According to Malcom Bedell in “How To”, The doughnut business is booming, and continues to grow year after year. According to a March 2018 report by IBIS World, the doughnut industry brings in about 16 billion dollars each year, with large franchise chains dominating the marketplace. It’s easy to see why; the margins on doughnut production and sales are off the charts, with ingredients costing just pennies on a product that can be sold for $1.00 or more. Customer buying trends also show an increase in “small-scale luxury” purchases like donuts, and the industry trends toward creativity and gluten-free offerings continue to drive growth in the donut sector. If you factor in coffee sales, another ridiculously high-margin item, the doughnut business may start to make a lot of sense.
Doughnuts are definitely not a fad or trend, national and regional brands have thrived since the 1930’s. As many other American favorites the doughnut has taken on a new life with new ways to create, decorate and present the product to the consumer.
A doughnut shop is part of the QSR division of food sales. QSR stands for quick service retail, because in most cases the product in a doughnut shop is made before the customer orders. This creates especially high numbers of both sales and customers in an unusually short time period compared to other QSR products.
The margins on donuts are excellent according to a recent study printed by Azcentral a division of USA today. In a securities filing by a single national doughnut franchise, profit margins were in excess of 70 percent. Operating as a franchise model, it is safe to assume similar margins for other stores operating under the same brand. (We typically encounter around 55 to 60% profits in most of our clients stores)
Doughnut shops have excellent margins, because the pastry sells as a standalone product, thus making money in the donut business is entirely possible. Creative recipes, marketing and a low overhead business models can drive revenue in this business. Many doughnut shops are successful and profitable in the U.S. Look to prolific doughnut-focused chains like DD and KK for further confirmation that profit potential exists in the doughnut business.
Doughnut shops are no longer just doughnut shops, they sell breakfast sandwiches, breakfast sides such as biscuits and gravy, lunch items such as soups and sandwiches and desserts such as gelato, ice cream and smoothies. Quality coffee has found its way into the menu with espresso, cappuccino, and latte’s; not to mention bakery style desserts such as turnovers, pies, and cookies. It is a concept that can easily be co-branded with an evening concept to create almost 24 hours of revenue potential, 7 days a week.
Doughnut shops are not limited to the four retail walls of a location, like so many other QSR concepts. Doughnut shops can wholesale their product to almost anyone including churches, convenience stores, bakeries that want to sell doughnuts without the investment, catering and fund raisers. The addition of a delivery vehicle can make big profits for the store before the open sign is illuminated to serve the general public.
The typical average cost to make a doughnut when calculating the raw materials is only about 12% of the retail price and has remained near this for the last 30 years. Doughnut shop food cost, because it is so cheap to make, is easy to control if you control the waste of the finished product.
A client and the owner of a small group of doughnut shops in Oklahoma recently shared that his average retail sale in stores average was $8.00 per customer in 2018 based upon his POS reports. A client in Maryland, also when consulted with, said that his store averaged 8.00 per customer in 2018 based upon his calculations and POS reports. At $8.00 a customer and only 200 customers a day, the seven day a week store can have sales over the ½ million dollar amount.
In fact, Americans eat about 10 billion donuts each year according to USA today—that’s about 31 donuts per person per year, or 2.58 donuts per person each month! It is hard to find any other food category with these amazing statistics.
According to DD’s website in 2018, the franchise has 8500 stores in the U.S. and averages 3,000,000 customers per day. This is an average of 352.94 customers a day per store average with the average taking place in 41 states out of 50.
The city with the most doughnut shops per person is Boston, Massachusetts according to the last report we read.
According to BakeryBusiness.com the three most popular bakeries in the United States are donut shops, based on a Travel + Leisure magazine report citing Instagram data, it may be time to officially proclaim the donut as America’s favorite sweet baked good, surpassing the once beloved cupcake.
According to an article written in BakeryBuisness.com, doughnuts are no longer synonymous with the word bargain. Many shops sell gourmet donuts that are as colorful as they are costly. London’s Dum Dum Donutterie reportedly serves a $1,975 donut topped with Cristal champagne caviar, gold leaf, Tahitian gold vanilla beans and Italian-made Amedei Porcelana chocolate, as reported by The Daily Mail. There are numerous shops in the United States selling gourmet donuts every day for $3 to $4 apiece.
Specialty donuts at California Donuts sell for $2, $2.50 or $3. The specialty menu includes their signature Panda donut made with Oreo pieces, Blueberry Toast Crunch, Strawberry and Nuts, Samoa, and Lucky Charms.
The average annual number of breakfasts consumed per person in 2015 was 361 (up 11 per person from 2010), meaning the average person is eating breakfast almost every day.
According to Reuters, a study commissioned by the National Coffee Association surveyed 3,000 Americans about their coffee drinking habits. The survey found that 64 percent of Americans drink a cup of coffee every day, up from 62 percent in 2017, and the highest percentage since 2012.
According to the NPD group despite the growing popularity of grabbing breakfast on-the-go, most consumers are still having breakfast the old-fashioned way: According to NPD's study, 70 percent of all breakfasts are still consumed in the home. We think this is a huge opportunity of growth for breakfast quick service retail establishments with the correct marketing; it could be easy to break the bowl of cereal routine.