Krispy Kreme on the way, but will it be successful?

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09_krispykreme_lg_l.jpgThe blogger at Silicon Hutong doesn't think so.

Krispy Kreme has announced it has plans to expand from it's Hong Kong location into mainland China, with Shenzhen being the first mainland city to host the rich donut-maker. The China Economic Review reports:

"We are negotiating with the franchisor but nothing has materialized yet," said Jim (Krispy Kreme's Hong Kong CEO). "Shenzhen is a migrant city, many are from the north, and the people are more receptive to fried products."

Silicon Hutong, a well-respected blog which follows Chinese business news, thinks the move into Shenzhen shows that Krispy Kreme isn't serious about expanding into the mainland Chinese market:

...if Krispy Kreme really understood the way into China, they would start someplace where there are a lot of people who already like donuts, can't get them, and will form long, slavering lines outside their door each morning. If you're afraid of Shanghai, go with Beijing. Call me crazy, but tens of thousands of American and Canadian businesspeople, students, diplomats, and families seem like a built-in market for a store or ten, better (especially initially) than a million or two migrant workers and their factory bosses.

Silicon Hutong, which is an excellent business blog, shows a misunderstanding of Shenzhen when it characterizes it as home only to "a million or two migrant workers and their factory bosses." While there's no doubt the foreign market is larger in Beijing and Shanghai, China's expat and thriving business communities are no longer located solely in these two locales.

Shenzhen is home to millions of dollars in foreign exhibitions and trade fairs each year, has one of China's most thriving and prestigious sailing clubs, some of the highest real estate prices in China, and is home to one of the country's major stock markets. Its proximity to Hong Kong, Macao, Guangzhou, and Zhuhai, which are overflowing with the kind of expats Silicon Hutong talks about, makes it just as logical as a place to begin as Beijing or Shanghai.

The blogger also writes that KFC, McDonald's, Starbucks, Papa John's, and Pizza Hut are all examples of foreign brands that did it right. It's ironic that each of these brands are already located in Shenzhen, and are thriving. In addition, Shenzhen supports luxury malls along the lines of Shanghai's Plaza 66 and Beijing's Shin Kong Place with Armani, Gucci, and Louis Vuitton stores.

To be fair, "the Hutong" notes that there are things that Krispy Kreme could do better, such as put people on the ground in mainland China and develop relationships with local governments, rather than run their franchises from Hong Kong. But the argument against opening first in Shenzhen is another example of the tunnel vision that seems to affect expat residents of Beijing and Shanghai. People in these two cities seem to assume that the rest of China remains backwards and undeveloped, and are unworthy or unsuitable for high-level foreign brands. This shows a lack of understanding of the development that has been occurring in China's second tier cities, and is unworthy of an otherwise excellent business blog.

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4 Comments

Pierre said:

But I still don't think Krispy Kreme will make it. It is too greasy for the hot and humid Southern China. It is only good when it is still warm. And having a warm doughnut at 95+F is not my cup of iced tea. And having a warm super sweet doughnut early in the morning is not too appetizing either. Most Chinese breakfast sweets are just lightly sweet, not overwhelming like Krispy Kreme.

As you can see, I am not a fan of KK.

Ernie said:

Jokers with profound rationales about Krispy Kreme's inevitable failure sound just like the pundits back in the late 80s and early 90s who promised that McDonald's and KFC would lose money in China. People like fried fat, salt and sugar. It's not about weather or culture. Check Southern California, where Americans, Mexicans, and Koreans, united in their obesity, line up for blocks in 30 degree Celsius heat for their fresh donuts. Krispy Kreme will clog the last few vessels of Marxist-Leninist vigor - bank on it.

Andrew said:

Point #1: Krispy Kreme was founded and still thrives in the hot and humid southeastern United States. Point #2: The overwhelming majority of Krispy Kreme doughnuts are not eaten when they are warm. It is usually Krispy Kreme critics who focus on the warm doughnut issue. Point #3: Krispy Kreme allows its franchises to develop and add specialty doughnuts to their menus to match the tastes of local customers. Asian franchises, in particular, have been developing successful local doughnut varieties. Point #4: In some markets, particularly Australia and the Pacific Northwest in America, Krispy Kreme franchises sell ice cream.

Scott said:

I think this silicon Hutong guy has not been to shenzhen, I live here and believe me there are plenty of people who will openly accept Krispy kreme coming into the market. The first McDonalds in Mainland china was actually in Shenzhen, Is this fried food apart from the fries???

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