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Randy's Donuts (US) Embarks on Major Franchise Expansion

05 May 2021 - If Mark Kelegian has his way, Randy’s Donuts will become the In-N-Out Burger of the donut world.

“We have the ability to reach across all the demographics,” said Kelegian of the donut concept he bought in 2015 that’s known for its iconic 32-foot-tall sign and numerous pop culture appearances. Like In-N-Out Burger, the popular West Coast chain of fast-food restaurants, Randy’s Donuts is based in California and benefits both from a loyal local following and a reputation that attracts countless tourists. And with prices between $1.35 and $3, Kelegian said Randy’s draws repeat customers versus other donut concepts that are purely a specialty treat play.

“$4 a pop, $5 a donut—we play there but we don’t charge more than $3 a donut,” said Kelegian, who added while other brands are focused on an insane number of toppings, at its core Randy’s is about the raised and cake donuts it’s been churning out since 1952. “Toppings are toppings, but it’s really the donut itself that separates us from everyone else.”

Kelegian, an attorney who operated casinos, acquired the original—and only—Randy’s Donuts in Inglewood, California, in 2015 with plans to eventually expand. “We sat with the concept for several years to learn everything about it,” he said, then started a franchise program 2019. The crisis brought on by COVID-19 halted those early discussions, but since January Randy’s Donuts signed franchise agreements for 78 stores throughout California. Kelegian, who’s grown the corporate store count to six with a seventh planned for Santa Monica this summer, is also developing the Las Vegas market and will continue to add company units in Central California.

Internationally, a franchisee in South Korea has three locations open with plans for several more, and Randy’s Donuts has agreements signed in Saudi Arabia, the Philippines, France, Morocco, Egypt, Kuwait and Bahrain.

The first round of U.S. franchisees are all multi-unit operators of other brands, said Kelegian, a strategic move on his part as he hopes to quickly ramp up development via experienced operators. One such operator is Javier Martinez, a Subway and WaBa Grill franchisee with 16 total locations. Martinez inked a development deal for 25 Randy’s Donuts stores in Los Angeles County.

While not specifically looking for a treat or dessert franchise to add to his portfolio, Martinez said he visited the location in Torrance and “couldn’t believe how many people were there for donuts.” Like he did with Subway and WaBa Grill, Martinez said he wanted to get in on the ground floor with Randy’s Donuts.

“Subway, 28 years ago, I got in when they were in their original growth, so that gave me the opportunity to grow with the brand. I got the cream of the crop when it came to locations,” he said. “With WaBa, I was also one of the first franchisees, they only had about 20 locations.”

Martinez said he evaluated other treat brands but was worried “they’d be here today and gone tomorrow.” Donuts, meanwhile, “are not a fad. It’s here to stay. People have been eating donuts forever.”

The lower price point of Randy’s Donuts was another attractive feature and one Martinez said he thinks bodes well for repeat visits. “You can get out of there for under $2 easy,” he said. He’s submitted letters of intent for several inline locations and one for a brand-new buildout with drive-thru, something he doesn’t have with Subway and WaBa Grill.

Of his new franchisor, Martinez said he’s confident in the team Kelegian assembled and likes the focus on signing multi-unit operators. “I’ve met the other franchisees they have on board and they bring great experience,” Martinez said. “That really makes a difference when you’re starting to grow a brand.”

Kelegian, who runs the business with daughters Ashley, a former Shake Shake supply chain manager, and Nicolette, who worked as a talent agent, said at its core Randy’s Donuts is a family operation, just like it was when brothers Ron and Larry Weintraub ran it from 1978 to 2015. He is building out the corporate team, hiring longtime training and development exec Samara Friedman as VP of operations. Trainers, both for back of house and front of house operations, along with an area manager to support franchisees are next, but Kelegian said he’s mindful of taking on too much overhead.

“I’ve heard the stories about brands hiring a ton upfront and before they knew it they were drowning in salaries,” he said.

Head baker Ishmael Garcia, who’s been with Randy’s Donuts for decades, will continue to handle kitchen training. “We do everything by hand and that distinguishes us,” said Kelegian as he noted Randy’s uses a proprietary flour blend, its “most important ingredient.”

While the donut recipes haven’t changed, Kelegian and Garcia introduced a line of “fancy” and premium-topped donuts, and the company is in the process of revamping its coffee program.

“We really want to get in the coffee game a lot more,” said Kelegian of offering espressos, cold brew, iced drinks and frappes. “We’re trying to capture that extra revenue.”

As for the brand’s performance during the pandemic, sales “didn’t drop at all overall,” said Kelegian. Randy’s Donuts doesn’t provide financial performance representations in its Item 19, at least not yet, Kelegian added, because the numbers at the original store are “crazy—it’s not representative of what you can do as a franchisee. It’s a tourist destination.”

Randy’s Donuts offers three franchise models: an inline store with an estimated investment range of $423,750 to $558,500; a drive-thru store at a cost of $934,750 to $1,080,500; and a non-baking kiosk store at an investment of $246,750 to $359,500.

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