Krispy Kreme rolls hot doughnuts into India, but market may cool

MUMBAI/BANGALORE Thu Aug 23, 2012 5:55am EDT

Krispy Kreme doughnuts go into production at the opening of a store at Harrods in London, in this October 3, 2003 file photograph. REUTERS/David Bebber/Files

Krispy Kreme doughnuts go into production at the opening of a store at Harrods in London, in this October 3, 2003 file photograph.

Credit: Reuters/David Bebber/Files

MUMBAI/BANGALORE (Reuters) - Krispy Kreme Doughnuts Inc plans to open its first Indian store this year, but the maker of the Original Glazed will find it is not alone in its bid to cash in on the $13 billion Western fast food market in Asia's third-largest economy.

Krispy Kreme's rival Dunkin' Donuts (DNKN.O) has already opened its first outlet in India, one of many Western food chains which sees the higher-spending urban Indian as a way to offset slowing sales in mature markets. Joining them are Mad Over Donuts and Donut Baker, local outfits that have set up shop in big cities such as Mumbai, New Delhi and Bangalore.

"We're going to be testing here," James Rogers, Krispy Kreme's vice-president of international marketing, told reporters in Bangalore late on Wednesday.

"Our franchisees are knowledgeable about the local customers and given what we've heard from them I'm hoping we're going to be successful."

One of the reasons Krispy Kreme decided to open in India was because its products were a hit with the Indian diaspora in the United Kingdom, Rogers said.

The firm plans to open 80 stores in southern and western India over five years with its franchisee partner Citymax India, which will spend $13.5 million to get the hot sugar-glazed doughnuts rolling, a deal announced in August.

In May it signed up with New Delhi-based company Bedrock Food to open 35 stores over five years elsewhere in the country, adopting a regional franchising model successfully used by McDonald's (MCD.N) in India.

Krispy Kreme (KKD.N) has already been burned by overexpansion. Its share price crashed to less than $5 in 2007 from almost $50 in 2003, in part as a result of accounting issues, and in part because it opened too many American stores too quickly. It was forced to scale back, shutting some doughnut shops.

"I think we will have to wait and see," Rogers said of India. "I can't say we're going to be aggressive or not."

India loves its native sugary sweets, but expecting a large-scale shift from a mango kulfi or a rosewater flavoured gulab jamun to a Glazed Kruller or a Raspberry Ripple Sundae doughnut may be ambitious.

"The idea of having doughnuts and coffee for breakfast is a concept only certain pockets of India is ready for," said Debashish Mukherjee, a partner at consultancy AT Kearney.

"With many players entering the segment and announcing plans, this space is bound to be hotly contested." (Editing by Daniel Magnowski)

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