Krispy Kreme

History of the company

Vernon Rudolph started the first Krispy Kreme as a small doughnut store in Winston-Salem, North Carolina in 1937. With its focus on providing fresh and hot doughnuts that customers can pick up as they walk in, the business quickly expanded into franchising. By the 1950s, there were several family-owned Krispy Kreme stores in the Southeastern United States.

However, there were several inconsistencies in terms of doughnut flavor and quality across the stores. To address the problem, Krispy Kreme set up automated processes to create the perfect dough mixture to supply its franchisees. After Vernon Rudolph’s passing in 1973, the company was shortly owned by Beatrice Foods from 1976-1982 before a small group of initial franchisees banded together to buy back Krispy Kreme. Krispy Kreme was incorporated as a public company in 2000 and started its international expansion in 2001, opening its first store outside the US in Toronto.

Is a Krispy Kreme franchise right for you?

While Krispy Kreme can be a profitable opportunity for investors, it operates in a highly competitive space with no exclusive territories, and comes at a high startup cost. Understanding investing in a Krispy Kreme franchise from a holistic perspective can help you decide whether it is the right choice for you.

To help you out, we have outlined the pros and cons of owning a Krispy Kreme franchise below.

Pros and cons of owning a Krispy Kreme franchise

Pros

• Krispy Kreme, due to its longevity and iconic branding, has strong brand recognition among its customer base worldwide, leading to loyal sales.
• Krispy Kreme’s business model has been refined, tested, and proven throughout the 75 years of their operation.
• Krispy Kreme allows absentee franchising, where you do not need to be involved in your outlet’s operations and can employ a general manager for day-to-day management.
• Krispy Kreme gives you significant training and support from site preparation to the operation of your restaurant. Once approved, franchise operators must undergo a 2-month onsite training program and a 15-day classroom training program.
• Through a diversifying menu that now includes beverages, treats, and coffee in addition to doughnuts, Krispy Kreme maintains diverse revenue streams.
• You can transfer the ownership of the franchise to a desired party for a transfer fee of $5,00 plus any other agreements, as well as the franchisor’s costs and expenses related to the transfer. 

Cons

• Krispy Kreme’s approval process for new franchisees can take over 65 weeks.
• While Krispy Kreme does provide some territory protection, they do not offer exclusive territories, which may lead to internal competition.
• Krispy Kreme requires a high initial investment and net worth to get started.
• Krispy Kreme charges various fees as a percentage of sales, leading to higher ongoing fees. 

Krispy Kreme franchisee minimum requirements

Krispy Kreme has set a high financial bar for becoming a franchisee. Here’s a breakdown of financial requirements.

• Net worth - To open a Krispy Kreme franchise, you must have a net worth of more than $2,000,000, a significant bar to clear in comparison to other Quick Service Restaurant (QSR) franchises. This might be due to the high initial investment required to set up a Krispy Kreme store.
• Liquid capital - Krispy Kreme requires its franchisors to have $350,000 in liquid assets to ensure that the outlet is able to run smoothly during the early stages.
• Initial investment - Krispy Kreme expects an initial investment ranging from $2,015,000 - $4,330,000. The exact amount would depend on your chosen store format, construction costs, and other variable startup costs.

Once you’ve understood the minimum requirements to franchise with Krispy Kreme, it's time to look at the franchise opportunities offered by the company.

What are the franchise opportunities offered by Krispy Kreme?

Krispy Kreme offers its franchisees a few different options in store formats. Each store is a retail facility used primarily for onsite production and sales of Krispy Kreme products and some formats may appeal to you more depending on your goals, finances, and experience.

• Hot Light Theatre Shop - Formerly known as factory stores, Hot Light Theatre Shops are retail sales facilities that make fresh doughnuts on-site, in line with Krispy Kreme’s strict standards. In addition to supplying their facility, they may also have the capacity to cater to Fresh Shops.
• Fresh Shops - Fresh shops are retail outlets with limited or no manufacturing facilities and receive doughnuts from a Hot Light Theatre Shop. The franchise agreements for Fresh Shops are typically only offered to those already running a Hot Light Theatre Shop.
• Nontraditional stores - Nontraditional stores are located in sites such as sports arenas, airports, campuses, and other captive markets and are usually only licensed to experienced operators.

How much does a Krispy Kreme cost?

The total costs of setting up a Krispy Kreme outlet can range from $2,015,000 - $4,330,000. In addition to the start-up costs, several ongoing and other costs come into play when running a Krispy Kreme franchise outlet. Understanding the breakdown of the costs of starting a Krispy Kreme can help you with financial planning and gauging the feasibility of the business. We’ve categorized the costs into three categories; start-up costs, ongoing costs, and additional costs.

Krispy Kreme Start-up costs

Krispy Kreme has significant start-up costs. Here’s an estimate of the initial costs for starting a Krispy Kreme, extracted from Item 7 of the Franchise Disclosure Document (FDD). 

