Source: QSR
The classic brand has bumped AUVs, profitability, and triggered innovation across the organization.
Flynn Dekker has led Shipley Do-Nuts as CEO for about 16 months. But the former Bonchon exec, Wingstop CMO, and 30-plus-year industry vet, knows a headline point when he sees one.
The Houston-based brand is approaching 88 years in business, and it’s never grown this fast.
Through the first half of 2024, Shipley Do-Nuts jolted its development pipeline by 33 percent, opened eight stores, and, more recently, reached its 15th consecutive quarter of positive same-store sales. Coming in, the company notched comps growth of more than 26 percent over the past 24 months.
Today, the chain, founded in 1936 by Lawrence and Bud Shipley, has roughly 360 stores across 12 states. It opened a record 19 last year and expects to close 2024 with 25 debuts or so. That number, Dekker says, will then leap “exponentially” in 2025 and the company will start to target new states alongside continued development of markets outside Texas that remain relatively young—Colorado, the Carolinas, Florida, and Georgia, among them.
To illustrate the point further, 26 of 29 expected openings on the FDD slate currently are in Texas. The other three are in Maryland, Oklahoma, and Virginia. Presently, 280 of 337 outlets year-end 2023 were located in Texas. Tennessee had five; South Carolina two; Oklahoma one; Mississippi eight; Maryland one; Louisiana eight; Georgia one; Florida two, Colorado three; Arkansas 25, and Alabama one. It’s a spread-out and blank canvass.
Shipley Do-Nuts also recently debuted a new restaurant support center where corporate employees are under the same roof for the first time and is weeks away from cutting the ribbon on a fresh manufacturing facility and test kitchen.
This breakout has been in the works since private equity firm Peak Rock Capital acquired Shipley Do-Nuts—then about 300 units—in 2021 from the founding family. It bought the franchising company along with its supply arm, Shipley Do-Nut Flour & Supply Co.
Former Bojangles leader Clifton Rutledge served as CEO for two years before Dekker arrived, with Rutledge shifting back to the board.
Dekker says Shipley Do-Nuts prepared for this acceleration at the store level. AUVs in the past four years are up 50 percent. Coupled with lower investment costs, EBITDA profitability, according to its recent FDD, is projected at 18–20 percent. Figures, Dekker says, which helped lead to the close of 11 multi-unit deals through Q2 2024.
The average gross sales of franchised shops last year came in at $902,517, with the highest performer at $2.726 million. Shipley Do-Nuts generated total systemwide sales of $307 million in 2023.
“It’s a great business model and we’ve got wind in our sales now,” Dekker says. “And we’re capitalizing on that.”
Recalling those early days on the job, the biggest strips of runway in front of Dekker were digital and the creation of an ad fund. Shipley Do-Nuts was sitting at about 3 percent digital sales mix. Franchisees weren’t entirely bought in on the investment or its potential for complexity. The company started with shifting that mindset, he says. Third party was integrated into the point of sale and online ordering added to every location. A loyalty program was implemented, too.
The mix has nearly tripled since, Dekker says, to roughly 8 percent.
“That’s been huge for us,” he says, “because with digital sales the average ticket is so much higher than in-store. We haven’t had to take price universally, but we’ve been able to keep our sales really healthy and buck the trends of the industry.”
If digital was first, the aforementioned ad fund wasn’t far behind. It was the first marketing co-op in the brand’s history. So, previously, there was essentially no marketing powder to speak about the brand or amplify partnerships. “We had to make sure we had the firepower to go out and tell people about this brand and build the brand outside of its home market,” he says.
It’s why guests in 2024 saw buzzy launches like the Poptastic donut with freeze-dried Skittles. That January rollout was followed by an Oreo Cookies & Cream option in April. More recently, an early Q3 test of a breakfast Egg & Cheese Kolache line “far exceeded” internal expectations and could end up the largest LTO in company history.
Going back to the digital point, Shipley Do-Nuts offered early access to new products and promotions, which it said drove Do-Happy rewards signups. Membership doubled from January through June.
But all these points root in the early one, Dekker says, which is the company had to get sentiment moving collectively. There were a host of franchisees with 30 or 40 years of experience when he got there. And for decades, Dekker adds, they ran their business according to their own playbooks. It was basically a large, regional lineup of mom-and-pop locations.
Yet while there was some outset resistance, Dekker and management today have parcels of data to show operators when it comes to supporting their decisions. “We’ve tried to lead with the data and the results,” he says. “And I think that buy-in has gotten a lot easier now.”
