Loading...
Duck Donuts Franchise Cost & Income for 2023
Written by: Spencer Huang
Last Updated by
RocIo Somoza: March 3, 2023
Free Download Our Exclusive Food and Beverage Guide
Download NowThis article is based on its most recent FDD.
Duck Donuts is an American-based chain store known for selling “warm, delicious, and made to order” donuts and other breakfast pastries. Originally founded in 2006 in North Carolina, Duck Donuts has since expanded to over 100 stores across the United States. Prospective franchisees will be happy to hear that Duck Donuts operates under the franchising model, meaning nearly all of their stores are franchised.
Contents
Listen to this article
Duck Donuts Franchises
Stepping into the baked goods industry – and more specifically the quick-serve baked breakfast goods industry – can be a daunting task, considering the significant start-up costs and the increasingly competitive nature of the industry. This article will break down the Financial Disclosure Document for Duck Donuts and provide all the information that prospective franchisees should know before making an investment decision.
How Is Duck Donuts Positioned in the Food and Beverage Industry?
The quick-service baked goods industry is well-established and highly competitive in America. Duck Donuts expects its franchises to compete with nationally established chain stores, such as Dunkin Donuts and Krispy Kreme, as well as local stores and independent restaurants that offer similar products.
How Much Does a Duck Donuts Franchise Cost?
The cost of a Duck Donuts franchise is estimated to be between $376,500 and $562,500, excluding tenant allowances. Franchisees receive an average of $87,500 in tenant improvement allowances, which must be paid back to the landowner within 90 days of opening.
A breakdown of the costs is shown below. Note that an initial, non-refundable franchise fee of $40,000 is due upon signing the Franchise Agreement. Also, it should be noted that a large portion of the fees comes from Leasehold Improvements, which make up around 50% of the overall cost.
Costs
| Type of Expenditure | Amount | Method of Payment | When Due | To Whom Payment Is Made |
|---|---|---|---|---|
| Initial Franchise Fee | $40,000 | Lump Sum payment in cash or available funds | Upon signing the Franchise Agreement | Us |
| Your Training Expenses | $0-$2,500 | As required | As required | Suppliers of transportation lodging & meals |
| Premises Deposits | $2,500-$4,500 | As required by landlord, utility providers | As required by landlord, utility providers | Landlord, Utility providers |
| Professional Design | $6,000-$15,000 | As required | As required | Architect, Designer and/or Building Contractor |
| Leasehold Improvements | $173,416-$294,491 | As required | As required | Suppliers |
| Signage | $7,800-$11,000 | As required | As required | Suppliers |
| Furniture, Fixtures, Equipment | $91,000-$111,000 | As required | As required | Suppliers |
| Computer Systems | $15,000-$17,000 | As required | As required | Suppliers |
| Initial Inventory | $7,000-$10,000 | As required | As required | Suppliers |
| Gran Opening Marketing | $10,000-$15,000 | As required | As required | Attorney, Accountant, Other Professional Service Providers |
| Professional Fees | $750-$5,000 | As required | As required | Attorney, Accountant, Other Professional Service Providers |
| Licenses and Permits | $100-$2,000 | As required | Before opening or as required | Government Agencies |
| Insurance | $3,000-$5,000 | As required | Before opening | Insurer |
| Operating Expenses/Additional Funds – 3 months | $20,000-$30,000 | As incurred | As arranged | Suppliersetc |
| Total (excluding tenant allowance) | $376,566-$562,491 | |||
| TOTAL PROJECT COST | $289,066-$474,991 |
For potential franchisees who are considering operating a multi-unit development, the estimated investment cost rises from $396,500 to $582,500. Note that the initial, non-refundable franchise fee increases to $60,000. A full breakdown of the costs can be seen below.
