Sweet Success

The Growth of Doughnut Shops in North America

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With the success of cupcakes and frozen yoghurt shops throughout North America, yet another popular confection has become a “hole-in-one” for businesses. From Tim Hortons to artisan shops selling gourmet yeasty goods, Canadians and Americans alike are clamouring for doughnuts.
According to research firm IBISWorld, the American doughnut store industry is slated to earn around $11.6 billion in revenue in 2012. The growth and revenue in the industry slowed and declined in 2008 and 2009 because of low consumer confidence and a decline in personal disposable income. In spite of the economic turndown, doughnut stores are estimated to increase at an annual rate of 2.5 percent.

However, in Canada, doughnut consumption has declined, according to Canadian consumer market research firm, NPD Group. Consumption peaked sometime around 2010 and declined by four percent in 2010/2011 and another one percent in 2011/2012. The NPD group cites increasing competition with other breakfast foods as one of the reasons for the decline in consumption. Nevertheless, the doughnut remains a popular food in the country and ranks 11th on the list of food items consumed out of home or from restaurants in Canada.

As economic conditions improve and consumer spending increases, IBISWorld projects revenue to increase in the industry up to the year 2017. While the number of store locations is also anticipated to increase, the number of companies will more than likely remain stagnant because most growth will be dominated by industry giant Dunkin’ Brands, which owns Dunkin’ Donuts and Baskin Robbins. Dunkin’ Donuts’ market share concentration has expanded over the past five years due to its growth greatly outpacing the growth of industry revenue over the same period. Dunkin’ Donuts had a net income of $25.9 million during the first quarter of 2012 – more than four times that of competitor Krispy Kreme. Dunkin’, which went public last year, has maintained profits during the recession and continues to grow. Dunkin’ Brands expects to open up to 280 stores this year, according to a securities filing.
On the other hand, competitors of Dunkin’ Brands are typically regional companies with limited plans for market expansion.

US chain Krispy Kreme has seen a rebound in sales after years of stagnant growth, store closures, and financial losses. The North Carolina-based chain is planning on opening 25 proposed stores throughout the country in the next year and reported a net income of $6 million in the first quarter of 2012.

Krispy Kreme started in 1937 in Nashville, TN and gradually grew throughout the Southeastern United States for decades. However, in the 1990s, the chain expanded outside of the region and competed directly with other popular doughnut chains such as Dunkin’ Donuts in the Northeastern United States and Tim Hortons in Canada. After the company went public in 2000, even more growth occurred, with over 400 stores opening throughout North America. However, the rapid expansion was unmanageable and the company suffered a public blow when the Securities and Exchange Commission (SEC) investigated the business for improper accounting practices and a lawsuit was filed that accused management of hiding evidence of declining profits. Between 2004 and 2009, more than 240 stores were closed throughout North America. With the decrease in domestic sales, Krispy Kreme started expanding internationally into Mexico, Japan, the Middle East, and South Korea. Today, Krispy Kreme has more than 690 stores, of which 142 are in the U.S.

Doughnut shops have proliferated throughout North America in recent years due to low startup costs, cheap ingredients and constant demand. While the industry is dominated by national chains such as Dunkin’ Donuts and Krispy Kreme in the United States and Tim Hortons in Canada, independent doughnut shops have cultivated and developed followings by offering creative baked goods.

The James Beard Foundation, a non-profit culinary arts organization, named artisan donuts one of its 2012 trends to watch. One of the top sellers at Chicago restaurant Glazed and Infused (http://www.goglazed.com/) is the $3.25 Maple Bacon Long John, described as a “Yeast raised long john with real maple glaze & peppered maple bacon.” While, Do or Dine, a gourmet restaurant in Brooklyn, NY, sells an $11 foie gras donut.

In Toronto, artisan doughnut shops such as Paulette’s Original Donuts and Chicken (www.paulettesoriginal.com) sell Korean-style fried chicken and donuts with exotic and unique flavours such as blueberry balsamic, vanilla bean nutmeg, and mojito. Jelly Modern Donuts (http://jellymoderndoughnuts.com) in Calgary features lemon curd, peanut butter and jelly, red velvet cake, and even a gluten-free option.

While people may ask if doughnuts are the new cupcakes – referring to the trend of cupcakes and artisan cupcake shops opening throughout North America during the last ten years, cupcake sales themselves have not declined or slowed down. According to consulting firm Nielsen Perishables Group, cupcake sales grew by 18.3 percent and unit volume by 14 percent. The category saw 17 percent growth in numbers sold compared to 2010, fuelled in part by supermarket bakeries releasing 70 new red velvet cupcake products in 2011 alone. With the increase in sales in the categories of both doughnuts and cupcakes, it seems that both of these sweet treats can happily co-exist.

September 25, 2017, 4:28 PM EDT

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