In order to ramp up its overseas presence,
Krispy Kreme Doughnut Inc.
) recently forged a deal with Star360 Group to set up 15 Krispy
Kreme franchise locations in Singapore over the next five years.
The financial terms of the deal were not disclosed.
Star360 group boasts superior local market knowledge and has a
proven track record of venturing into the premium retail industry
within the Southeast Asian market. The group operates retail
outlets in Singapore, Malaysia, Indonesia, Hong Kong, Philippines,
Thailand, Taiwan and Japan.
Possessing strong know-how of local food habits, the franchisee is
hopeful that its collaboration with a global brand like Krispy
Kreme would help spread its Glazed doughnuts and freshly brewed
coffee successfully across Singapore. According to Star360
group, coffee and doughnuts is a flourishing category in Singapore
and the population has a sweet tooth.
The latest deal affirms Winston-Salem, North Carolina based Krispy
Kreme's plan to make Singapore one the prime markets for
international expansion, considering its emergent economy.
According to a global market research company, Euromonitor,
Singapore recorded gross domestic product (GDP) growth of 5% in
2011 on the top of a robust GDP growth of 14% in 2010, leading to
higher consumer confidence.
Increasing disposable income has enabled Singaporeans to spend big
on branded food items. It is being witnessed that the young
population as well as the emigrant population in Singapore are more
inclined towards western fast-food chains. We believe that Krispy
Kreme seeks to fully capitalize on this trend.
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
anticipates having 900 overseas stores within 2017.
Furthermore, a sluggish macroeconomic environment acts as
another short-term deterrent. According to the Monetary Authority
of Singapore, GDP growth is expected to be slow to 1-3% in
However, the market is not free from competition. Apart from
some western players currently serving the market, steep
competition will likely come from some of the domestic brands - The
Donut Factory and Mad Over Donuts.
Krispy Kreme which competes with the likes of
Papa John International Inc.
) currently carries a Zacks #1 Rank, which translates into a
short-term 'Strong Buy' rating. We maintain our long-term
"Outperform" recommendation on the stock.
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