You may well know the Hot Donuts Now sign that Krispy Kreme has become famous for. The sign signals that Krispy Kreme is making donuts fresh off their donut conveyor belt. When you walk into the store, you can get your Krispy Kreme donuts fresh and watch how they are made. Their factory-style donut production is visible from the lobby, where people can watch their donuts being made. Aside from the fascinating process of making their donuts, Krispy Kreme is also famous for its delicious donuts, wide varieties of types of donuts, and coffee.
As an entrepreneur, you might have been saving up money for a while to start your own business venture. You are likely interested in what kinds of businesses might be most profitable, how much they cost, and what kinds of track records of success they have. Since this might be your first business venture, or you may be concerned about your capital, you might be seeking opportunities with less risk and proven business models. As a result, you might consider franchising.
This logic makes sense, as franchises are often so successful because they have replicable business models, great products tested with customers, loyal followings, and great support networks, among other benefits. The fast food industry is one of the most popular franchising spaces, and the Krispy Kreme franchise is one of the most famous franchise opportunities for its great-tasting products and loyal customer base.
If you are considering a Krispy Kreme franchise as your next business opportunity, then you have come to the right place! In this post, we will review the history of Krispy Kreme, the advantages and disadvantages of owning a Krispy Kreme, the requirements of opening a Krispy Kreme, the cost of starting a Krispy Kreme, the profitability of a Krispy Kreme franchise, the training given to franchisees, the term of agreement and renewal details, and the process involved in applying for your own store. We’ll cover the following in this article:
Krispy Kreme, which was previously known as Krispy Kreme Doughnuts, Inc., is a popular donut and coffee shop chain with over 1,400 stores around the world. Krispy Kreme was founded in 1937 by a man named Vernon Rudolph in Winston-Salem, North Carolina. The chain quickly spread, focusing on selling donuts to grocery stores, convenience stores, and many other locations. The popular recipe for their donuts has helped their success alongside their serving of hot and fresh doughnuts.
Krispy Kreme serves a variety of items in their store locations today. Krispy Kreme sells different types of donuts, hot drinks like coffee, and cold drinks including milk, water, soda, and frozen drinks. Krispy Kreme is famous for its original glazed donut, which is served hot on the line at different times of the day. This donut has helped shape the image of the Krispy Kreme brand in the minds of consumers.
Krispy Kreme locations usually have a lobby and drive-thru where customers can order their donuts and beverages. The typical Krispy Kreme location is a tunnel oven shop, where the production of donuts happens on a production line in front of customers.
Overall, the Krispy Kreme franchise has risen to its success in the donuts franchise space through its position as a factory store or fresh shop, serving delicious donuts baked fresh. It is one of the top franchises in the donut space. Krispy Kreme’s marketing programs and partnerships frequently bring in more business and returning customers, helping Krispy Kreme to be a lucrative opportunity for business owners. Krispy Kreme also focuses on opportunities with catering and fundraising, which helps to increase business for the brand.
Cost of Starting a Krispy Kreme
If you meet the requirements for applying for a Krispy Kreme location, you are ready to consider the potential costs of starting a Krispy Kreme franchise.
Determining the exact costs of starting a Krispy Kreme franchise is difficult due to the varied nature of what kinds of stores are possible for you to open. The costs associated with these differ related to the setup investment cost in each structure. However, there are some standard fees that you will have to pay to franchise with Krispy Kreme. These are similar to standard costs that franchisees will pay to franchisors in the process of franchising.
One of the first costs that you will have to pay to the corporate Krispy Kreme is the franchise fee. The initial franchise fee is a fee that is paid to corporate at the signing of the franchise agreement. The fee is used by corporate mostly as revenue, but the fee also initiates the licensing and logistical support that the franchisor provides to the franchisee. The franchise fee is $12,500. This franchise fee is pretty low compared to other competitors, so this might be a really attractive aspect of franchising with Krispy Kreme.
Aside from the franchise fee, your Krispy Kreme franchise will need to be prepared to pay ongoing fees to corporate as part of your franchising agreement. While these costs are not directly a part of setup costs, you will need to pay them in the early months of your franchise’s operation. These fees include a royalty fee and a marketing fee, or an advertising fee.
