Why Cake Donuts are Flourishing

To track the phenomenal growth rate of cake donut sales in America, one must go back in time to the humble beginnings of this eye-catching trend in 2013. Let’s start with two examples. Four years ago, Duck Donuts opened its first franchise store in Williamsburg, Virginia, and Hurts Donut Co. opened its first store in Springfield, Missouri. It’s important to point out that Duck Donuts sells cake donuts exclusively and Hurts Donut focuses primarily on cake donuts, which account for roughly 70 percent of sales.

Since that time, Duck Donuts has grown to more than 50 locations, with another 130 under contract, in 22 states. Hurts Donut, now a $23 million company, is up to 15 stores, with nine pending, in nine states. Based on these examples, among numerous others, it is fair to say that cake donuts rank among the hottest selling sweet goods at retail bakeries in America.

“Today’s reality is much bigger than our original dream. We work nonstop tirelessly seven days a week,” says Tim Clegg, who founded Hurts Donut with his wife, Kas, the donut connoisseur of the family. And, oh by the way, the Cleggs have four young children (the oldest is 11, the youngest 3). “We’ve got our hands full. There’s no sitting still in our lives.”

Meanwhile, Russ DiGilio, founder of Duck Donuts, transformed a simple wish to enjoy a fresh, warm donut while on vacation with his family into one of the most successful donut franchises in the country. Everything is made to order, and customers get to choose their favorite icing, topping and drizzle. It’s like Pie Five Pizza for donuts.

“Customers like having the opportunity to customize, and Duck Donuts is able to provide customers with a product that exactly meets their sweet desires,” DiGilio says. Further, because Duck Donuts makes only cake donuts, there’s no time-consuming process involved in letting the dough rise — like with yeast-raised donuts.

The proprietary donut mix comes ready to use at store level, and batter is dropped one ring at a time into a Donut Robot Mark V from Belshaw Adamatic. The all-electric donut machine has the capacity to make 56 dozen standard-size donuts per hour, according to Belshaw Adamatic. “We can make fresh donuts in just a few minutes,” says Lou DeFratti, general manager at Duck Donuts in Kissimmee, Florida, the company’s first franchise store in Florida. “This machine is very efficient.”

Customers get a custom-made fresh donut in less than 5 minutes. Top sellers include DiGilio’s favorite: vanilla frosting with powdered sugar and shredded coconut icing with raspberry drizzle. Duck Donuts even sells four kinds of breakfast sandwich donuts.

“I wish I’d have thought of that,” says one veteran bakery owner, when asked to comment on the made-to-order model employed by Duck Donuts.

Meanwhile at Hurts Donut, co-owner Tim Clegg recalls the early trials and errors of offering any crazy topping — potato chips, Cheetos, all types of sugar cereals — they may imagine. “At first, it didn’t matter what we put on a donut. It sold.” Top sellers now include maple bacon bars, cotton candy donuts, and any assorted toppings ranging from breakfast cereal to Nutella swirled into the shape of an emoji. They’ve just unveiled a “gluten free-ish” donut, which comes with a disclaimer. “For someone who’s chosen a gluten-free lifestyle, it’s an option,” Clegg says.

On the equipment front, Hurts Donut uses fryers from Belshaw Adamatic at all stores. “We opened our original store with just one fryer and a makeup table. Fifteen stores later, we use all Belshaw Adamatic equipment. We really like it.”

And instead of heading off to the grocery store to get inspiration for wild donut toppings, as they did initially, the donut stores now order 20-pound boxes of candy and other bulk sweets from their distributor. Clegg credits Dawn Foods for helping them transition to a profitable business model with a solid handle on food costs and operational efficiency. “Dawn helped us with training and product sourcing,” he says. “They are an outstanding company to work with. It’s a great partnership.”

Hurts’ concept is a 24-hour bakery that specializes in handmade donuts topped with quirky ingredients. In addition, they offer delivery in their Emergency Donut Vehicle “ambulance.” For Halloween 2017, Hurts introduced the Creepy Clown delivery man, a unique promotion that went viral on social media. “I gave an interview this morning to The Today Show,” says Clegg, who has embraced the national spotlight.

Franchising opportunities

At Duck Donuts, DiGilio did not expect to expand beyond their home state of North Carolina until word about their custom donuts started to spread. “We were constantly approached by customers asking us to franchise and bring the brand back to their hometown,” he says. “We decided to give it a try. Our current focus is on the success of our franchisees.” Various restaurants and bakery chains have different franchise models. Here’s how it works at Duck Donuts.

The initial franchise fee is $30,000 with discounts for purchasing multi-unit options. The estimated cost of opening a Duck Donuts franchise store will range between $300,000 and $450,000, depending on the location and size of the space. This includes the costs of construction, equipment, signage, initial advertising and the franchise fee. Duck Donuts requires a minimum of $150,000 in liquid funds (cash, savings, mutual funds, stocks etc.) and a minimum of $500,000 in total net worth to financially support opening a new Duck Donuts franchise.

At Hurts Donut, franchising operates a bit differently. Clegg said in late October they have five stores in construction and an additional four sold and waiting on real estate approval. There are two company stores, both in Springfield. Tim and Kas Clegg own the original store outright. Not too shabby for an original $30,000 investment. “I had $7.36 in my bank account the day we opened our first store,” Tim Clegg recalls. “Every day is a pinch-me moment.”

They opened the very first Springfield store at 5 a.m. on a November Monday morning with no clue what to expect. “We had $2,000 in sales the first day,” Clegg recalls. “Then every day it was 10 percent higher, then another 10 percent higher.” Hurts Donut surpassed its original goal by two years when the company opened a second store within nine months.

Then other store openings soon followed. “The Tulsa franchise set our record with $1 million in sales in 88 days. There are a lot of great success stories. We’re really proud.”

Scott Bussard, chief financial officer, handles many of the lease negotiations. A longtime friend, Bussard was brought in as a partner, bringing restaurant operations and franchising experience. Hurts pushes for the best possible lease deals (think $20-40 per square foot, depending on the market). “We view everything as an asking price, and it’s a lot easier conversation now that we have brand recognition,” Clegg says. As for potential franchisees, “they obviously have to be financially able. They’re either able to secure a loan or not. The all-in costs to open a franchise store is $300,000 to $600,000.”

Clegg grew up in Springfield. His wife, Kas, is from Wichita, Kansas, where they met. “My wife is a donut connoisseur, and we always went to donut shops. The experience aspect intrigued me. I’m an ideas guy. I carry a notebook everywhere.”

And for those who have yet to catch on to the joke in the company name (“You’d be surprised how many people still ask me about it,” Tim says), Clegg says his grandfather used to tell him that one as a kid, starting with a playful punch. “Hurts. Don’t it.”

“It’s an opportunity to keep that joke alive,” Clegg says. “We Google-searched a lot of company names, and when we found out Hurts Donut wasn’t taken, we were excited.”