Randy’s Donuts, known for its iconic giant doughnut visible from the 405 Freeway, is in growth mode, looking to go from 34 locations to more to more than 40 by year end with deals for hundreds more in the future.
Mark Kelegian, the chief executive of the doughnut chain, said international outposts are a big part of Randy’s business model partly because they are easier to set up.
By the end of the year, the chain will have signed franchising and development deals for up to 300 franchised locations internationally, Kelegian said.
“We have deals in the works for Japan, the United Kingdom, Australia and Switzerland and we hope to have deals in place by the end of the year for Mexico, Indonesia and possibly Taiwan,” he added.
The chain currently has 19 overseas franchise locations in the Philippines, South Korea and Saudi Arabia.
Domestically, the company will have up to 150 franchised locations open or in some stage of development by year’s end, Kelegian continued.
The company has signed deals for 11 stores in Arizona and 10 stores in the Atlanta area, he said.
“We are also in deep negotiations in Michigan, Hawaii, Idaho, Utah, Louisiana, Kentucky and parts of Texas,” he added.
The big different between international and domestic markets is that the overseas market moves a lot faster in terms of construction approvals and permitting, Kelegian said.
“The municipal issues are not nearly as complex or involved as it is here in the United States,” he said.
The chain’s franchisee in the Philippines, for instance, opened eight locations in the last 12 months.
“That is progress,” Kelegian added. “They can open up a store in 30 days where it would be take four, five, six months to open here in the United States.”
Another advantage of overseas markets is that labor costs are lower, which makes franchising a lot easier.
While that is not true for all countries – Australia and the United Kingdom, for instance, have high labor costs – Randy’s has been working with the franchise groups in those countries for a while now and they are excited about moving forward, Kelegian said.
Biggest sellers
At Randy’s, customers come in for the traditional doughnuts that they grew up with.
That includes the glazed and chocolate doughnuts, as well as long johns and bear claws, Kelegian said.
“Those kinds of doughnuts represent 75% to 80% of our sales,” he said.
Beyond the food, the original Randy’s shop on Manchester Boulevard in Inglewood is known for its giant doughnut on the roof, visible to motorists driving to and from Los Angeles International Airport. It has become a draw for visitors.
But it’s the doughnuts sold inside that keep them returning, Kelegian added.
At the Inglewood store – one of 15 in the United States and one of nine that are corporate owned – the classic doughnuts go for $1.90 each, while the deluxe and fancy doughnuts go for $2.20 and $2.70, respectively. The premium doughnuts – those with candy such as M&Ms on them or cereal such as Froot Loops – sell for $3.70.
That translates into domestic revenue of $28 million to $30 million and international revenue of $20 million projected for this year, Kelegian said.
Getting its start
Randy’s Donuts can trace its origins back to Big Donut Drive-Ins, started in 1951 by Russell Wendell, a doughnut machine salesman.
The Inglewood location opened in 1952 – with the big doughnut on the roof.
In 1976, after Wendell had started the Pup ‘N’ Tacos chain (acquired by Taco Bell in 1984), he sold the Inglewood location of Big Donut to Robert Eskow, who named the shop after his son, Randy. Two years later, Eskow sold the business to his nephews, Larry and Ron Weintraub. They decided to keep the name.
“We like keeping things as original as possible,” Ron Weintraub told the Los Angeles Times in 2009.
Kelegian acquired the business in 2015 for a little more than $2 million. At the time, Kelegian was operating casinos with his father and brother when he started thinking about a business he could run with his family.
“I wanted to do something for the family and have something that they would enjoy and could sink their teeth into,” Kelegian said.
With the acquisition, Kelegian, a former attorney who used to do trial work, got into what he calls “the doughnut game.”
He said his motivation to get into the doughnut business was for his three daughters who all went to USC and were hard workers.
“I didn’t want them going into the casino business,” Kelegian added.
The big three
Kelegian said doughnut shops tend to come in several forms.
There are the mom and pops that close early in the afternoon, after selling out their daily allotment of baked goods. There are the gourmet doughnut shops selling their product in the $4 to $5 range.
Then you have the middle guys, like Randy’s, and there are not a lot them out there, Kelegian said, adding, “There are maybe only four or five with the wherewithal to do some expansion.”
It gives him the opportunity to go just about anywhere.
Success depends on finding the right partners – for that is what a franchisee is, he said.
“You want to find the right team player to work with,” Kelegian said.
He said there are three things that a franchisee needs to do in order to represent his or anybody’s brand
They need to have a passion for the product, number one; number two, they need to have the financing; and number three, they need the restaurant operational spirit, Kelegian said.
Randy’s estimates that the total cost for a domestic franchise will range from $423,750 to $558,500 for an inline store, $934,750 to $1.08 million for a drive-thru store, and $246,750 to $359,500 for a non-baking kiosk store. International franchise costs will depend on site specific conditions and landlord contributions.
“Running any food operation you have to learn it, you have to understand it, and it’s not something that is necessarily for everyone,” he added.
But it has been for Kelegian.
He said that Randy’s is “blowing up” its beverage business that it has been testing in several locations. The chain is moving ahead with a launch of drinks which include specialty coffees, boba drinks, refreshers, lemonade and frozen-type blended drinks.
“That is going to be a good addition to our brand and keep us relevant as always,” Kelegian continued.
Randy’s has also been testing doughnuts with ice cream.
With the new combination, Kelegian takes a slightly larger doughnut and slices it in half. He puts the bottom half on the base of a machine and then puts two scoops of ice cream inside. Then he places the top half of the doughnut on and press the machine down to seal the doughnut, Kelegian said.
The doughnut remains hot, and the ice cream is still cold. He then tops it with sugar or cinnamon.
“So far it has been a big success in our test stores,” he added. “We think it will be a standalone dessert item that we will hit a home run with.”