The royalty fee is a fee that is paid to continue the ongoing partnership between the franchisor and the franchisee. The royalty fee is a fee paid weekly to the Krispy Kreme franchisor and a royalty fee is typically paid as a percent of gross sales or net sales. The royalty fee for Krispy Kreme is 4.5%. Despite this fee being charged more frequently than other franchises, the royalty fee is slightly less than the average royalty fee in this industry. As such, the royalty fee might be considered to be pretty fair.
The other ongoing fee is known as the marketing fee. This fee is an ongoing fee charged by the franchisor to the franchisee and is needed to be paid weekly, usually as a percent of gross sales. The marketing fee helps to fund marketing efforts on a national and local level to drive the success of the Krispy Kreme brand and your franchise. The marketing fee is 3.5%, which is slightly lower than industry standards, which can make a Krispy Kreme franchise a fairly good deal.
Aside from costs that your franchise will pay to corporate, there are also other investment costs involved in building and launching your Krispy Kreme store location. These include the real estate, materials, construction costs, remodeling, rent, equipment, inventory, wages, insurance, formation fees, and more that you need to reach the full start of a Krispy Kreme. In this section, we will estimate the total investment required to get your Krispy Kreme off the ground in the form of an investment range.
Your Krispy Kreme franchise cost will ultimately depend on what kind of Krispy Kreme you are going to start. Krispy Kreme offers four models, including a factory store, commissary facility, fresh shop, and tunnel oven shop. Each comes with different initial investments, benefits, and drawbacks.
A factory store is perhaps the most famous type of Krispy Kreme, which is probably where you have interacted with it the most. A factory store sells donuts to customers and produces them at the same location. This would be the type of Krispy Kremes with a donut conveyor belt inside of the store. You may have seen that these stores occupy a lot of real estate and require a lot of equipment. Indeed, these Krispy Kremes cost approximately $1.25 million to $2.75 million to startup.
A commissary facility is a type of production facility for donuts that does not have a place where they sell donuts directly to customers in the general public. A commissary facility is a place where the basic levels of donuts are made to be supplied to tunnel oven shops or fresh shops of Krispy Kremes. This type of store requires a lot of equipment and real estate to be able to operate. As such, the startup costs can be somewhat high. For a Krispy Kreme, the costs range from approximately $1.6 million to $4.1 million. This may be the most expensive Krispy Kreme model to operate.
A tunnel oven shop is the next type of Krispy Kreme in the Krispy Kreme supply chain process. A tunnel oven shop is similar to a Krispy Kreme store in that they sell donuts to the general public. However, on the manufacturing side of things, their facilities are limited. They usually include a specialty type of oven and some amount of the manufacturing capabilities of a Krispy Kreme store or commissary facility. However, a tunnel oven shop gets their donuts from factory stores or commissary facilities to finish making the donuts before their sale. A tunnel oven shop can cost approximately $550,000 to $1.5 million.
The last of these models is known as a fresh shop. A fresh shop sounds similar to the name. The purpose of the fresh shop is to be a customer-facing entity with the general public. Rather than doing the brunt of the manufacturing work for the donuts, a fresh shop will finish the last stages of the donuts to prepare them for sale to the general public. The fresh shop also serves as a storefront for these transactions. A fresh shop costs approximately $450,000 to $1.2 million. This is perhaps the cheapest model of the Krispy Kreme franchise that Krispy Kreme offers.
Of course, the exact costs of starting up your Krispy Kreme franchise will vary depending on your unique situation. Things like real estate, material, and labor costs will differ based on the location you choose for your Krispy Kreme. You can find a more specific breakdown of the costs involved in starting a Krispy Kreme by looking at the Franchise Disclosure Document (FDD) that Krispy Kreme will give you during the application process.
In all, the ongoing costs of Krispy Kreme seem to be pretty fair. One of the areas that are higher than industry standards is the total investment costs of starting a Krispy Kreme. While these costs might be high, they may also be recoverable. That depends on the franchise profit of your Krispy Kreme location.
Advantages of Owning a Krispy Kreme
If you are considering franchising with Krispy Kreme, you might want to consider the prospective advantages of owning a location.
