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Doughnut chains are on a roll

Big players are innovating, expanding more than ever.

July 22, 2011 by Alicia Kelso — Editor, QSRWeb.com

An article in the Washington Post this week focused on the "Doughnut Wars" heating up in Shanghai with the proliferation of brands such as Dunkin' Donuts and Krispy Kreme.

What's interesting is the doughnut category is just getting started in places like China. Stateside, that war has been going on for years. Dunkin' Donuts was founded in 1950. Krispy Kreme goes back to 1937.

What has made this competition particularly fun to watch recently is the ideal canvas baked items provide for creative innovations, and R&D departments' willingness to take some risks.

For example, Dunkin' Donuts recently launched its first yeast-raised cocoa donuts and, for Valentine's Day, rolled out its first-ever heart-shaped donut. Backed by British-born CEO Nigel Travis, Dunkin' also offered a Royal Wedding-inspired donut in the spring.

In the past few months, Krispy Kreme has delved into new flavor twists such as dark chocolate, lemon, banana, fan favorite The Cheerwine Kreme, and Oreo Cookies and Kreme.

But another reason the so-called "doughnut wars" have warmed up is because the big players are adding new weapons to their sweet lineups. Instead of Fred the Baker repeating that it's "time to make the donuts," Dunkin' Donuts has become known more for its coffee and Coolattas than for its signature Munchkins.

Since January, Dunkin' Donuts has launched frozen hot chocolate, expanded its breakfast menu to include a Big 'N Toasty sandwich, partnered with PepsiCo to introduce the new Mountain Dew Coolatta and introduced its first-ever loyalty program.

The coffee/donut chain also just launched a new "Hearty Snacks" line, including stuffed breadsticks, warm apple pie and two varieties of bagel twists. Those stuffed breadsticks, by the way, are available in cheeseburger and pepperoni/cheese varieties. At Dunkin' Donuts!

These efforts could be part of the reason the Massachusetts-based Dunkin' Brands continues to expanded aggressively – both stateside and overseas – and is predicted to soon go public for about $460 million.

If Dunkin' Donuts is the favorite, Krispy Kreme could be considered the comeback kid. The company might be nowhere near its heyday of 2000, when it initially went public and shares sold for up to $80. But at $9-plus now, it's at its strongest level since one of its largest franchisees filed for bankruptcy protection in 2007.

The company plans to double its international store count within the next five years and is dabbling in a number of innovations to position it beyond its signature hot, glazed doughnuts.

For starters, Krispy Kreme is testing doughnut shakes, a new coffee line, and healthier items such as oatmeal and yogurt.

To add even more excitement, let's not count out the formidable third player in this category – Canadian staple Tim Hortons, the dark horse. Its signature Timbits will be showing up in an estimated 900 new North American locations within the next three years.

Tim Hortons seems to be looking to contend with not only the Dunkin's and the Krispy's, but also with the Golden Arches, launching smoothies and oatmeal and testing a long list of specialty coffees. The chain is also currently testing panini sandwiches to give its lunch daypart an extra spark.

A financial analyst recently told the Winston-Salem Journal, that an underlying concern for those thinking about investing in Krispy Kreme (or any doughnut concept for that matter) is that the chain is a one-trick pony. Perhaps that analyst should take another look.

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