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Doughnuts Are the New Cupcakes

By Andrew Marder – Jan 25, 2014 at 1:00PM

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Cupcakes are out, leaving a nice vacuum for Krispy Kreme and Dunkin' Brands to step into.

Next time you find yourself in Durham, N.C., do yourself a favor -- get a doughnut muffin at Scratch Bakery. Apparently, Scratch is well ahead of the curve, getting in early on the doughnut craze. For the past few months, foodies the world over -- or maybe just in Brooklyn and San Francisco -- have been calling for the rise of the humble doughnut. For years, we've been forced to endure life under the frosted iron fist of cupcake supremacy, but the reign of terror is coming to an end.

This could be the boost that Krispy Kreme (KKD) and Dunkin' Brands' (DNKN) Dunkin' Donuts need to have a stonking -- look it up -- 2014.

The culinary outlook for 2014
Almost overnight, doughnut stores started popping up across the nation last year. In Richmond, New York City, and Seattle, doughnuts have been taking the main stage. The Cooking Channel launched Donut Showdown last year, pitting North American doughnut business against each other in a taste challenge.

For restaurants, doughnuts have a massive appeal. The ingredients are cheap, the preparation is largely mechanical, and the trendy aspect allows for solid pricing. Doughnut Plant, a New York City chain, charges more than $2 per treat for even the basic glazed doughnut. Even at that price point, the restaurant gets rave reviews. With the market turning toward the doughnut, Dunkin' Donuts and Krispy Kreme are perfectly poised to take off.

The business outlook for 2014
Expectations are high at Dunkin' Donuts, to be sure. During 2014, Dunkin' Brands is expecting its licensees and franchisees to open about 400 new locations in the U.S. and more than 300 additional locations worldwide. Almost all of the U.S. locations will be Dunkin' Donuts, while the international mix will probably contain more Baskin-Robbins restaurants.

Krispy Kreme has also laid down an impressive expansion plan. By 2017, the company wants to increase its store count from 250 to 400 in the U.S. and from 560 to 900 internationally. Krispy Kreme is relying on a mix of franchise and company-owned locations in the U.S., and is focusing efforts on a perceived strong opportunity in the Southeast.

For both brands, 2014 looks like a clear winner. Even if doughnuts fail to be the new cupcakes, Dunkin' Donuts and Krispy Kreme are going to make a splash. Add in the coffee aspect -- bean prices are dropping -- and both companies could make 2014 the new 2013. That would be truly impressive.

Fool contributor Andrew Marder has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Dunkin Brands Group Stock Quote
Dunkin Brands Group
Krispy Kreme Doughnuts, Inc. Stock Quote
Krispy Kreme Doughnuts, Inc.

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