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Krispy who? Winchell’s sees an opportunity for growth

Santa Ana-based Winchell’s Donut House has a red-hot rival but doesn’t seem to mind.

“We dare people to compare Krispy Kreme doughnuts to our doughnuts,” said Bob Zanolli, Winchell’s president. “We’ve got a bigger doughnut. We think it tastes better.”

Once a Southern California fixture, Winchell’s has seen Winston-Salem, N.C.-based Krispy Kreme Doughnuts Inc. steal much of its thunder lately.

But Zanolli said he’s not worried. In fact, he said, he’s happy that Krispy Kreme has “clearly increased doughnut awareness in the community and country.”

Winchell’s even is looking to piggyback on its popular competitor: so far, the Orange County doughnut chain has two stores,one in La Habra and Riverside,that are just down the street from Krispy Kremes.

Zanolli concedes that Krispy Kreme has taken some sales away from Winchell’s. But, “in the end, I think we’ve won more than we’ve lost,” he said.

“Frankly, our bigger competitor is the independent doughnut shop that exists throughout California,” Zanolli said. “We focus on what we can control, which is making good doughnut shops and putting the best products in people’s mouths.”

Still, it hasn’t hurt that 67-year-old Krispy Kreme, which operates 185 locations in 30 states, has made eating fried puffs of dough cool again,a change of heart fueled in part by brand hype dubbed the “Krispy Kreme craze.”

Krispy Kreme stores play on the theme with windows that let customers watch doughnuts being made (as does Winchell’s). In the window, a “Hot Doughnuts Now” neon sign glows twice daily to signal freshly prepared Original Glazed doughnuts, Krispy Kreme’s signature offering.

In Riverside, Zanolli said, Winchell’s was ready for the arrival of its Krispy Kreme. He said the company and its local shop “felt like we could stand on our own two feet after an initial trial of the local market.”

Winchell’s and Krispy Kreme are likely to have more encounters, seeing as both are in the throes of expansion. Krispy Kreme, which has 13 Southern California locations, including the La Habra site and ones in Orange, plans to roll out 32 new stores nationally, including one in Oxnard and Palmdale, by next year.

Meanwhile, Winchell’s, which has 200 stores in the Western U.S.,down from a high of about 1,000 two decades ago,plans to open 15 new franchises this year.

Winchell’s, owned by Vancouver, B.C. real estate and food service investor Shato Holdings Ltd., is scouting undisclosed spots in Los Angeles and OC for new doughnut houses, according to Zanolli.

Like other doughnut chains, Winchell’s is hoping to cash in on the buzz created by Krispy Kreme, according to Alan Liddle, an editor at New York-based trade publication Nation’s Restaurant News.

“The fact is a lot restaurants open up next to busy restaurants and do well because of overflow or a little better pricing,” Liddle said.

But analysts warn that the Krispy Kreme craze won’t last forever and may be showing signs of cooling along with the economy. After a heady runup earlier this year, Krispy Kreme shares were off last week by about 20% from their 52-week high hit in June.

Even so, it’s critical for Winchell’s “to leverage the high tide and make sure people come back,” according to Liddle. But it’ll need better products, consistency and variety, to name a few things, he said.

Winchell’s is revamping its stores and trying to perk up its image in a bid to reverse years of declining sales. Two years ago, the company launched a new “Warm ‘n Fresh” marketing campaign, which offers customers a fresh handmade doughnut (Krispy Kreme’s are made by machines) daily between 6 a.m. and 11 a.m.

The company continues to push the theme and plans to spend about $30,000 to $40,000 per store to renovate each one with a new, contemporary look. Plus, Winchell’s has come up with a new logo, menu boards and outdoor signs.

The company’s La Habra store, which opened last winter, was the first to unveil the changes. Zanolli said it was been well received.

Meanwhile, the chain is showing signs of a turnaround, according to Zanolli. He said sales last year were up as much as 18% vs. the year-ago period,the first time in years Winchell’s was able to post a revenue gain.

Though Zanolli wouldn’t disclose overall sales for the company, past articles put Winchell’s annual revenue at about $70 million.

Sales continued to expand in the first quarter, Zanolli said.

“There’s nothing like momentum,” he said. “Last year was the best year we had in years. Because of that, we’ve been willing to take a few more risks.”

Winchell’s also has put together combo meals designed to increase the average amount customers spend at stores, Zanolli said. The average sale at Winchell’s stores has inched up by 3 cents to $2.64 since the start of the year, he said.

But Winchell’s still has a ways to go before it regains its past glory. Back in 1990, the chain counted 617 stores and annual sales of $130 million, according to Nation’s Restaurant News. When Shato Holdings bought Winchell’s, nearly a third of the chain’s stores were sold to what now is Tricon Global Restaurants Inc. and converted to Pizza Huts.

Now, the company wants to get the “Winchell’s brand name back in the mouth of the consumer,” according to Zanolli.

Liddle of Restaurant News said Winchell’s has brand and consumer recognition working in its favor. But challenges remain.

“If they want to draw a new generation of customers they have to overcome the negative health connotation associated with doughnuts,” Liddle said. “If Krispy Kreme can overcome that, than maybe Winchell’s can.” n

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