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Mike Cote's Business Editor's Notebook: Krispy Kreme may need more than doughnuts

By MIKE COTE
May 14. 2016 6:13PM
Cort Mendez, the former owner of the Five Guys Burgers and Fries on South Willow Street in Manchester and nine others in New Hampshire, plans to introduce Krispy Kreme doughnuts to New Hampshire and Maine. (UNION LEADER FILE)

AMERICA MAY RUN on Dunkin', but doughnuts, not so much any more. Coffee trumps all.

For Krispy Kreme, doughnuts are the main attraction, but the upstart rival soon could be putting more emphasis on the beverage side of the business - just in time for its arrival in New Hampshire.

In recent years, Dunkin' Donuts has blanketed the Northeast and much of the country by focusing on Macchiatos and Dunkacchinos and a growing menu of sandwiches, with doughnuts generating about a tenth of sales.

Meanwhile, Krispy Kreme - which announced plans to expand into New Hampshire and Maine earlier this year - has remained best known for its yeast-raised doughnuts, glazed gems popular enough to fuel fundraising campaigns for nonprofit groups. Its near cult-like following sent Krispy Kreme stock to dizzy heights a few years after it went public in 2000, hitting $50 a share. It trades for less than half of that these days.

Last week, Krispy Kreme agreed to be acquired by a private investment company for $1.35 billion, which may foreshadow a retooling of the chain. New parent company JAB Beech, which plans to take the company private, is a subsidiary of JAB, a European company that recently acquired Keurig Green Mountain for about $14 billion and also owns Peet's Coffee & Tea, Caribou Coffee and Einstein Bros. Bagels. The company already has combined some of its shops as Coffee and Bagels in some markets, the Wall Street Journal reported, suggesting Krispy Kreme doughnuts could join such a combo.

In February, Krispy Kreme signed a development agreement with Amherst-based NH Glazed LLC to open four doughnut shops in New Hampshire and three in Maine over the next several years. NH Glazed owner Cort Mendez, the former owner of 10 Five Guys franchises in New Hampshire, said he hopes to open the first Krispy Kreme in New Hampshire in 2017, with Manchester, Nashua and Salem the most likely first stops.

Mendez recently spent a month training with a Krispy Kreme franchisee in Orlando and called Thursday from Las Vegas, where he is training with a franchise owner there. He said he's excited about the JAB deal but has no doubt about the future of Krispy Kreme.

"There's absolutely no question that the focus of Krispy Kreme, in my opinion, will continue to be on the doughnuts. It's something they've been doing since 1937," Mendez said. "The product has never changed in terms of the recipe for the doughnuts. The demand still seems to be strong for the doughnut side."

Krispy Kreme has been trying to grow its coffee business, however, and Mendez sees strong potential for JAB's coffee holdings to complement Krispy Kreme.

"I am very hopeful that we will see some cross pollination there from any of the brands that they have. The coffee at Krispy Kreme could be improved," Mendez said. "Krispy Kreme is well aware of that and has made strides to improve it. There is still work that needs to get done. What JAB has under their umbrella that could come over to Krispy Kreme would definitely be a positive. I am really hopeful to see that."

Mendez knows taking on Dunkin' on its New England turf will be daunting. Canton, Mass.-based Dunkin' Brands operates 11,500 Dunkin' Donuts shops around the world. Winston-Salem, N.C.-based Krispy Kreme counts 1,100 stores (including one it opened this month in Bangladesh, its 26th country.)

The upside could be pent-up demand for Krispy Kreme in New England. The downside is a saturated market for coffee and breakfast items, with tough competitors that include McDonald's and Starbucks.

Krispy Kreme's menu already includes a wide line of coffee beverages, including assorted mochas and lattes.

Unlike Dunkin', where doughnuts now seem to be almost an afterthought, it's hard to imagine Krispy Kreme without those sticky beauties remaining the hallmark of its appeal. The company is a stickler for freshness - no doughnut stays on the shelf longer than 12 hours, Mendez said. While he may open some satellite shops down the line, his initial Krispy Kreme locations will each have their own machines to make the doughnuts on-site.

"When the hot light goes on, that's because they will be coming off the machine," Mendez said.

At Five Guys, Mendez, 49, learned that his greatest challenge is mentoring the people who run the machines and keeping them focused. Before becoming a restaurant operator, he worked in the medical device industry.

"The biggest challenge that any company has, whether it's in the hospitality business or the medical device business or the computer business or the newspaper business, is keeping the staff highly enthusiastic about their job and high energy," he said. "Because the changes that are going to be made are easier to implement when the staff is happy with their job."

Mike Cote is business editor. Contact him at 668-4321 ext. 324 or mcote@unionleader.com.


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