First, Krispy Kreme has a great brand reputation. The logo and name are iconic. Many people argue that Krispy Kreme is the best donut brand in the United States. Opening a Krispy Kreme means getting access to their donut recipe along with being able to own a famous donut-producing franchise facility. Krispy Kreme has a large following who wants to eat at their donut shops. Moreover, you can be sure that your franchise is set up for success as a great food franchise available in your local community.
Another advantage of Krispy Kreme is its menu. Aside from having tasty original glazed donuts, Krispy Kreme has a wide selection of creative and unique donuts. Customers can get different types of donuts as well as different types of beverages. Serving coffee and other drinks, customers can come to Krispy Kreme with various tastes and preferences. The product menu also makes Krispy Kreme a great morning place to stop for breakfast. You are likely to get a lot of business with such a well-developed product menu.
A further advantage of being a Krispy Kreme franchise owner is that your Krispy Kreme store will likely already have a loyal customer base. Since Krispy Kreme is such a popular franchise business where customers can get delicious donuts and coffee, your small business will likely have a large number of customers that you can depend on to frequent your business. This can reduce the risk involved in buying a franchise and setting one up since you can expect to have a decent level of sales.
Disadvantages of Owning a Krispy Kreme
If you are considering opening your own Krispy Kreme franchise location, you might be concerned about the potential downsides of owning one to create a balanced assessment of the investment opportunity.
One of the largest downsides to owning a Krispy Kreme is the sheer competition that your franchise will face. As a donut and coffee shop, Krispy Kreme competes against brands like Dunkin’ Donuts, Duck Donuts, Shipley’s, and similar brands. While many consider Krispy Kreme to be the best product in the market, there are other similar places that customers might go to for their morning stop. In addition, your Krispy Kreme store might face competition from other types of breakfast restaurants that may not serve donuts at all. So, it is best to choose a location where there will not be as much competition.
Another downside to owning a Krispy Kreme location is that Krispy Kreme does not guarantee you a certain area without other Krispy Kreme locations. That means that other interested franchisees could open up their stores not too far away from yours and directly compete for some of the same customers. As a result, there is the potential for your Krispy Kreme to face competition from other Krispy Kreme locations. The absence of protections regarding territory is one of the downsides of Krispy Kreme as a franchisor.
One of the other disadvantages of a new franchise of Krispy Kreme as your first store is that Krispy Kreme has a notoriously long application to opening process. Some reports indicate that the process from signing to opening the doors of your Krispy Kreme location can take over a year. This may not be the best option for you if you are looking to get your store off the ground quickly. You may want to consider other franchises if you are looking for a faster investment.
In all, it is important to consider the advantages and disadvantages of a Krispy Kreme franchise in the context of your investment goals and wishes. Each franchise opportunity has its unique benefits and drawbacks, and choosing the one which is best suited for you is a great start to running a profitable franchise.
Requirements for opening a Krispy Kreme
After reading through the advantages and disadvantages of owning a Krispy Kreme franchise, you might be interested in opening a location. If you are interested in becoming a Krispy Kreme franchisee, then you need to be sure that you will be eligible to pass the application for becoming a franchisee. When applying to become a franchisee, there are usually two main financial requirements.
The first main financial requirement is a net worth requirement. The net worth requirement for Krispy Kreme is $2,000,000. This requirement is very high compared to comparable franchises. The extremely high relative net worth requirement may be because franchisees will need to pay large capital costs when setting up their store. The donut production inside Krispy Kreme will require a lot of specialized machinery and a big store on a large amount of real estate. As a result, franchisees must have a large net worth to be able to fund this investment.
If you are wondering if you meet this net worth, start by adding up the value of all your assets. This includes your house, your cars, your valuables, cash, savings, and stocks. Then, add the value of your liabilities. This includes any mortgages, car loans, credit card debt, or other forms of debt that you have. Next, subtract your liabilities from your assets. The number that you arrive at is your net worth. If your net worth is over $2,000,000, then you meet the net worth requirement to start a Krispy Kreme franchise.
The other main financial requirement is a liquid capital, or liquid assets, requirement. Liquid capital refers to the amount of capital that you can have ready to deploy on short notice. The liquid capital requirement for Krispy Kreme is $350,000. This liquid capital requirement is pretty fair when compared to industry standards. If you are wondering how to meet the requirement, you should add up the value of your savings, cash, and quickly-sellable stocks and other assets to arrive at your liquid capital number. If this number is $350,000 or greater, you are eligible to start your own Krispy Kreme franchise.
