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15/10/02 . By Akiko Mori . Yahoo! News . New York (Reuters)  
McDonald's May Woo Japan with Krispy Kreme  
Japan's top restaurant chain, McDonald's Holdings Co. (Japan) 2702.Q), may be finalizing plans to partner with U.S. sweet-treat giant Krispy Kreme Doughnuts, Salomon Smith Barney said in a note on Tuesday.  

Analyst Mark Kalinowski said the possible partnership would allow the Japan venture of the U.S. fast-food giant McDonald's Corp. to open Japanese outlets, banking on the country's sweet tooth for the glazed doughnuts, served hot.

He pointed out that the Japanese have already embraced all-American sweets such as Cinnabon, owned by AFC Enterprises Inc., "to a significant degree."

Quoting unidentified industry sources, Kalinowski did not elaborate on what could be McDonald's Japan's latest move to reclaim its dominance in the country by impressing its finicky consumers with tasty doughnuts.

The nation's largest fast-food chain got a cheer from the market earlier this year when it announced plans to branch out from burgers in a partnership with British sandwich maker Pret a Manger.

"The move seems in keeping with McDonald's Japan's strategic plans as well as Krispy Kreme's recent moves to open in international markets," he wrote. "In addition, McDonald's Japan is one of the foremost experts on Japan's challenging real-estate market."

Krispy Kreme's spokeswoman Brooke Smith declined to comment on the research note but said the company announced plans earlier this year to expand outside North America, targeting six countries including Japan.

The company, which operates 233 outlets in the United States and Canada, has already inked a deal to open stores in Australia and New Zealand.

"We plan to identify franchise partners (for Britain, Spain, Japan and South Korea). But we don't comment on international franchise agreements until they are completed," Smith said.

McDonald's spokeswoman Anna Rozenich also declined to comment.

Kalinowski reiterated his rating of McDonald's shares at underperform, but said the synergy "could be a major positive for McDonald's Japan" and for Krispy Kreme.

He does not rate Krispy Kreme and does not own shares of either company.

McDonald's Japan shares hit an all-time low of 2,120 yen last week, down 36 percent from the start of this year, hit by a loss of consumer confidence in beef due to worries over Japan's first case of mad cow disease last September.

Its sales have steadily declined despite reassurances that McDonald's uses only imported beef in Japan.

A record cut in hamburger prices in August to 59 yen (48 cents) from 80 yen has failed to boost same-store sales in September, which helped hammer shares in its parent McDonald's to a near seven-year low last week.

Krispy Kreme shares rose $2.32, or 7.5 percent, to $33.18 on the New York Stock Exchange, outperforming the broader market. McDonald's edged up 9 cents, or 0.5 percent, to $18.06 no the NYSE.  
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