The Donut Franchise: Historically A Sweet Deal

John F. Kennedy made a famous speech at the Berlin Wall, when he said, "Ich bin ein Berliner." Literally, this translates to "I am a jelly donut" because a "Berliner" is a type of jelly donut. To be correct, he should have said "Ich bin Berliner."

So now a famous phrase echoes around the world, with millions of people declaring that they want to be a jelly donut. But several million of those would probably rephrase it, "Ich bin ein Krispy Kreme"-fanatical followings are not unusual for that brand.

With a history that goes back to the '30s, and now producing 7.5 million donuts a day in more than 365 stores, Krispy Kreme has the name and the following to weather the low-carb craze. Krispy Kreme also holds to the original spelling of "doughnut"-derived from the early Americans' combination of words for Dutch fried cakes with nuts in the center.

The other big name in the field is Dunkin' Donuts, now a part of giant Allied Domecq PLC. Tracing its history back to 1950, when it was founded by Bill Rosenberg, one of the legendary figures in franchising. Dunkin' Donuts also touts its coffee-chosen by NBC in January as the best coffee in the country. And with more than 5,800 stores, Dunkin' Donuts still has plenty of room for growth.

In fact, the field has attracted a slew of competitors new and old, domestic and abroad: Donut Connection, Honey Dew Donuts, LaMar's Donuts, Paradise Donuts, Crescent City Beignets, Donut King in Australia, Tim Hortons and Robin's Donuts in Canada, Winchell's Donuts, and Shipley Donuts among others.

A Canadian donut invasion? Tim Hortons, based in Ontario but owned by Ohio-based Wendy's International since 1995, is continuing its aggressive push into the U.S. Tim Hortons had more than 250 franchises located in 10 states in the Northeast and Midwest in March 2005, and plans to reach 500 by 2007. In 2004, same-store sales grew 10 percent in the U.S., with the same predicted for 2005.

Despite headlines about low-carb diets and Krispy Kreme's recent financial stumbles, it looks as if there's steady growth and a solid future ahead for donut franchises.

In June 2005, food research and consulting firm Technomic released its Top 500 Chain Restaurant Annual Report. According to Technomic, donuts as a category continued to be a growth leader in 2004, with sales increasing 9.2 percent over the prior year-exceeding the restaurant industry average of 7.2 percent growth in 2004. (Although this was down more than 50 percent from 2003, where the donut category led all segments with 20 percent growth.)

In tracking individual growth leaders, Technomic reported Dunkin' Donuts grew 13 percent in 2004 compared with 2003, an increase from its 11 percent year-over-year growth in 2003. And despite its recent hard times, Krispy Kreme could still ride out its 25 percent growth rate notched in 2003 as it works to recover its momentum in 2005.

The related Bakery Café segment grew at 22 percent in 2004, providing more evidence that Americans still like their carbs. Industry observers agree that donuts continue to represent fun, a treat, and a personal indulgence that will continue to outweigh concerns about health and expanding waistlines for many years to come.

Published: August 16th, 2005

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