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Bagels, doughnuts go hole to hole

By Kelly Pate
Denver Post Business Writer

May 7 - Fifteen years ago, it seemed like a Winchell's or Dunkin' Donuts sat on every corner in Denver, decorated in the same bright yellows, oranges and pinks that top a rainbow-sprinkled doughnut.

But by 1990, many of Colorado's doughnut shops had disappeared. Bagels conquered their sugar-laden cousins as a nutrition craze swept the nation, preaching carbos and anything fat-free. Doughnut shops were hit doubly hard as Colorado's economy lagged. Altogether, the outlook for doughnuts was doom.

That's all changing.

Grocery stores, which hold a big stake in the doughnut market, have reported increased sales during the last year. And the arrival in the next year of Krispy Kreme Doughnuts and another big doughnut chain, LaMar's Donuts, and plans for expansion by Winchell's Donut House, could double the number of doughnut shops in Colorado in the next several years.

"A few years ago, people had more health concerns, whereas now if they want a treat, they treat themselves," said Stan Parker, a spokesman for Krispy Kreme Doughnuts, which plans to open in Denver later this year or early next year.

Right now, about 50 doughnut shops are scattered throughout the Denver metro area, and statewide the number is about 130. In 1990, there were 68 doughnut shops in Denver, and in 1985 there were 92, according the Denver Yellow Pages.

Doughnuts making comeback

Denver restaurant consultant Wendy Aiello believes Colorado will welcome back doughnuts and that a battle could ensue.

"This is like bagels were when Einstein's, Bruegger's and Chesapeake Bagel came to the market. It was bagel wars," she said.

Aiello said the comeback of doughnuts here and elsewhere is boosted by Krispy Kreme's marketing efforts.

"They've been creating a lot of buzz nationally in the popular press, which is translating to the local markets when they open in a city like Denver," said Aiello.

Krispy Kreme has appeared on morning lifestyle TV shows, spots in movies and a good deal of celebrity attention.

"Their doughnuts are lighter weight and sweet," said Ron Paul, president of Technomic, a Chicago based restaurant consulting firm. They're also served hot.

"It's a phenomenon," said Paul. "It's a cult. It's like Coors used to be."

Krispy Kreme's first and most popular creation is the glazed doughnut, which customers can get fresh and hot when the store flashes a red neon light in its window.

Krispy Kreme expanding

The company started in the 1930s in Kentucky and has attained legendary status throughout the South. After finding recent success in California, Krispy Kreme plans to expand in nine other states, including Colorado, where franchisee Glazed Investments LLC will operate the stores. The expansion plans follow an initial public offering of 3 million shares on April 5, which raised $63 million.

"About five years ago we went into New York," said Parker, senior vice president of marketing for Krispy Kreme. "It went so well we began to believe Krispy Kreme could be a national brand." From there, the company opened stores in Las Vegas, Chicago and St. Louis. "Denver's a natural part of this expansion strategy for us," he said.

Krispy Kreme typically enters a market by opening retail stores and once it gains footing, the company also may go into the wholesale business, selling products to groceries and convenience stores.

"They've done well everywhere they've opened," said Paul. "There's no reason they wouldn't do well in Denver." Krispy Kreme's challenge will be finding the perfect locations, neighborhoods where people will indulge, he said.

LaMar's launch pad

There aren't any flashing lights at LaMar's Donuts, which opened its first Colorado store last month, at Sixth Avenue and Kalamath Street in Denver. LaMar's takes a more traditional approach to doughnuts, concentrating on freshness and quality ingredients, said Joe Field, president of LaMar's.

"Normally on a weekday, we've had a steady rush out the door and down the sidewalk probably until about 9:30," said Field of the new Denver store. "On the weekends, the rush stays out the door early to mid-afternoon."

That one store is LaMar's launch pad for growing the Colorado market, which includes relocating its headquarters and training center here from Lincoln, Neb., and creating more than 300 jobs. Next will come expansion across the country, targeting underserved doughnut markets, said Field.

LaMar's operates 27 stores in seven states scattered throughout the country.

Raymond Lamar opened his first doughnut shop 67 years ago in Kansas City, Mo. The company grew slowly over the years but adopted a more aggressive expansion plan after a group of investors, lead by franchise consultant Joe Field, purchased LaMar's in 1997.

