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There’s nothing more delicious than biting into a warm, freshly baked doughnut. If you enjoy putting your baking talents to use to create tasty doughnuts, pastries, and other baked goods, then starting a doughnut shop could allow you to capitalize on your baking talents. One of the great advantages of the doughnut shop industry is that there’s plenty of room for creativity and innovation. If you have a new idea to dress up this traditional treat, you might be able to create a unique and highly successful business.

Business Overview

Doughnut shops often sell a variety of donuts, pastries, and sweets. They also sell coffees, teas, and other beverages. These shops offer the convenience of food that’s prepared quickly, and customers may opt to get their food to go or to enjoy the food in the sit-down portion of the shop. A doughnut shop may also have a drive-thru window for extra convenience.

In addition to the appeal of a convenient snack or meal, some doughnut shops also make their own doughnuts and baked goods. It’s also possible for entrepreneurs to purchase a franchise location of an existing chain, retailing the brand’s already well-known products.

Industry summary

According to IBIS World, from 2014 to 2019, the doughnut store industry experienced an annualized 3.1% growth. IBIS World predicted that the industry would grow by 1.4% in 2019 alone. In 2019, the industry brought in $8 billion in revenue, and 13,058 businesses employed a total of 113,848 employees.

The industry’s growth is due to increased consumer confidence and spending. As per capita disposable income has increased, consumers have become more willing to indulge in luxuries, like doughnuts and gourmet coffee. These trends are expected to continue to drive industry growth through 2024, and it’s likely that we’ll also see an expansion of specialty doughnut shops during that time.

Industry trends

According to Baking Business, creativity is a major trend that is currently shaping the doughnut shop industry. Bakers are increasingly exercising their creativity in coming up with unique and surprising doughnut flavors and combinations, and consumers are open to trying something new. While there’s always a place for traditional flavors like glazed and chocolate-covered doughnuts, more shops are selling these treats with unique toppings like bacon, cereal, and fruit.

Gourmet donuts, made with premium ingredients and unique flavor combinations, are increasingly popular. Some stores are even offering customizable doughnuts and walk-in special requests made to order.

While there are plenty of people who want to indulge in a doughnut, there are also many people who are looking for healthier options. Portion control mini doughnuts and doughnut holes are popular, as are doughnuts that are made with natural sweeteners. In the fitness community, protein doughnuts are increasingly used as a replacement for protein bars. Vegan, keto, and gluten-free doughnuts are also popular.

Who is the target market for your doughnut business?

A doughnut business’ target market tends to be adults and families who enjoy doughnuts, though the specific target market can also vary according to a business’ specialty. It’s important to realize that, in many cases, coffee is what actually draws customers to these stores. According to Food Business News, 68% of purchases made at doughnut stores include coffee, while only 30% of purchases include a doughnut. While doughnuts are certainly an important part of the business, doughnut shops can’t underestimate the importance of marketing their coffee drinks, too.

Skills, experience, and education useful in running a doughnut shop

While a doughnut shop owner doesn’t need a business degree, certain skills and experiences can increase the chances of the business becoming a success. 

Food preparation and handling experience. A business owner who has previous food preparation and handling experience will be better prepared to implement safe food handling procedures. Business owners may also be required to earn a food safety certification through an accredited program as approved by their state’s regulations.

Experience working in a café. Business owners who have previously worked in fast-paced cafes will have multiple skills that are an advantage in owning a doughnut shop. Knowledge of various coffee drinks and how to prepare them can help a store owner to plan their menu and ensure their store offers popular, quality beverages.

Customer service skills. Engaging with the public is a big part of owning a doughnut shop. A business owner with customer service skills and experience can teach those skills to all employees to build strong relationships with customers.

Management experience. Most doughnut shops require multiple employees, so experience in hiring, training, and managing employees is helpful.

Creativity. There’s plenty of competition in the doughnut shop industry. A shop owner who is creative in their recipes, their store’s theme, and their marketing can help their store to stand out from others.

Multitasking skills. A doughnut store owner will benefit from multitasking skills that allow him or her to balance multiple priorities and tasks continuously throughout the day.

Costs to Start a Doughnut Shop

It’s possible to start a small doughnut shop for about $15,000, while larger shops will carry closer to $50,000 or $75,000 in startup costs.

Common startup costs for a doughnut shop include:

  •     Baking and display equipment
  •     Drink and coffee equipment
  •     Ingredients and inventory
  •     Furniture
  •     Building renovations
  •     Signage

Steps to Starting a Doughnut Shop

Step 1. Write your Business Plan

After coming up with the idea, the next step in starting your business should be to write a doughnut shop business plan.  Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.