Ongoing costs

Your ongoing costs with Krispy Kreme will be paid on a previously agreed-upon schedule. Here are some ongoing costs you might face:

• Ongoing Royalty Fee: 4.5% of gross sales
• Ad Royalty Fee: 2.5% of gross sales
• Brand Fund: Up to a maximum of 2% of Net Sales
• Advertising Placement Fund: Up to a maximum of 1% of Net Sales
• Local Advertising Requirement: At least 2.5% of Net Sales
• Local and/or Regional and/or National Advertising Cooperatives: Up to 3% of Net Sales
• Required Purchases: Varies
• Hosting Fee: $150 per Shop per month
• Maintenance Fee: $150 per Shop per month
• Additional Service Fee $65 per hour

Source: Krispy Kreme Doughnut Corporation, Franchise Disclosure Document, 2022

Additional fees

Lastly, Krispy Kreme might charge you extra fees depending on your specific situation, as detailed in the franchise agreement. These fees could include:

• Transfer: $5,000 plus any other expenses incurred by the franchisor
• Systems Fee: $0 (subject to change)
• Replacement Fee for System Standards Manuals: $1,000
• Relocation Fee: $2,500 plus expenses associated with the relocation of a Shop
• Audit/Inspection Expenses: Cost of audit or inspection
• Costs and Attorneys’ Fees: Varies
• Indemnification: Varies
• Training of Additional Managers: Managers’ wages, salaries, travel, room and board, and living expenses during training.
• Additional or Special Training: Reasonable fee plus your managers’ wages, salaries, travel, room and board, and living expenses during training.
• Interest on late payment: 1.5% per month or the highest rate of interest permitted by law, whichever is less
• Successor Fee: $10,000

Source: Krispy Kreme Doughnut Corporation Franchise Disclosure Document, 2022

The FranchiseHelp Perspective

Krispy Kreme requires a large upfront investment and some significant recurring fees, creating a high financial barrier to entry. With this in mind, understanding the split of costs as well as their scheduled payments can help you plan out your finances and potential profitability with the franchise better.

Franchisee obligations and restrictions

With Krispy Kreme, you have the opportunity to be an absentee owner by only investing financially in the franchise. However, Krispy Kreme requires absentee owners to appoint a general manager or operations director to handle the operations of the store. The appointed person must complete the required training to Krispy Kreme’s satisfaction and the franchisor might require the operations director to own at least 25% of the store.

The franchisees are also obligated to adhere to the menu and products that the franchisor approves of.

The FranchiseHelp Perspective

While Krispy Kreme does have certain expectations of its franchisees, it is flexible in terms of management and ownership, letting franchisees assume absentee ownership roles, compared to some other QSR giants like Chick-Fil-A. However, the company does require a considerably high investment and requires the absentee owner to give some of the equity to the operations director to ensure a managing stake. The role of an absentee owner of a Krispy Kreme would be best fit for High Net Worth Individuals (HNWI) looking to minimize their risk exposure while building a portfolio of investments with proven business models

How much does a Krispy Kreme owner make in a year?

Krispy Kreme does not make any disclosures related to its outlets’ past or projected financial performance. However, with some back-of-the-napkin math, we can roughly estimate how much a Krispy Kreme owner might make in a year.

With the company’s $1.73 billion revenue and over 1,400 stores, an average Krispy Kreme franchise outlet can make around $1,200,000 in revenue per year. However, keep in mind that revenue is not profit. After deducting operating expenses, royalties, and other costs, the franchisor owner can take roughly $200,000 to $275,000 home.

The FranchiseHelp Perspective

With all of that said, it’s important to remember that these are estimates. To get accurate figures, it is recommended to reach out to existing franchisees. Talking to as many current and previous franchisees as possible can help you clearly understand the finances of running a Krispy Kreme.

How does the Krispy Kreme franchise process work?

Once you’ve determined that Krispy Kreme is the right franchise for you, here’s how you can kickstart the process of partnering with them.

1. Expression of Interest through initial inquiry

The first step is to reach out to Krispy Kreme with an initial inquiry and express your interest in owning a franchise outlet.

2. Fill out your application

Once your initial inquiry is processed, Krispy Kreme may ask you to fill out an application. Here, Krispy Kreme expects you to prove you have the required net worth and liquid capital to support the franchise outlet. You may also have to provide some personal and professional information to help Krispy Kreme gauge your fit.

Krispy Kreme will process your application and get back to you with the results

3. Visit premises on Discovery Day

If Krispy Kreme is satisfied with your application, they’ll invite you for an open day at their headquarters. You’ll get the opportunity to interact with their management team and learn about Krispy Kreme’s operations and values firsthand.

4. Sign the development agreement and franchise agreement

If Krispy Kreme approves your application, they will offer you the opportunity to sign a development agreement with them. A development agreement grants you permission to develop a certain number of Krispy Kreme stores in a particular area. For each store you develop, you will sign a separate franchise agreement with Krispy Kreme. Krispy Kreme charges a development fee during the signing of the development agreement.

Once your stores and their locations have been finalized, Krispy Kreme will share the franchise agreement and a Franchise Disclosure Document (FDD) with you. The agreement would form the basis of your relationship with Krispy Kreme, and the FDD the terms and conditions of joining the franchise. Understanding all the terms of the agreement can help you make the right decision and we recommend that you seek a franchise attorney to help you with this step of the process. The franchise fee is due after you sign the agreement.

