How Shipley Do-Nuts Plans to Accelerate its Growth
Shipley Do-Nuts has been around a long, long time – 87 years, in fact. But in many ways, the Houston-based brand is just getting started.
In early 2021, Peak Rock Capital acquired a majority stake in Shipley’s franchise and flour and supply businesses and, in May 2023, named industry veteran Flynn Dekker as its CEO. During a presentation at the ICR Conference in Orlando, Fla., Dekker provided an overview of the company’s current trajectory, which includes record unit growth and record average unit volume growth in 2023. There are now over 350 units across 12 states and Dekker said that pace will “ramp up significantly” in 2024, with at least five new states signed for the near term.
Providing this tailwind is an intentional focus on modernizing the brand. Through most of those 87 years, the company was run by its founder, Lawrence Shipley Sr., which meant a lot of organic growth, but not a lot of processes, systems, or structures. That started to change about a decade ago and now, with Peak Rock’s backing, the company is primed for acceleration.
“I think you’ll see us doubling in the next five years. We’re building smaller, faster, cheaper. It’s not a new model, but there is a lower cost of entry and ability to increase the topline without doing it through price,” Dekker said.
The focus now is primarily along the southeast corridor, though Dekker said there is an opportunity to grow the brand from coast to coast once all of the fundamentals are in place, including a more profitable model for franchisees.
“We’ve squeezed a ton of cost out of this business on food and labor, so they cash flow really well. We can go into almost any real estate type and be successful. Our goal is less than a 3-year cash-on-cash return,” he said.
As the company grows – and despite efforts to modernize – Dekker is mindful of maintaining the brand’s history and the Shipley family legacy.
“Now going on 88 (years) with not a lot of processes in place, how do we honor that legacy and really look like the future? How do we evolve seamlessly? That’s what I focus on all the time,” he said.
Such an evolution can be challenging with longtime franchisees who may be reluctant to quickly adopt shiny, new objects. Dekker said it’s critical to maintain a strong partnership – offering them a plan and steps to execute the plan. It also helps that there is a proven ROI.
“They’re starting to see the fruits of that labor now,” he said. “While the rest of the market was flat or low single digits (in 2023), we were mid-to-high single digits throughout the year. We expect to top that this year.”
Shipley Do-Nuts has several pieces in place to exceed those numbers. When Dekker came on board, for instance, one of his first moves was to implement a marketing co-op with an affirmative vote from the company’s franchisees. With that co-op in place, the company quickly ramped up its innovation engine, launched a loyalty program, and added an online ordering systemwide.
On the innovation side, the chain sells 60-plus varieties of doughnuts, as well as savory kolaches, cake doughnuts, and rolls. It recently launched its first limited-time offer – an “Iced Poptastic Do-Nut” – topped with free-dried Skittles. The menu is full of such unique creations, like a Cherry Iced Bullseye, Chocolate Iced with Walnuts, White Iced with Coconut and so forth. Shipley is also doubling down on its beverage program, including coffee and cold brew, to meet increasing demand.
“We really focus on frappes, lemonade and energy drinks because I think that’s where the market is going,” Dekker said. “The kolaches include proteins like sausage and ham or cheese. This is a platform with a lot of opportunity and a daypart driver that complements morning doughnuts. They’re a significant part of our overall mix.”
Such innovations “age down the business and create relevancy,” Dekker added. The company’s loyalty program also helps with those goals. Launched in Q3, there are already over 75,000 active members. Further, the company turned on online ordering across its entire system in 2023 and digital sales have nearly tripled, while the company hit a weekly record of 8% to start the new year.
“This brand has never had limited-time offers. It’s never had real marketing engine. It does now,” Dekker said. “We have all these tools in our tool belt that just haven’t been active. Now we can really turn it up.”
Dekker’s optimism isn’t just coming from the company’s work to bring the brand into the 21st century. It also comes from Shipley’s competitive position in a growing segment. According to Technomic Ignite data, menu instances of glazed doughnuts increased nearly 11% year-over-year, while specialty doughnuts are up 7.5%.
“As the economy ebbs and flows, I don’t know a product more recession resilient than a buck for a doughnut. It’s still a treat people will give themselves and there’s a reason this product has endured for so long,” Dekker said. “Most of the larger players have moved out of our space or they don’t make it fresh every day or they have a more limited selection. There is a lot of share to be had in this marketplace. The sky’s the limit.”