Related:
How to write a business plan
Free sample business plans

Step 2. Form a Business Entity

A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from which include the sole proprietorship, partnership, corporation and LLC.  Each type of entity has its own pros and cons such as liability exposure, costs and administrative requirements. 

Related: Comparison of Business Entities

Step 3. Select your Location

Rental costs will depend on the size of the space, its location, and even the amenities available at the space, like an available kitchen. It’s ideal to find a space that’s been previously used for similar purposes, since it will require minimal renovation. The availability of a drive-up window can also be an advantage, but may add to rent costs.

The location of the space is another important consideration. A space in a prime retail location may have a higher rent cost, but it can bring walk-in traffic and awareness of the business that pays off, too.

Related: Choosing a business location

Step 4. Apply for Business Licenses and Permits

A doughnut shop will need to obtain certain business licenses and permits in order to open. These permits and licenses can vary based on the state and town where the business is located. The business owner or a shop manager will also need to pass a food safety certification test as required by the state.

Some of the common local, state and federal registrations most doughnut shops need include a sales tax permit, Employer Identification Number, Occupancy Permit among others. 

Related: Common business licenses, permits and registrations by state

Step 5. Find Financing

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a doughnut shop is another.  Funding to start a doughnut shop business can be difficult.  In order to get a loan, the borrower(s) will need to have good credit and be able invest 15-25% of their money towards the total start-up costs. 

Related: Finding the money to start a business  

Step 6. Get your Marketing Plan in Place

Doughnut shops need to perform a variety of marketing techniques, both when the business launches and to continue to drive business to the shop. Marketing activities include social media marketing, online marketing, print advertising, and more. Loyalty cards and programs can also help to encourage customer loyalty at a relatively low cost. A business’ marketing budget will vary depending on the amount and type of marking activity performed.   

Be mindful of reviews from sites like Yelp, Google, etc

Related: Low-cost ideas to market a new business

Step 7. Get Insurance

A doughnut shop needs several types of insurance for full coverage:

  • General liability insurance protects the business if customers are ever injured while on the property, such as by a slip or a fall. This type of insurance can help to cover expenses like legal fees and medical bills. 
  • Commercial property insurance can cover the expenses associated with damaged or destroyed inventory or equipment that could be lost in an event like a fire.
  • Workmans comp insurance helps to cover expenses like lost wages and medical bills in case an employee is ever hurt while working.

Insurance policy cost is affected by many factors including the business’ location, the value of its equipment and inventory, and the number of employees on staff. To get the most accurate idea of what insurance will cost, request quotes from multiple providers. When comparing the quotes, be sure to look at details like coverage limits, exclusions, and deductibles, rather than only looking at how the premiums compare.

Step 8. Hiring Employees

Even a small doughnut shop will likely require an employee or two, and as that business grows, multiple staff will be needed. According to Indeed, doughnut makers earn an average of $11.52 per hour. Indeed also reports that doughnut store clerks earn an average of $9.53 per hour.

In addition to budgeting for employee salaries, a business will also need to budget for other expenses that come with hiring staff. A business may need to cover expenses like paid time off, health insurance contributions, and workmans comp insurance.

Related: Hiring your first employee

How much can you potentially make owning a doughnut shop?

A doughnut shop’s profits will depend on many factors, including the business model, the location, and how many years the shop has been in business. According to Salary.com, the average doughnut shop owner salary is $41,005. Salaries most typically range from $36,152 to $47,812. The top 90th percentile of doughnut shop owners earn a salary of $54,009.

There are a number of ways that you can maximize your shop’s earnings. When creating a business plan, look for a location with minimal competition, or create a business model that offers something that your competitors don’t. Careful market research can also increase the chances of your business being a success.

Things to consider before starting a doughnut shop

Keep in mind that the doughnut industry is highly competitive, and with well-established brands like Krispy Kreme, Dunkin Donuts, and Starbucks, new shops need to find a way to do things differently. It’s important to perform thorough market research to ensure that your shop will fulfill an unmet need in the community, and that the public will be interested in the products that you plan to offer.

Coffee sales are an easy way to increase sales and profits for a doughnut shop.  Make sure a good quality coffee is being used. 

If you’d like to start a doughnut business but aren’t yet ready for a brick and mortar location, consider starting a business with a food truck or trailer. These types of mobile facilities can allow you to travel directly to your target audience, and they don’t carry the same scheduling requirements that running a storefront requires.

Resources:
American Bakers Association
American Culinary Federation
American Institute of Baking
Association of Nutrition and Foodservice Professionals
Cookie & Snack Bakers Association
Independent Bakers Association
Retail Bakers of America