Donut King Takes On Chinese Market

Up for a vanilla with green-bean paste donut? That may be on offer on the new menu at Donut King as it takes on the Chinese market.

The chain's owner Retail Food Group Ltd (RFG) is taking Donut King to China after penning a master licensing agreement with Shanghai-based Mak Brands Ltd.

RFG said consumer research showed Donut King's offerings would need to change to meet the taste profiles and expectations of Chinese consumers.

"The donut offering will change in terms of flavours and colours," RFG executive director Nigel Nixon told AAP.

"The Chinese palate is more bland. Our donuts are too sweet for the Chinese palate." New flavours such as green tea donutholes or vanilla with green bean paste donut may be featured, he said.

RFG, which was also the franchisor behind popular brands such as Brumbys Bakeries, Michels Patisserie and bb's café, said being first off the block into China gave any company an advantage.

"It's virgin territory and you want to take a first-mover advantage on that," Mr Nixon said.

"And second reason is the massive population (of more than one billion), that is why there is a significant interest in parties wanting to exploit those rights in that particular country." The mast licensing agreement grants exclusive rights to Mak Brands to establish and expand the Donut King chain throughout China.

RFG said the agreement generated immediate and continuing revenue in the form of an initial licence fee, payable upon agreement execution, and ongoing royalties that were about 1.5 per cent of total gross turnover in all outlets.

Mr Nixon said there was a minimum requirement to establish 140 outlets in the first 20 years.

Mak Brands was founded to establish and expanded retail food and restaurant outlets throughout the greater China region.

Mr Nixon said Donut King would be the first brand within Mak Brands portfolio but he was not worried about working with a company without a proven track record.

He said Mak Brand's founder and managing director, Paul Mak, was the son of Winnie Wang, who was Mak Brands chairman and a substantial shareholder.

Ms Wang is also vice-chairman of Johnson Electric Holdings Ltd, one of the world's largest providers of motion subsystems and motion components for automotive and industrial applications.

Ms Wang is also a director of apparel manufacturer and distributor Tristate Holdings Ltd.

These companies are listed on the Hang Seng Index in Hong Kong.

Mr Mak, who is formerly general manager Nautica China (a division of Trieste), said Donut King would open a flagship Donut King outlet in Shanghai by the end of this year.

"We have identified additional sites, and by the end of fiscal year 2009 are confident that 10 to 15 outlets will have been established within east China, providing a firm platform for future growth," Mr Mak said.

RFG, which made its initial public offering about two years ago, has 1,050 franchised outlets in Australia and New Zealand.

Mr Nixon said the firm wanted to take other brands to South-East Asia.

He said RFG is negotiating two other licensing agreements within South-East Asia.

Mr Nixon said the company was sticking with its full year guidance of a record annualised earnings before interest and tax (EBIT) of $32 million and earnings per share (EPS) of no less than 15.75 cents.

RFG shares ended six cents firmer at $1.31.

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