Doughnut Wars: Krispy Kreme Vs. Dunkin'

When asked how he got his own Dunkin' Donut store, Joe Rando holds up the afternoon cup of coffee he's just poured for himself.

"Lifelong Dunkin' fanatic," he said.

When the Maine native moved South with his former company to the Nashville area a couple years ago, he found he had to do without his favorite treat.

"I sort of woke up one morning and said, 'There aren't any Dunkin' Donuts here. Why is that?' So I made a phone call," Rando said.

From its first store in Quincy, Mass., Dunkin' Donuts has become the quintessential Northeastern doughnut shop, with working-class credentials and obsessed customers.

But now the Canton, Mass.-based chain plans to expand south and west across the country, and that begs the question: Will Southerners, with their long-standing love of Krispy Kreme's sugar-glaze, find room for another doughnut?

Rando is in charge of 12 Nashville-area stores that will serve as a prototype for the company's expansion, testing everything from new products to store appearance.

Dunkin' Donuts currently has about 4,400 stores in 36 U.S. states, but the majority are in the Northeast and mid-Atlantic region. In Massachusetts, there are 1,042 stores, while neighboring Rhode Island has 159 shops. (There are another 1,700 international Dunkin' Donuts stores in 29 countries.)

Company executives hope to triple the total number of U.S. stores by 2020.

"Our objective is to take the brand national," Dunkin' Donuts brand officer Robert Rodriguez said. "We have been a very successful super-regional chain."

But parent Dunkin' Brands Inc. is invading the South with a different sort of doughnut — thicker and cakier than the traditional Southern treat from Krispy Kreme, which is lighter, sugar-glazed and served hot.

Executives at both companies say their doughnuts have a universal appeal, but Rando says there's no middle ground.

"It's like the Red Sox and the Yankees — you like one or the other," he said.

Stan Parker, senior vice president of marketing for North Carolina-based Krispy Kreme, said many Southerners have grown up with their doughnuts and think of a trip to Krispy Kreme as more than just breakfast or a snack.

"For many people, Krispy Kreme has been part of their lives for a long time," he said.

Rosemary Evans was clearly in the Krispy Kreme camp as she shared a dozen doughnuts with her children on a recent Saturday morning.

"Dunkin' Donuts just don't have much flavor," said Evans, who grew up in Alabama. "These are just more moist. You can fold them up and stuff a whole one in your mouth."

Dunkin' Donuts fan Jack Lehnhart disagrees. "Wax doughnuts," he says about Krispy Kremes.

Lehnhart, an Ohio native, and his wife Nancy brought their out-of-town guests, Jo-Ann and Bob Ruel, to the Dunkin' Donuts store in Franklin before the Ruels started driving home to Chatham, Mass.

"When we're on the highway, we're always looking for the DD sign," Jo-Ann Ruel said.

Josh Owens, an equity analyst who follows the restaurant industry for Morningstar in Chicago, said Krispy Kreme is still a relatively small chain compared to Dunkin'.

"Dunkin' Donuts has a reasonably strong brand. It's a brand a lot of people are familiar with. It's not necessarily going to have the fad element that Krispy Kreme had with its expansion," he said.

Krispy Kreme went public in 2000 and became a national sensation as it expanded across the country. Its stock price and profits climbed rapidly, but then crashed in 2004.

Krispy Kreme executives at the time blamed the low-carb craze for declining sales, but the company had serious problems — it faces shareholder lawsuits and investigations alleging it engaged in faulty accounting — and analysts said it grew too fast. Krispy Kreme Doughnuts Inc. recently hired two former tobacco executives who are expected to help the company clear some of its problems.

Dunkin' Donuts executives say that won't happen to them because they plan to expand slowly and with a broader line of products.

"We're very different," Rodriguez said "Our brand and our model is very different. We're a full line of baked goods. We're renowned for our coffee, which is a major, major player."

In fact, Dunkin's coffee may be more important to its business prospects than its cakey doughnuts. While Starbucks Corp. leads the growing $11 billion industry, there's still plenty of room, Owens said.

Dunkin' Donuts' blue-collar customer base varies so much from the more upscale patrons at Starbucks that the two companies practically operate in separate markets, he said.

Dunkin' Donuts believes some of its other products — bagels, breakfast sandwiches, cookies, flavored coffee — will attract Southern customers, even if they stay loyal to Krispy Kremes.

"We have Starbucks employees that come from across the street," Rando said. "They aren't shy about why they're there. They'll say 'Hey, we like our coffee better, but you've got an awesome menu.'"