EStimated Initial Investment
| Type of Expenditure | Amount | Method of Payment | When Due | To Whom Payment Is Made |
|---|---|---|---|---|
| Development Fee | $60,000 | Lump Sum payment in cash or available funds | Upon signing the Multi-Unit Development Agreement | Us |
| Your Training Expenses | $0-$2,500 | As required | As required | Suppliers of transportation lodging & meals |
| Premises Deposits | $750-$5,000 | As required by landlord, utility providers | As required by landlord, utility providers | Landlord, Utility providers |
| Professional Design | $6,000-$15,000 | As required | As required | Architect, Designer and/or Building Contractor |
| Leasehold Improvements | $173,416-$294,491 | As required | As required | Suppliers |
| Signage | $7,800-$11,000 | As required | As required | Suppliers |
| Furniture, Fixtures, Equipment | $91,000-$111,000 | As required | As required | Suppliers |
| Computer Systems | $15,000-$17,000 | As required | As required | Suppliers |
| Initial Inventory | $7,000-$10,000 | As required | As required | Suppliers |
| Gran Opening Marketing | $10,000-$20,000 | As required | As required | Suppliers |
| Professional Fees | $2,250-$10,000 | As required | As required | Attorney, Accountant, Other Professional Service Providers |
| Licenses and Permits | $100-$2,000 | As required | Before opening or as required | Government Agencies |
| Insurance | $3,000-$5,000 | As required | Before opening | Insurer |
| Operating Expenses/Additional Funds – 3 months | $20,000-$30,000 | As incurred | As arranged | Suppliers, etc |
| Total (excluding tenant allowance) | $396,566-$582,491 | |||
| TOTAL PROJECT COST | $309,066-$494,991 |
Franchise Requirements
The Duck Donuts Franchise must be operated in compliance with the Franchise Agreement. Franchised stores must purchase all equipment, supplies, and services from various suppliers, distributors, and manufacturers that Duck Donuts has identified as partners.
Additionally, Duck Donuts expects new franchisees to participate in the Duck Donuts Initial Management Training Program before opening their shop.
This training program, based in Mechanicsburg, Pennsylvania, provides the skills necessary to properly operate a Duck Donuts shop. A full breakdown of the training program, broken down by hours of training, is shown below.
Training Program by hours of training
| Subject | Hours of classroom training | Hours of on the job training | Location |
|---|---|---|---|
| History of Duck Donuts – An overview of the core of our business and what makes us different | 2 | 2 | Mechanicsburg, Pennsylvania |
| Customer Service – The importance of Quality, Customer Service, and Consistency | 2 | 2 | Mechanicsburg, Pennsylvania |
| Menu information, Vendors, Suppliers, and Equipment | 2 | 3 | Mechanicsburg, Pennsylvania |
| Administrative Procedures, Financials, and Beck Office Tutorial | 3 | 2 | Mechanicsburg, Pennsylvania |
| Marketing | 2 | 0 | Mechanicsburg, Pennsylvania |
| Management Expectation, Staffing Requirements, and Human Resources | 6 | 2 | Mechanicsburg, Pennsylvania |
| Store Operations – Day to Day Business, QA’s/Mystery Shops, Maintaining of the Back of the House, and Sanitation | 1 | 7 | Mechanicsburg, Pennsylvania |
| Point of Sale Systems and Operations | 1 | 4 | Mechanicsburg, Pennsylvania |
| Donut Making 101 | 0 | 4 | Mechanicsburg, Pennsylvania |
| Personnel – Labor Cost, Scheduling, and Reporting | 2 | 2 | Mechanicsburg, Pennsylvania |
| Total | 22 | 28 |
Ongoing Fees
The main fees associated with owning a Duck Donuts franchise are as follows:
- A 5% royalty fee on all gross sales, due weekly,
- A 2% local advertising fee on all gross sales, due monthly, and
- A 2-3% brand fund contribution on all gross sales, due weekly.
The food and beverage industry has an average royalty fee of 5.3% and an average marketing fee of 2.3%, meaning Duck Donuts’ ongoing fees are very similar to the industry averages.
