Moscow is a Big Potential Market for Krispy Kreme, says Professor Mike Lord

4.24.2012 Article, Faculty News, Global

Reposted from Winston-Salem Journal | by Richard Craver

"To Russia with doughnuts" is the latest international venture for Krispy Kreme Doughnuts Inc.

The company said Monday that it has signed a franchisee deal with LLC Doughnuts Café to open 40 shops in Moscow over five years. LLC Doughnuts is owned by Arkady Novikov, owner of the Novikov Restaurant Group.

Jeff Welch, president of Krispy's international division, said in a statement the company is pleased to have gained a franchisee agreement with "someone so instrumental in the development of today's vibrant restaurant culture in Moscow."

"Arkady's great passion for the Krispy Kreme brand, combined with his strong organizational structure and years of successful restaurant experience in Moscow, are strong assets he can leverage."

Russia becomes the 21st country that Krispy Kreme has entered, but only the second in Europe after England. "We believe Krispy Kreme's premium products and one-of-a-kind experience will quickly become a favorite of Muscovites," Novikov said.

The biggest challenge for Krispy Kreme is how well "hot now" doughnuts will translate to Muscovite taste buds. Krispy Kreme officials could not be reached for comment about whether the company plans to include local flavors in its Moscow shops.

Although international franchise sales represented 6 percent of Krispy Kreme's revenue in its fourth quarter of 2012, which ended Jan. 29, its global expansion is a big part of its growth strategy.

In February 2011, Krispy Kreme said its goal was having close to 1,000 international shops by 2016.

The company ended fiscal 2012 with 602 franchise stores and 92 company stores, with international representing 460 franchise stores. It plans to add 75 international franchise stores during fiscal 2013.

The strategy could be pivotal because the jobs of its 3,900 employees, including 408 in Winston-Salem and an additional 102 elsewhere in the Triad, are riding on Krispy Kreme's ability to make its doughnuts a regular choice rather than an occasional treat in international markets.

Michael Lord, an associate professor of strategy and entrepreneurship at Wake Forest University, said Russia has been traditionally "a very difficult market for many companies to figure out, and to successfully operate in."

"Moscow is a big potential market," Lord said. "They should be able to get significant economies of scale in Moscow alone if things work out right. Anywhere else in Russia will be a bonus."

In the past nine months, Krispy Kreme has announced major expansions for England (35 planned new shops for a total of 80), Japan (73 planned new shops for a total of 94) and Mexico (58 planned new shops for a total of 128).