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Monetizing The Donut Business
This article will be devoted to monetizing the donut business with business models that have been proven successful in the donut industry, specially targeted for independent shop owners (you!). The donut business is an exciting business with a unique and universal customer appeal. An all-American comfort food, I have never met a person who did not like donuts. The array of donut varieties that can be created, from the traditional yeast line using ‘lost to history’ scratch donut making methods to the decadent gourmet donuts that are edging into the void left by mediocre franchisees, there is a donut to please every customer demographic, taste bud, or setting.
This is good news for the independent donut shop business owner offering the highest quality end product to please repeat customers. One of the most common questions we are asked as consultants is, “How do I grow my business?”. Considering the money and personal labor invested in opening your first shop, this question is one of the most important and should be carefully planned from the beginning stages of your concept and through every step of growth. In fact, every decision made for your business should meet the standard of, “Will this decision will increase my customer base and production ability?” or “Will this decision ensure that I am offering the highest quality product possible?” and “Does this decision follow my business plan, bringing me closer to my end goal?”. Be assured, business plans can and should be reviewed and modified often, perhaps as an integral part of an annual audit. New ideas can be incorporated, and realistic timelines should be set. The important part is in always moving forward with the end goal in sight. Ensure that what you do today contributes in a logical and meaningful way to your future success.
The first business model I will describe is the ‘primary shop’. This business model begins with the opening of a primary business. The primary shop is meant to spring into the marketplace as a fully functioning business entity offering a full line of products and services. The location chosen for the primary shop is highly visible with very good vehicle and pedestrian counts. The ideal neighborhood is a mix of residential and commercial with an adequate median income to support discretionary spending. The location should have enough room for a large kitchen, a seating area, and if possible, a drive through.
The goal here is to “take the donut market by storm!” by offering a full donut line composed of traditional, traditional with a twist, gourmet, and a fun colorful cake donut line for the kids, French crullers, specialty coffee, ice cream, and a savory side line to complement the sweet. Springing into full existence with complete and high quality line of products will give your competition no place to get an edge in. The competition will have no opportunity to offer a more complex donut line or undercut you on price (from scratch donut making much more cost effective and of a greater quality than the premixes that 80% of donut shops use).
Having placed your primary shop in a prime location, the competition will not be able to cut into your customer base by redirecting customers to their store via greater convenience or ease of access. This is one of the ways having a drive through can give you the competitive edge against any nearby coffee cafes. On a side note, this is how many major franchises operate. They have the resources to obtain the best locations. It is the prime locations that they search out, along with brand name recognition that allow them to profit even with a mediocre product line. A prime location will also provide you with instant revenue and brand recognition.
With proper advertising including social media and a website, you will be able to capitalize on the buzz created by your opening, while continuing to create ongoing engagement with your customers through regular updates and promotions, community engagement, and customer loyalty rewards.
Once you have established your primary operation and created a buzz around your unique brand, it is best to expand your business as quickly as is reasonable and/or prudent. There are several ways to do this. The most cost-effective way to expand your business is to increase donut production from the kitchen in the primary shop. If you have planned this from the beginning, you have installed a 12 – 14 ft hood and are ready to add a few additional pieces of equipment that will allow you to double the yeast donut line and quadruple the cake donut line. For details on exactly how this is accomplished please see ‘What not to buy when buying donut equipment’, another article in this series. This is the quickest and most cost effective way to increase donut production.
Imagine having enough donuts to stock a second shop without the associated start up and equipment expense. Sounds pretty good, does it not?
The next direction your business model will take will depend on your community’s needs and wants. You can open a second ‘cold’ location which you can stock via morning delivery from the main production center in your primary shop. This can be a storefront, a coffee and donut kiosk, or even a donut concession trailer. If you chose to open a storefront and/or café with seating the cost you save in not having to install a full kitchen can afford higher rent in an upscale or high traffic location. You will also save money in the overall space needed, for the second location will not have to be near as large as the first primary location. If your city is large enough, you may wish to open secondary locations in each lucrative section of the city.
The size of your city, the distance you can deliver on a daily basis, and your customer demographics will influence where a secondary ‘cold’ location may be opened.
Coffee and donut kiosks are a less expensive option and can be highly effective. The secret to a kiosk’s success is in location and ease of access. Most coffee kiosks draw customers from the morning commute by offering convenience and quick service. A double drive through model with great access from a busy road can by highly lucrative. The menu would be very high quality, but not as extensive as the primary location. Pairings of specialty donuts with specialty espressos, with a limited savory line of the most popular items should satisfy the morning commuters, most of whom do not have time to linger on their way to work but do appreciate a delicious place to fuel up for the day. Many morning commuters can be excellent repeat customers.
A donut concession trailer has the main benefit of being mobile. You may use it to test a market or location before committing to a lease or a built out. A donut concession trailer may be set up for a drive through or walk up. Concession trailers can be brought to events or fairs or driven to popular locations around the city. Anywhere there is a large gathering of people is an excellent place to set up a donut concession trailer. Donut concession trailers are fun and provide massive amounts of free publicity by driving around the city and setting up in places where people are gathering. Fairs, farmers markets, concerts, waterfronts and promenades can give your business and brand publicity and profit. The donut concession trailer is one of the most creative and fun business models to use.
These business models may be used in combination with each other to meet the needs and wants of your community and your ultimate goals for the success of your business.
Another important and often overlooked market segment is expansion through wholesale orders. You can expand your donut sales and profits by up to 20% by wholesale orders alone. There are office meetings and/or parties, sporting events, board meetings, celebrations, hotel breakfasts, industrial complexes, neighborhood and church gatherings, just to name a few events that could provide regularly scheduled wholesale order opportunities. To expedite the collection of wholesale accounts, the business owner would do well to approach these businesses and social networks to promote what your business can offer to them on a regular basis. Promotion and footwork are the key to this market segment.
A second wholesale opportunity lies with catering special events. Your donut shop has the ability to create beautiful donut buffets and attractive special occasion displays. Donut cutters may be bought in the shape of letters of the alphabet and any message the customer wishes can be created in any color theme or flavor combination. Use your creativity to design prototypes for birthdays, sporting events, buffet displays, etc. and create a color brochure from which customers can choose their favorite theme.
The special order can be tailored for the number of guests expected at the occasion.
These business models are all proven to be highly successful in the donut industry. The best business models are detailed and well thought out. Expansion is planned well in advance. A high end quality donut line and a good location are requirements for success. Donuts have a universal appeal and lend themselves to fun and creative marketing strategies. You, as the donut shop owner, are the most valuable asset to your business. Your vision (and hard work) will carry your concept through from the planning stages to implementation, and onward to success and expansion as a profitable and successful donut business.
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