• by October 10, 2008

From Phoenix to Shanghai, Krispy Kreme Doughnuts moved forward this week on two of the "key strategic initiatives" promised last month upon release of its quarterly earnings:

• the launch of what it had termed a "hub-and-spoke" retail model--now dubbed "neighborhood doughnut shops," with Arizona serving as the first market

• building upon its successful international franchising, via an agreement to expand into China.

Bringing its signature doughnuts "closer to consumers," Krispy Kreme will use a traditional "factory store" in nearby Mesa, Ariz. to deliver fresh supplies of 15 doughnut varieties three times daily to three new "neighborhood doughnut shops" in Phoenix itself. The three shops also feature regular and decaf coffee, Chillers and Shamrock Farms mmmmilk.

Based on how the concept fares in Arizona, Krispy Kreme plans to roll out similar neighborhood shops around the country. Franchise holder Dan Brinton, who brought Krispy Kreme back to the market five months ago after a two-year absence, said he'll stick with the new business model in any case, even as the concept serves as a "proving ground" for the national chain. "I'll take that challenge," he tells Marketing Daily. "I believe this will be the way Krispy Kreme goes nationally over time."

The idea, Brinton explains, is to take Krispy Kreme to "where the customers are" rather than making them travel to the KK destination store where doughnuts are famously made right in front of their eyes. The thrice-daily restocking, he adds, is exactly the same as at the factory store: "there should be no differentiation between the doughnut you eat at the neighborhood store and the doughnut you eat here (the factory store)."

Brinton plans to open seven more neighborhood shops in Tempe, Glendale and Scottsdale before next summer. And unlike the market's previous franchisee, which went bankrupt, he says he will not oversaturate the market through wholesale sales to convenience stores and other locales.

Krispy Kreme said that last Thursday's store openings marked the first time it had ever opened three stores on the same day. The grand openings featured a "Glazed Treasure Hunt"--a geo-caching competition with 20 prizes including a year's supply of doughnuts and coffee--as well as free handheld GPS units to the first 20 customers in line at each location. And one of the neighborhood shops actually outsold the factory store, Brinton said.

The expansion into China, meanwhile, calls for some 35 Krispy Kreme locations to open over the next four to five years in the Shanghai, Beijing and Tianjin markets. Krispy Kreme awarded the franchise development rights to KKD Lotte Holdings Co., which has worked with the company over the past four years on franchise locations in Japan and South Korea.

Krispy Kreme also recently announced new franchising agreements for Turkey and Malaysia. With China now in the fold, the company's international footprint has increased to 19 countries.