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KKD Inks Franchise Deal in Taiwan

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Krispy Kreme Doughnut Inc. is all set to expand into Taiwan. Recently, it inked a development deal with Huan Hsin Co., Ltd, its franchisee, for setting up 10 locations in the country over the next five years.

Chinese restaurant operator Huan Hsin has 30 years of experience in the restaurant sector, food processing and imports, and electronics manufacturing in Taiwan, Malaysia, and China.

Huan Hsin manages a variety of restaurants like approximately 90 "Super gCar" fried chicken take-out stores in Shanghai, Suzhou, and Nanjing, and 4 "Mr. Wish" fresh fruit/bubble tea shops in Shanghai. Given its familiarity with local food habits and a strong presence in the same industry, Huan Hsin is deemed a strategic fit for Krispy Kreme’s Taiwanese expansion plan.

The latest alliance exhibits Krispy Kreme’s intent to make Taiwan one of the prime markets for international expansion, considering stepped up economic growth and under-penetration of quick-service restaurants in the region compared to the North American countries. Further, Krispy Kreme sees coffee and doughnuts as a flourishing category in Taiwan. It also believes that Taiwanese have a preference for Western food.

Krispy Kreme currently has a presence in 21 countries around the globe. According to management, the company’s overseas expansion is expected to be more in 2013 than in 2012. Encouraged by its six-fold growth in international exposure over the last five years, the company seeks to double its current overseas store base within 2016.

We believe the company’s extended global reach bodes well for its financials. On the flip side, there is some fear of deterioration in comparable store sales from cannibalization by the new stores.

Krispy Kreme currently retains a Zacks Rank #2 (Buy). Some other restaurant industry stocks currently performing well include Chuy's Holdings Inc. (CHUY - Free Report) , Dunkin' Brands Group Inc. (DNKN - Free Report) and Burger King Worldwide Inc. , each with a Zacks Rank #2 (Buy).

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