We recommend paying close attention to all items in your FDD and franchise agreement but some sections may require more scrutiny than the others. Some of the elements to keep in mind when reviewing Krispy Kreme’s documents are:

• Financial assistance: Krispy Kreme does not provide any kind of financing to the franchisee, directly or indirectly. When purchasing the franchise, you’ll have to figure out the financing options independently.
• Territory: Krispy Kreme doesn’t give franchisees an exclusive territory. This means you will be susceptible to competition from other Krispy Kreme outlets or carve-outs in the area.
• Term: The term of the franchising agreement is 15 years and upon expiry, the franchisee can sign the new franchise agreement for another term, provided that the franchisee and franchisor are in good standing.

A note on the Franchise Disclosure Document (FDD)

An FDD is a legal document with key information about the specific franchise, giving you a starting point for in-depth research. It has 23 items in it and, as with any franchise, this should be your starting point of research. Check out our Ultimate Franchising Guide to learn more about FDDs.

5. Attend the training program

Before opening your store, Krispy Kreme requires your managerial team to attend a comprehensive initial training program covering operations, retail management, and production, free of charge but you will have to cover your team’s expenses during that time. The onsite training program lasts for 8 weeks and the classroom training program takes 15 days.

6. Prepare the site and obtain approval

As your team prepares for the operations, you will work together with Krispy Kreme’s team to select a suitable site for your outlet and negotiate the lease. Krispy Kreme will provide you with the guidelines and prototype of architectural and design plans for the construction of the premises. The franchisee is responsible for all aspects of the construction process and you must comply with all state and federal laws regarding the process.

7. Prepare for your grand opening

As the construction nears completion, you’ll have to begin the pre-opening preparations from hiring and training an employee team, to inventory management, and marketing plans for your Krispy Kreme outlet.

8. Grand opening

Finally, you can open your Krispy Kreme outlet with a grand opening ceremony. The parent company will provide support via an onsite opening team to help you get started.

Krispy Kreme can be a lucrative business opportunity for absentee investors looking to add a coffee and a doughnut franchise to their portfolio. However, its high financial requirements may not make Krispy Kreme a good fit for some investors. If you are looking for a more affordable doughnut and coffee opportunity, some other franchises can be a good fit.

What are some alternatives to Krispy Kreme?

If you are looking to make your mark in the doughnut industry but Krispy Kreme’s franchising opportunities do not fit your requirements, there are several other doughnut franchises you can consider.

Dunkin’

Undisputedly the world leader in doughnut franchising, Dunkin’ can be a good fit for individuals looking for a proven doughnut brand. The initial investment ranges from $526,900 to $1,809,500 and the franchisor charges a royalty fee of 5.9% on sales with an additional 5% going toward advertising.

Duck Donuts

Known for its fresh, made-to-order doughnuts, Duck Donuts focuses on maintaining the highest quality with a simple menu. The initial investment for Duck Donuts ranges from $496,650 - $705,500 and the chain charges a 5% royalty on gross sales with an additional 2% going toward national advertising.

Shipley Do-Nuts

If you are looking for a fast-growing doughnut franchise with flexible store formats, Shipley Do-Nuts can be the right choice. The Texas-based doughnut franchise has accumulated a cult following and is looking at rapid expansion. Initial investments for Shipley Do-Nuts can range from $495,000 to $1,100,000 with a royalty rate of 5% of gross sales. The company also requires the owners to spend a minimum of 3% of gross sales on advertising.

The doughnut and coffee industry is highly competitive and having a global brand like Krispy Kreme as your partner can be just what you need. With multiple QSR franchises out there, doing your research and understanding the cost, profitability, and demand for the brand before making a decision can set you up for success. Good luck!

FAQa

What is the Krispy Kreme franchise owner salary?

An average Krispy Kreme franchise owner can make around $275,000 in profit. The outlet generally makes $1,200,000 in sales per year and the franchise owner’s take-home salary is estimated after deducting the operating costs and fees paid to the franchisor.

How much does it cost to get a Krispy Kreme franchise?

The initial investment for a Krispy Kreme franchise can range anywhere from $2,015,000 - $4,330,000. Prospective franchise owners are required to have a net worth exceeding $2,000,0000 with liquid capital of no less than $350,000.

What is the franchise fee for Krispy Kreme?

Krispy Kreme’s franchise fee can vary depending on the store format and usually falls within the range of $12,500 - $25,000 per franchise.

How many donuts does Krispy Kreme sell annually?

On a global scale, Krispy Kreme sells more than 1.6 billion doughnuts per year. An average store sells around 22,000 doughnuts in a day.

Who owns the Krispy Kreme franchise?

Krispy Kreme is a publicly traded company and the majority of its shares are held by JAB holdings, a privately held parent company of brands such as Bagel Brands, Caribou Coffee, Einstein Noah Restaurant Group, Espresso House, and Panera Bread.

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