Krispy Kreme Doughnut Inc. (KKD) remains on track to expand its footprint in India with the recent signing of a development deal with Citymax Hotels Pvt. Ltd. Per the deal, Citymax Hotels will unveil 80 locations in the country over the next five years. The outlets will be spread across the South and West India.
The deal follows Krispy Kreme’s earlier pact with the franchisee Bedrock Food Company Pvt. Ltd for entering the country. However, the Bedrock agreement, signed a month before, focuses on expansion in Northern Indian.
The latest alliance reflects Krispy Kreme management’s intent to make India one of the prime markets for international expansion, considering stepped up economic growth and under-penetration of quick-service restaurants in that country as against the saturated North American countries.
Citymax Hotels Pvt. Ltd., a branch of Dubai-based Landmark Group, boasts of superior local market knowledge and has a proven track record of venturing into the premium retail industry as well as food and beverage giants within the Indian and the Middle East market. Armed with the strong know-how of Indian food habits, the franchisee is also hopeful of collaborating with a global brand like Krispy Kreme and expects to spread its menu offering successfully among brand conscious consumers.
Earlier, Bedrock Food had commented that coffee and doughnuts will remain a flourishing category in India over the next couple of years. It also believes that Indians have a preference for sweet food.
However, the Indian market is not free from competition. Following the growing demand for coffee products, another U.S. coffee behemoth Starbucks Corporation (SBUX) is about to enter the market by the end of August. Also, apart from local confectioneries and brewers, many other U.S. restaurateurs are currently serving the market.
According to Krispy management, the company’s overseas expansion is expected to be more in 2013 than in 2012. Encouraged by international growth over the last six years, the company seeks to almost double its current overseas store base within 2017.
We believe that Winston-Salem, North Carolina based Krispy Kreme’s extended global reach will augur well for its earnings. On the flip side, there is some fear of deterioration in international comparable store sales from cannibalization by the new stores. Krispy Kreme currently retains a Zacks #4 Rank, which translates into a short-term Sell rating. We are also maintaining our long-term Neutral recommendation on the stock.
Zacks Investment Research