Take the LTOs as an example. That’s a fleet-wide initiative Shipley Do-Nuts had never attempted before. Simply, the brand was a 350-plus unit enterprise not required to do the same thing at once.
“But they’ve embraced it,” Dekker says, “and they’ve seen the impact of us having something to promote and then having the backup of the ad fund to really drive the messaging.”
The company tried to make the experience as simple as possible as well: give operators a product that’s interesting but also designed off an existing base (yeast donut, strawberry icing, in the case of the Poptastic).
“We said it’s beautiful, it’s three dimensional, it’s colorful, and it gives us something to talk about with these new ad fund dollars,” Dekker says of the LTO.
Corporate made it easy for franchisees to participate as well by portioning the product, purchasing it, and laying out builds that didn’t clog the line. And it has legs—the Oreo option was a more mainstream follow-up.
As for the Egg & Cheese Kolache run, which Dekker calls “by far the most successful one yet,” there were some franchisees trying this breakfast-savory route already. The company built off what was already being embraced to some extent. And it resulted in even great participation and better sell through, Dekker notes.
The brand, which began a retail business in the 1940s, learned long ago there was value in balancing its donuts (signature hot glazed, variety of filled, iced, and cake options) and pastries with items like kolaches, stuffed with proteins and/or cheese. Doing so opened it to lunch and later dayparts where some of its competitors couldn’t play beyond a snack pick me up.
The breakfast version of the kolache, Dekker says, didn’t take a genius to conjure and realize it could bolster early orders. Shipley Do-Nuts is currently selling more than 50,000 of them per week. In Q4, bacon will enter the fold.
“Maybe not earth shattering or groundbreaking, but it’s clearly something that our consumer wants, which is a more hearty breakfast that’s not as traditional as some of the other breakfast sandwiches that are out there,” Dekker says. “I just think that we have such a strong core product here. There aren’t many businesses that do what do on a daily basis anymore.”
Shipley Do-Nuts, like many legacy restaurant chains, is working to balance innovation with core equities headed into uncharted growth. The products are handmade, every morning, with no holdovers on shelves. While some talk about “hand made,” Dekker says, they’re often taking components already around the restaurant and piecing them together. “We make our stuff from scratch every single day in the form of 60 varieties plus donuts and kolaches,” he says.
These points will factor into whatever decision, menu, tech, or otherwise, join the go-forward picture.
Dekker also sees opportunity in the reality Shipley Do-Nuts expands beyond your standard donut concept through sweet, savory, and beverage buckets. All of them, he explains, stand to grow.
Donuts today represent about 50 percent of the menu; 40 percent is savory (kolache), “which gives us a lot of opportunity to lean into afternoon dayparts or when people are looking for a little heartier option, either a lunch time item or snack item later in the day,” he says.
With beverages, Dekker adds Shipley Do-Nuts is “just scratching the surface.” It’s 10 or 11 percent mix with hot coffee and cold brew as the anchors.
There are 11 company-operated shops in the system to give Shipley Do-Nuts a base to build innovation from. There’s been a heavy focus, Dekker says, on labor efficiency and food cost management since he arrived. “We have both top-line growth [the AUV expansion] as well as bottom-line growth [18–20 percent EBIDA mentioned before], because we’re managing the key costs on the P&L,” Dekker says.
What also can’t be understated in the growth boom, sales and development agreement wise, is what Dekker unrolls as Shipley Do-Nuts “secret to our success.”
The company has expanded the types of units it’s able to open. Traditionally, sight was on freestanding drive-thrus. Now, it’s leaning more heavily into existing real estate—end caps with drive-thru, in-line, smaller footprint options that can drive quicker ROI. It’s also zeroed in on multi-concept, multi-unit owners from brands like Panera Bread, Wingstop, Pizza Hut, Church’s Chicken, Five Guys, and others, Dekker says, who have the ability to develop quicker and already have management teams in place and know how to manage the P&L effectively.
“We lowered the investment and build-out cost significantly versus prior years,” he says. “Part of that is our real estate flexibility but also being more efficient in terms of equipment packages, buildout, materials, and finishes at the individual units.”
The total startup costs for the brand range from $486,400–$1.029 million—a reduced of 23 percent over the past year. The royalty fee is 5 percent with a marketing fee of 3 percent (1 percent regional co-op, 2 percent local spend).
Shipley Do-Nuts has begun using Steritech as a brand measurement tool as well on the ops side to ensure food safety and quality are in line. It’s lowered scores (a good thing) by eight points in the last year across the brand. “We’re taking better care of the customer, serving the customer better, and doing it in a more cost-effective way that franchisees can get a higher return on investment sooner,” Dekker says.
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