The owner of Randy’s Donuts in Inglewood is cooking up something bigger than the iconic doughnut that sits atop the shop’s roof.
Mark Kelegian, who bought the 64-year-old, 24-hour bakery for $2 million two years ago, plans to expand the concept to more than a half-dozen locations annually in Southern California, and may even franchise it nationally.
The first new location will be a 300-square-foot shop, scheduled to open in June at the renovated Westfield Century City mall.
“One of the many reasons I wanted to purchase Randy’s Donuts was because the brand has never been used,” Kelegian said.
The expansion comes at a particularly competitive time in the L.A. doughnut market, as heavy hitters including Dunkin’ Donuts have made aggressive moves into the area. And Kelegian said he doesn’t expect to be able to use Randy’s Donuts’ most recognizable symbol, the large rooftop doughnut, at his new locations, though its products will use the same recipes and ingredients.
“I wish I could,” said Kelegian, 56, a former lawyer with stakes in several casinos, including the Bicycle Hotel & Casino in Bell Gardens. “Because of city permitting, it’s unlikely. Every city employee will tell you today that you’d never get that built now.”
Janet Lowder, president of Restaurant Management Services in Rancho Palos Verdes, agreed that it would never happen unless Kelegian found a building with a preexisting doughnut. Nevertheless, she thought Randy’s could succeed.
“They have such a large following and are known for their good ingredients and top-quality doughnuts,” Lowder said. “As long as they keep the quality up, the service is good, and they have a good layout, they should be fine.”
Salar Sheik, founder of L.A. restaurant consultancy Savory Hospitality Group, said it would be crucial for Randy’s to develop a product to stand out from the crowd of doughnut shops.
“How are they going to spread one identity to multiple locations?” asked Sheik. “It will be a challenge.”
Kelegian said he recognizes that.
“You can have all the cool attractions you want but the product has to be what brings people back,” he said. “Otherwise, you’re just a large doughnut.”
Something cooking
Kelegian’s purchase of Randy’s Donuts came by chance two years ago when he was browsing a website with businesses listed for sale. He recognized the restaurant immediately.
“Honestly, I was just on there goofing around,” said Kelegian. “The ad said, ‘Iconic, 64-year-old restaurant for sale.’ I bought it as quickly as I could.”
Brothers Ron and Larry Weintraub, who bought the shop in 1978, wanted to retire and sell the business and listed it with a broker.
The store was originally part of a drive-in doughnut chain started in 1950 by doughnut machine salesman Russell C. Wendell, the Big Donut Drive-In Chain, according to the Los Angeles Conservancy. It changed hands multiple times, getting its current name in the 1970s before the Weintraubs bought it. It has been featured in music videos, films, and TV shows.
Despite getting frequent requests to franchise, the brothers kept the single location, Kelegian said.
“They worked their butts off, seven days a week, but they were very content with what they had,” he said. “They had opportunities to expand all through L.A., the U.S. – many people would say the world. They loved what they had and didn’t want any more. I bought it for a different approach.”
At the advice of restaurant industry veteran Bill Allen, former chief executive of Bloomin’ Brands Inc., the parent company of Outback Steakhouse and Fleming’s Prime Steakhouse & Wine Bar, Kelegian didn’t touch the business for a year. He kept all the employees, observing how the business operated.
Noticing that customers waiting in the ever-present line would sometimes give up and leave, he opened an extra window and hired more staff, bringing the total to 25. Kelegian wouldn’t disclose revenue, but said sales had increased 15 percent to 20 percent each of the past two years.
On average, Randy’s sells 8,000 doughnuts a day for between 95 cents and $1.35, he said, which translates to almost $3.36 million annually.
Sweet spot
Like the brothers, Kelegian has received many offers from restaurant groups and others to expand the concept nationally and internationally, but he wanted to expand locally first.
That hasn’t proved easy, however. He has hired Hermosa Beach commercial real estate agency Highland Partners Corp. to find new locations closer to home, but has struggled, passed over in his effort to obtain some locations in favor of better-known food chains, he said.
Still, Kelegian has hopes for locations in Pasadena, the San Fernando Valley, downtown, Burbank, Hollywood, and Orange County by the end of next year.
When Westfield asked if he would open a Randy’s at the mall, which is undergoing an almost $1 billion renovation scheduled to finish this year, he said yes, largely due to the large office population nearby. His lease is for more than 10 years, with options to extend, with rent at more than $125,000 annually, he said. Building out the new space will cost $200,000.
A representative for the mall operator couldn’t be reached for comment.
Lowder said Kelegian’s reasoning in choosing the location is sound.
“Century City is a good fit with the office buildings and breakfast,” Lowder said. “And doughnuts are becoming an all-day dessert.”
As it expands, the biggest competitors for Randy’s could be Starbucks, which offers doughnuts and coffee, and Dunkin’ Brands Group Inc.’s Dunkin’ Donuts, Lowder said.
Dunkin’, which generated almost $830 million in revenue last year, opened four locations in Los Angeles County in 2014 as part of an aggressive expansion to the West Coast, followed by several more, with plans to open 275 throughout California over several years. None, however, appears to be close to the Westfield location.
Kelegian doesn’t see gourmet doughnut shops such as Orange County’s Sidecar Donuts, which opened its first L.A. location in Santa Monica in 2015 and charges between $2.75 to $3.50 for its treats, as competition because of the differing price points.
“It’s a completely different product,” Kelegian said. “I think there’s a market for everyone. It’s a different market, customer.”
Still, Kelegian plans to introduce some gourmet doughnuts with pricier ingredients, although he said they probably wouldn’t cost more than $3.
Savory’s Sheik said that although Randy’s is well-known even outside Los Angeles, it needs to work on its branding.
“Pinkberry owns fat-free frozen yogurt,” Sheik said. “Krispy Kreme owns the glazed doughnut. What does Randy’s own? Location but not product. Once they own an item, they can build a better brand.”
Kelegian said he plans to incorporate some throwback to the giant doughnut at future locations. At Century City, he will have a 5-foot-by-5-foot doughnut sculpture with seating, which he thinks will attract those looking for a photo opportunity.
Both Lowder and Sheik agreed that Randy’s eventually could move beyond Los Angeles.
“Randy’s has the brand-name recognition,” Sheik said. “They have to grow in L.A. before expanding out. If they hang around here, the buzz is good, the product is good, they’ll have no problem expanding out.”
