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US doughnut king crosses Atlantic to tempt sweet tooths here

Krispy Kreme to open first outlet at Harrod's followed by 25 more across the UK

Susie Mesure
Wednesday 06 August 2003 00:00 BST
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Somebody warn the fat police. Krispy Kreme, the American doughnut sensation beloved by snackers and investors alike, is to open its first store in the UK in the autumn.

From October, the company's trademark red neon "Hot Doughnuts Now" sign will light up Harrods' food hall, luring in homesick expats and sweet-toothed Brits for a taste of doughnut heaven. Or at least that's what Don Henshall, the managing director of Krispy Kreme UK, hopes.

The group, based in Winston-Salem, North Carolina, plans to open 25 stores throughout the UK and Ireland over the next five years. The Harrods outlet will be only the third to open outside the US, with others slated to follow in countries as diverse as Spain and South Korea.

Mr Henshall knows he faces a sceptical UK public - anybody for a Dunkin' Donut? Thought not - but is sure he can win them over. "I think we have something that will become an everyday habit," he says. "I agree the British consumer doesn't buy doughnuts but we have a very superior product. It's more like eating cotton candy than eating a doughnut."

Founded by Vernon Carver Rudolph in 1933, Krispy Kreme has blossomed into a marketing sensation only in the past few years. Today, the company's retro-styled red, green and white logo is quickly becoming part of American folklore. Krispy Kreme memorabilia is even displayed in the Smithsonian Institution's National Museum of American History in Washington, along with such icons of popular culture as Dorothy's red shoes from The Wizard of Oz and the Fonz's leather jacket from Happy Days.

"The company has got almost a cult following," Ron Paul, president of Technomic, a restaurant consultancy, says. He ascribes this to Krispy Kreme's measured approach to expansion. Until 1995, all the company's stores were based in the Deep South, creating a "must-have" status for the brand whenever anyone visited a southern state. Even now, the company is relatively small, with just 301 outlets. Compare that to Dunkin' Donuts' 3,600 in the US alone and Subway's 13,000, Mr Paul adds.

While Americans wax lyrical about the doughnuts' chewy, sweet frosted glazing, would-be British consumers be warned: they are neither crispy nor creamy. The misnomer is thought to date to the company's origins: Mr Rudolph acquired the secret yeast-raised formula from a French chef from New Orleans and simply mistranslated the recipe.

The company has been based in Winston-Salem since 1937, where Mr Rudolph bought his first factory. He ran the business until August 1973, selling doughnuts to local grocers and to consumers through company-owned shops. Three years after his death, the company was sold to the Chicago- based Beatrice Foods conglomerate, where it languished for 12 years alongside brands as diverse as Tropicana orange juice and Samsonite luggage. It was unloved by its Illinois parent and in February 1982, a group of 21 franchisees bought it back in a leveraged buyout. It has been listed on the New York stock market since April 2000, when Scott Livengood, its president, chairman and chief executive, who has been with the group since 1977, decided to seek a flotation to help fund its expansion.

Investors quickly gobbled up the stock, which has enjoyed a ninefold increase in value since it listed. Although small in stature, the company commands an impressive price-earnings ratio of some 33 times - that's in line with Starbucks. The company reported total sales of $492m last year and system-wide sales, including those from both company and franchise stores, of almost $800m. And it is growing fast. Like-for-like sales are still increasing at 11 per cent.

The group relies on three profit streams for its income: selling doughnuts directly through its company-owned stores, selling its top secret doughnut mix (the recipe is locked in a vault) and doughnut-making machines to its franchised stores, and making money from franchisee licenses and fees. The UK catering giant Compass is one of Krispy Kreme's franchisees, selling its doughnuts in New York. Mr Henshall said yesterday he had been talking to Compass's chief executive, Mike Bailey, about a franchising deal in the UK.

The Harrods site will recreate a little piece of company history by also selling the hot sugary treats via a window on to the street. This echoes the Old Salem site, where the tempting aroma prompted eager customers to force Mr Rudolph to carve an opening in the factory wall and sell the hot doughnuts as soon as they were made.

Krispy Kreme will have a 34 per cent interest in the UK company, which it describes as a partnership. Mr Henshall said the team was already working on the second UK site, expected to mirror a typical US outlet. "It will be a standalone store, ideally in a major London suburb such as Kingston, Enfield or Croydon," he said.

Despite the creeping obsession with lawsuits targeting junk food companies, Mr Henshall says he is unfazed. "We're not a meal or a meal replacement. At the end of the day, we're a snack-food, an indulgence. If eaten as part of a balanced diet, it's fine." Technomic's Mr Paul agrees: "People will just have a diet Coke and a Krispy Kreme."

Celebrity snack that has whetted appetites from Wall St to the White House

By Andrew Buncombe in Washington

They're just like any other run-of-the-mill doughnut, right? Just the same old mix of fat and flour that leaves you with sticky fingers and sugar all around your mouth after you've finished eating one? Well, yes and no.

Krispy Kremes are certainly made from the same stuff as every other doughnut but in American culture they are doughnuts like no other. With Presidential endorsements - they are the favourite of Bill Clinton - and free product placement on TV shows such as NYPD Blue, they have assumed the position of the Mercedes Benz of deep-fried dough. Since the company went public in 2000 its stock price has increased by 625 per cent.

The notion of a hot doughnut remains at the heart of the Krispy Kreme experience. At the 185 stores spread across 27 states customers will still encounter a glowing red neon saying "Hot Doughnut" as a freshly fried batch is readied. Customers can even watch from behind a glass case as the automated doughnut machine plunges the famous mix into boiling oil and then glazes the crisp dough ball in a waterfall of liquid sugar and cream.

If it all sounds rather unhealthy that is because it is. An ordinary glazed doughnut may carry a relatively slight 200 calories but as soon as you move through the 48 varieties the risk of obesity rises. Should you opt for a tasty chocolate malted kreme you will be downing 380 calories worth of fat, sugar, corn syrup, malted barley, condensed milk and all manner of other delights.

So why have Krispy Kremes managed to assume such an elevated place among America's snackers? Partly it is the marketing strategy. There are no dingy locations for these doughnuts, these are only sold in upmarket malls. Then there is the celebrity cachet: Michael Jordan is said to have boxes delivered to his office. And finally, of course, people actually like them. They do taste rather good.

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