Duck Donuts is a young brand seeking to gain market share; as a result, the company places a heavy emphasis on marketing. Franchise owners are required to spend at least $10,000 on local advertising within 30 days of opening the store. Additionally, owners must spend another $20,000 on advertising during the first year of operations. While attention to advertising is not unheard of in the industry, Duck Donuts‘ heavy emphasis on local advertising as a way to expand their brand may pose a financial challenge for some potential franchisees.
Additional minor fees, such as late charges, interest charges, and relocation fees, vary depending on location and circumstances.
Company Trends
Prospective franchisees should also consider how Duck Donuts as a company has fared in recent years. Although past performance is no indicator of future success, recent trends in company performance can be an indicator of the underlying strength and viability of Duck Donuts as a brand. As such, we will examine trends in the total number of stores for Duck Donuts over the past three years.
Total Number of Stores
Duck Donuts has seen growth in the total number of stores over the past three years, which should be expected for a small, growth-oriented chain. They had a net growth of 7 stores across all its outlets in 2021, bringing its total store count from 99 to 106 stores across the United States. Duck Donuts also has 43 franchise agreements signed, of which 26 are expected to open in the next fiscal year, which reflects a growing interest by investors to own a Duck Donuts franchise.
Number of Stores
| Outlet Type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2019 | 77 | 83 | +6 |
| 2020 | 83 | 98 | +15 | |
| 2021 | 98 | 105 | +7 | |
| Company – Owned | 2019 | 1 | 3 | +2 |
| 2020 | 3 | 1 | -2 | |
| 2021 | 1 | 1 | 0 | |
| Total Outlets | 2019 | 78 | 86 | +8 |
| 2020 | 86 | 99 | +13 | |
| 2021 | 99 | 106 | +7 |
How Much Do Duck Donuts Franchises Make?
The Gross Sales across Duck Donuts Standard shops for the year ending December 31, 2021, are shown below. The average Duck Donuts reported $554,299 in annual Gross Sales.
Gross Sales
| All Franchised Outlets (92 Outlets) – Average Gross Sales | $554,299 |
| All Franchised Outlets (92 Outlets) – Median Gross Sales | $546,035 |
| Highest Performing Franchised Outlet | $1,445,950 |
| Lowest Performing Franchised Outlet | $143,647 |
| Affiliate-Owned Outlet | $734,869 |
| Top 25% Performers (23 Outlets) – Average Gross Sales | $856,909 |
| Middle 50% Performers (46 Outlets) – Average Gross Sales | $531,674 |
| Bottom 25% Performers (23 Outlets) – Average Gross Sales | $296,937 |
| Cost as a Percentage of Gross Sales: | |
| All Outlets (93 Outlets) – Food Cost | 18.3% |
| All Outlets (93 Outlets) – Labor Cost | 24.4% |
How Much Do Duck Donuts Franchise Owners Make?
As shown above, the average Duck Donuts has $554,299 in Gross Sales in 2021.
We will take the midpoint investment of a Standard shop, which amounts to $469,500. Based on this midpoint investment,
- A 10% profit margin would yield estimated annual profits of $54,430. This means it would take nearly 11 years to recoup your investment.
- A 15% profit margin would yield estimated annual profits of $83,145. This means it would take nearly 8 years to recoup your investment.
- A 20% profit margin would yield estimated annual profits of $110,860. This means it would take just over 6 years to recoup your investment.
Note that these calculations account for the 2 years it takes, on average, for a franchise in the food and beverage industry to scale up to full production. Also, note that these calculations do not account for inflation or interest rates that are compounded over the timeframe.
Many factors affect the sales, costs, and expenses of your Franchise. There is no guarantee that these numbers will be reflective of the time it takes for your Franchise to recoup your initial investment.
Is the Duck Donuts Franchise Profit Worth the Cost?
Based solely on the Franchise Disclosure Document, Duck Donuts may be an exciting investment opportunity for potential franchisees. A 6 to 11-year timeframe for a return on investment is less than the industry average, and Duck Donuts has seen positive increases in the total number of stores over the past three years. For comparable companies in the industry, check out the following list of companies on Vettedbiz.com.