Expansion is also on the horizon for Winchell's, which has operated in Denver for decades. Winchell's plans to open two to four stores in the Denver area this year and eight to 10 more next year, said Sean Akil, district manager for the company, which is based in Santa Ana, Calif.

That's a turnaround for Winchell's, which has 16 Denver stores today, down from 20 seven years ago. Akil said many of the stores that closed were located in areas that previously saw a lot of traffic, like one store near the former Stapleton Airport. Winchell's also plans to remodel its stores companywide, said Akil. Can all these new doughnut companies survive?

"People are making a comeback to the doughnut business," said Akil. "We are looking forward to the competition. It's healthy for the whole business." Handrin Ismail, manager of two Denver Winchell's, said, "People will try Krispy Kreme right away because people love to try something new, especially the people in Denver."

But he believes the company will raise awareness about doughnuts universally, noting that one Winchell's store in California saw sales jumped 28 percent the week after Krispy Kreme opened a block away.

Dan Imo, owner of Chuck's DoNut Shop, at East Kentucky Avenue and South Washington Street, agrees the new competition is healthy.

"All it's going to do is increase my business," said Imo. "With all their advertising, people are going to be thinking doughnuts. All this is for me is free advertising." Imo believes the big doughnut chains will compete more with supermarkets than independent doughnut shops, which tend to draw from the surrounding neighborhood. If doughnut shops become more prevalent, they will compete with each other and with groceries on location and price.

One Safeway in Littleton recently increased the price for a glazed doughnut from 33 cents to 44 cents. However, that falls well below doughnut shop prices, which range from 55 cents to 65 cents. Bear claw and apple fritter lovers could pay $1 or more in a doughnut shop.

Colorado has one of the lowest levels of doughnut consumption in the country, which means one of two things, said LaMar's Field.

"Either people here just don't eat doughnuts or you have no one here providing doughnuts people want to eat. We believe it's the latter." Doughnut shops also will compete with the 100 or more bagel shops in Denver, but neither type of shop expects to topple the other. One clear reason is crossover - people who eat both doughnuts and bagels.

Shelly Maddy of Denver is one such customer. She usually eats bagels from Moe's, but confessed she's a longtime doughnut lover "that's been in remission for a while."

Visiting LaMar's last week for the third time, Maddy was enjoying a German Chocolate Twist. As much as she relished the treat, Maddy expects to limit her visits to LaMar's to once a week. But she still carries a "frequent doughnut" card.

Another LaMar's customer, Jim Moffett, said he usually eats bagels, but had heard about LaMar's and wanted to try it. Armed with a dozen doughnuts and headed for work, he said he'll be back if they taste great, but patting his stomach, added "just once or twice a week."

For Chuck's Do-Nut, bagel competition hit sales hard initially. Imo said his business dropped off about 25 percent over the two to three years after Einstein's and other bagel shops started opening nearby and Einstein's was giving away free bagels. It has improved and continues to increase, he said.

Einstein's no longer can afford such extravagant promotions, as the company filed for Chapter 11 bankruptcy last month. However, the Golden-based bagel chain cites problems with heavy debt from acquiring prime real estate, not a lack of bagel sales.

John Imbergamo, a Denver restaurant consultant, expects doughnuts will take a bite out of the bagel market, but also will compete with muffins, cereal and eggs, depending on individual tastes.

Eating preferences cyclical

Carol Kroskey, editor of Donut Digest - the Retailer Bakery Association's bi-monthly newsletter - believes no one breakfast food will win out.

"The people who like bagels are going to continue eating bagels," she said. "They may have a doughnut now and then instead of a bagel or candy bar or a cookie."

Erik Huf, manager of Moe's Broadway Bagel at 550 Grant St., said LaMar's doughnuts are tasty and that he grew up with Krispy Kreme. But he believes many people will eat bagels almost every day, while most doughnut eaters will reserve doughnuts as a treat. He also said eating preferences are cyclical.

"I think doughnut shops are going to have a few years of growth like bagel shops. It's all very cyclical," said Huf. "Right now, there's sort of a backlash toward nutrition. That's why more steakhouses are opening." That moderation seems to be the prevailing view.

"You can afford to treat yourself without going overboard, which has opened the door for bakeries and doughnut shops specifically to make a comeback," said Kroskey. LaMar's Field agrees.

"Overall people are not as concerned," Paul said. "We're fatter than ever. We talk health and eat fat."

Copyright 2000 The Denver Post. All rights reserved.
This material may not be published, broadcast, rewritten or redistributed.


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