How Profitable is a Krispy Kreme?
As a prospective franchisee of Krispy Kreme, you will be interested in the likely profits of your Krispy Kreme location. If the profits of Krispy Kreme are high enough to justify the high investment costs, a Krispy Kreme might be a profitable franchise. Over time, you will be able to make your money back quickly, should your Krispy Kreme franchise be profitable.
While the financials of Krispy Kreme franchises are not made public, there are estimates of the rough profitability and financial performance of a Krispy Kreme franchise. A standard Krispy Kreme franchise is expected to have approximately $3.4 million in annual revenue. While it is difficult to determine the exact profitability of a franchise off on that revenue, it is estimated that a franchise has approximately $1.1 million in adjusted EBITDA. However, adjusted EBITDA is not a perfect indicator of profitability since taxes and amortization can wrap up a lot of hidden costs in them. However, the margin is nearly 33%. This means that Krispy Kreme is a very profitable business.
Again, the exact profitability of your franchise will depend on your costs, the management of your franchise, your employees, market conditions, and more. You may be able to ascertain more information about the likely profitability and costs of your prospective franchise location by discussing it with corporate Krispy Kreme. Krispy Kreme will also provide you with an FDD including this information as you reach the later stages of your franchise application.
Keep in mind that the profitability will likely also be based on the structure of your franchise business, including which model of business you select for your franchise. In the end, your profitability and costs depend on a multitude of factors.
Training for Krispy Kreme
Since you are interested in running a profitable Krispy Kreme franchise, you likely want to be sure that you are operating your Krispy Kreme in the best way possible to extract the most amount of profit. As part of this desire, you may be interested in the training program that Krispy Kreme offers for its franchisees.
The great news about Krispy Kreme is that the training program that they offer is long and robust. Franchising with Krispy Kreme means being required to attend two months’ worth of on-site training. This allows you to get hands-on experience in running the day-to-day operations of a Krispy Kreme and deal with situations that you are likely to have come up in your time owning and operating a Krispy Kreme franchise.
The next phase of training includes 15 days that you are required to go to classroom training. This classroom training will cover the ins and outs of the business from a management perspective and help you to solidify your understanding of running a Krispy Kreme franchise concerning corporate standards.
In total, the Krispy Kreme training program for franchisees is comparatively robust. If training is an important deciding factor in which franchise to franchise with, Krispy Kreme should be one of your top options. At the same time, you should be prepared to dedicate a lot of your time to this training and be sure that this is something that you want to commit to.
Term of Agreement and Renewal for a Krispy Kreme
Another important consideration that you need to make before you commit to opening a certain franchise is understanding the term of agreement and renewal for your franchise location. The term of agreement and renewal covers the licensing aspects of your franchise. When you purchase a franchise and enter into a franchise agreement, you will need to sign a term of agreement and renewal. This allows you to license a franchise brand for a period of time before you need to renew it.
For Krispy Kreme, you will receive a term on the term of agreement and renewal lasting 15 years from the date on which your location will open. At the time when your term of agreement and renewal terminates, you will then need to renew your license. To renew your license, you will need to sign the franchise agreement again. You will then have another 15 years of operation under the licensing agreement. However, you will need to make sure that your Krispy Kreme has been in good standing with corporate guidelines to be able to be eligible for this.
Process of Starting a Krispy Kreme
If you are interested in starting your own Krispy Kreme location, head over to their website and be prepared to inquire for further information. If Krispy Kreme wants to continue your application, they will reach out to you with questions and start interviews. As you get further into their process, they will give you their FDD to review and determine if a Krispy Kreme franchise investment is right for you. If you continue, you will eventually need to be accepted by Krispy Kreme corporate, at which point Krispy Kreme will guide you in the things that you need to do to set up your own Krispy Kreme. That is it! Congratulations on starting your own Krispy Kreme!
At Biz2Credit, we pride ourselves on our dedication and commitment to small businesses and their owners across the nation. That’s why we work to provide them with an array of tools and resources that they can use to help their businesses succeed. As part of this, we run our Biz2Credit Blog, where we post new content each weekday on all things small business related. So, please continue to check back here for all the latest news, information, and trends that are impacting small businesses.