Start a Doughnut Business

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Doughnuts

Doughnut shop selection. Photo by Paul Holloway http://www.flickr.com/photos/paulholloway/

It seemed like the local doughnut shop was going to be extinct soon as more and more people have been substituting a trip to the premium coffee shop for a trip to the doughnut shop.  But even though we have an “obesity crises,” Krispy Kreme and Dunkin Doughnuts have announced that they are back in expansion mode.  Both companies expand through franchising.  We thought that we would look into this because there is a lot of intrest in opening a doughnut shop.  But it looks like it’s becoming a competitive business, and to buy a franchise you need to have a lot of cash.  The actual equipment does not cost that much, but you pay for the rights to be part of the franchise.

Making Donuts in a Donut Shop

But you don’t have to be a master chief to make doughnuts.  The process at many shops had been designed so that a worker with little training.  As you can see in the video below, the doughnut mix comes in what appears to be a 25pound bag.  You add water and mix.  Then the mix is put through an extruder and fried.  The video below shows a machine, but others make them by putting the mix into an extruder (like the type that’s used to make pancakes), and plopping the mix right into a frier filled with hot oil.  Doughnuts are made fast compared to baked goods.  Doughnut robots, illustrated in the video, take from 60-90 seconds to produce a doughnut, and even some smalar models can make 56 doughnuts/hour.(fn1)  After the after the doughnuts come out of the frier, frosting is added, or they are dipped in a sugar glaze.

 

It’s all about the Doughnuts at Krispy Kreme

While other chains have tried to go after those who will pay $3.50 for a good cup of joe, Krispy Kreme has kept its business model focused on one thing–great doughnuts.  Although Southern California is not listed as one of their expansion areas we did notice that they did a press release announcing that they will be expanding and a new KK has opened up in Chino.  So we suspect that it will not be long until they have more opportunities in Southern California.   If you are one of the lucky few to be selected as a franchisee, you can be sure that you will have a line out the door because of their doughnuts’ reputation.  But they are not exactly giving franchises away.  They require a 2 mil net worth and at least 1 mil in liquid assets.  They also want someone with experience in a food franchising business.

Franchise Website http://www.krispykreme.com/franchise/united-states

The chain has had a troubled past because it expanded too fast.  The craze seems to have peeked in the mid-200’s when the chain had $665.6 in sales and over 400 locations.  The powers that be on wall street considered the store to be a growth company with great prospects.  But the chain has been criticized for crowding too many stores in each market, and eventually sales growth declined.    And soon you could buy a KK doughnut everywhere–the grocery store, gas stations, air ports.   They were not special. ( See this Wikipedia Article for more info )  Lately they seem to have been focusing on international expansion, and a more calculated expansion within the US.

As of Jan 2013 they have 238 stores in the US and are profitable again.  Including international stores they have 740 and would like to expand to 1,300 by 2017.  Their new growth strategy involves an new model factory store where customers can see the doughnuts being made; and less on having availability everywhere.  LA Times Article

Dunkin Doughnuts

Dunkin had been in California but closed up shop in the late 90;s.  This chain plans to get back into the Southern California market by opening up Franchises.  According to this LA Tims article, they plan to have 150 locations by 2015, and eventually have 1,000 franchises in the golden state.  To get involved, according to their website www.dunkinfranchising.com/franchisee/en/process.html , you need to have a minimum net worth of $500,000 and liquid assets of at least $250,000.  You also need some business experience, preferably in food service.  They do not disclose the franchise fees, or royalties franchisees are charged on their website.  And it is possible that they vary based on location.

This franchise has been emphasizing the quality of it’s coffee to take market share from Starbucks.

Winchell’s Doughnuts

This chain was purchased by Yum Yum Doughnuts in 2004, but still operates under the Winchell’s name.  Especially in So Cal where it is has been know for a long time.  As with the other chains, they are trying to branch out by re-defining themselves as a destination for premium coffee.  And some locations also serve sandwiches.  According to their website, they are seeking franchisees in Southern OC, Riverside, and San Diego (LA seems to be missing from the list).  You need to have a minimum net worth of $200,000 and at least $75,000 in liquid assets.  Borrowed money does not count toward these requirements.  You are required to own or be able to lease an appropriate location.  They are looking for about 1,000-1,2000 sq ft with adequate parking and signage.  They take about 8% of your gross for fees.

Another possibility is that you could buy an existing business.

 

Yum Yum Doughnuts

The franchise info seems to be identical to that of Whichell’s above.

If it seems like we don’t know what we’re talking about, that’s because we don’t.  Note that we’re not experts, so your comments would be helpful.

fn1 Mark 5 doughnut Machine 

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