OPINION: Both sides can benefit from UK doughnut wars

There is one type of calorie-laden US fast food that British consumers have never really taken to. It's the somewhat sickly confection that is the doughnut. They are eaten here, of course, but their consumption isn't the integral part of the snacking culture that it is over there.

Which is why it's all the more intriguing that a brand little known in the UK, Krispy Kreme, but which Fortune called one of the hottest brands in the US recently, is set to open its first franchises in the UK this autumn.

It only adds to the interest that its much bigger rival, Dunkin' Donuts, is owned by the UK's Allied Domecq. Quite different in size, the two are nevertheless fierce competitors.

Krispy Kreme, with sales of £295n, has under 300 outlets in the US. Contrast that with the doughnut Goliath, Dunkin' Donuts, with revenues of £1.7bn, 3600 outlets in the US and another 1800 in places as far flung as New Zealand, Saudi Arabia and Germany.

The important point is that Krispy Kreme far outstrips its competitor when it comes to brand strength and value. Krispy Kreme appears consistently in top ten lists of the best US brands, with its adherents claiming that when it comes to the quality of its doughnuts, Dunkin' Donuts isn't even close.

Significantly, this is all done by word of mouth as Krispy Kreme has never done any traditional media advertising. Instead, when it opens a new franchise, it gives doughnuts away, particularly to the local media.

It also benefits from widespread product placement in films and popular TV shows like The Sopranos.

Lately, Dunkin' Donuts is beginning to fight back and trying to re-energise its brand. And if you look at it another way, Krispy Kreme is the best thing that could have happened to it - by giving it something to worry about.

As David Stauffer argues in a recent Harvard Business Review article, there's nothing like competition to help you grow the market for your products and services. It forces you to look very closely at your customer base to ask not only who your best customers are, but what 'best' actually means. And the benefits of competition can happen in a number of ways that are often overlooked.

First, competition can make the overall pie bigger. That applies particularly to younger markets where there is still room for growth, such as coffee outlets. Starbucks helped to grow a new breed of consumers who wanted better quality when it comes to coffee.

They also wanted choice, which is why having any number of coffee-outlet brands in close proximity to each other often benefits them all - or, at least, those that are demonstrably up to scratch. What's important is that you clearly understand in what sense your competitors' strategies can actually benefit your business.

For instance, if they are first into a new product area, you can let them take the risk and then improve on the offer. Or, if you are faced with a successful niche player like Krispy Kreme, you can use them to help sharpen up your dormant competitive instincts. You can even 'invent' a competitor to make sure you don't get caught out further along the line.

In other words, you need your competitors. They might be your enemies.

But they will certainly help to keep you on your toes.

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