience across a variety of retail concepts, matches perfectly with the Krispy Kreme brand and experience,” said Jeff Welch, president of Krispy Kreme’s international division.
Andy Chaw, chief executive officer of Star360, said Krispy Kreme’s doughnuts and other products have “the potential to take the local doughnut scene by storm.”
“Singaporeans have long been doughnut lovers, and we believe … Krispy Kreme is well-positioned to find its way in the hearts of the consumer.”
With the addition of Singapore, Krispy Kreme has franchisee shops in 22 countries, including Australia, China, India, Indonesia, Japan, Malaysia, the Philippines, South Korea and Thailand in the Far East region.
“We are quickly approaching 500 stores in our international markets,” Welch said. “This new Singapore agreement, combined with our other recently announced development agreements, means Krispy Kreme now has commitments for almost 400 additional international store locations.”
The Singapore announcement follows Krispy Kreme’s landing of two franchisee deals in India in May and June, for a total of 115 shops.
Krispy Kreme said at June’s annual meeting that it was aiming for at least 900 international franchisee shops by fiscal year 2017. In the short term, it wants to enter Brazil, establish bigger footholds in India and Russia, and expand in China.
International franchise sales represented just 5 percent of Krispy Kreme’s revenue ($5.8 million) in its second quarter of fiscal 2013, which ended July 29. But global expansion is a big part of its growth strategy.
In the past 15 months, Krispy Kreme has announced major expansions for the United Kingdom (35 planned new shops, for a total of 80), Japan (73 planned, to 94) and Mexico (58 planned, to 128), and Russia (40 shops).
Jim Morgan, Krispy Kreme’s chairman and chief executive officer, said at the shareholders meeting, “We’ve only scratched the surface of the number of shops we can have.”
Sean Williams, an analyst with The Motley Fool, said international sales will become increasingly important to Krispy Kreme as it again approaches sales saturation within domestic markets.
“Management can add new flavors, healthier options such as yogurt and more coffee styles, but they will not move the needle in terms of revenue,” he said. “International sales can, in part because the obesity trend pushback in the U.S. is not seen as much in other countries.”
Williams said Krispy Kreme’s Asian expansion plans are similar to those of tobacco companies, with both trying to entice young middle-class consumers who have disposable income.
“Krispy Kreme is doing a better job understanding its international customers,” Williams said. “Having learned its lesson about expanding beyond its means, it’s focusing on smaller factory stores to keep costs low and maximize its potential in smaller population areas.
“Keep your eyes peeled for excessive spending, but international markets look like a genuine area of consistent growth for Krispy Kreme.”