It’s North vs. South in doughnut civil war

Dunkin' Donuts fan Jack Lehnhart disagrees. "Wax doughnuts," he says about Krispy Kremes.

Lehnhart, an Ohio native, and his wife Nancy brought their out-of-town guests, Jo-Ann and Bob Ruel, to the Dunkin' Donuts store in Franklin before the Ruels started driving home to Chatham, Mass.

"When we're on the highway, we're always looking for the DD sign," Jo-Ann Ruel said.

Josh Owens, an equity analyst who follows the restaurant industry for Morningstar in Chicago, said Krispy Kreme is still a relatively small chain compared to Dunkin'.

"Dunkin' Donuts has a reasonably strong brand. It's a brand a lot of people are familiar with. It's not necessarily going to have the fad element that Krispy Kreme had with its expansion," he said.

Krispy Kreme went public in 2000 and became a national sensation as it expanded across the country. Its stock price and profits climbed rapidly, but then crashed in 2004.

Krispy Kreme executives at the time blamed the low-carb craze for declining sales, but the company had serious problems — it faces shareholder lawsuits and investigations alleging it engaged in faulty accounting — and analysts said it grew too fast. Krispy Kreme Doughnuts Inc. recently hired two former tobacco executives who are expected to help the company clear some of its problems.

Dunkin' Donuts executives say that won't happen to them because they plan to expand slowly and with a broader line of products.

'Renowned for our coffee'
"We're very different," Rodriguez said "Our brand and our model is very different. We're a full line of baked goods. We're renowned for our coffee, which is a major, major player."

In fact, Dunkin's coffee may be more important to its business prospects than its cakey doughnuts. While Starbucks Corp. leads the growing $11 billion industry, there's still plenty of room, Owens said.

Dunkin' Donuts' blue-collar customer base varies so much from the more upscale patrons at Starbucks that the two companies practically operate in separate markets, he said.

Dunkin' Donuts believes some of its other products — bagels, breakfast sandwiches, cookies, flavored coffee — will attract Southern customers, even if they stay loyal to Krispy Kremes.

"We have Starbucks employees that come from across the street," Rando said. "They aren't shy about why they're there. They'll say 'Hey, we like our coffee better, but you've got an awesome menu.' "

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